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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549



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FORM 20-F



(Mark One):

| ̈ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934; OR
|- | ----------------------------------------------------------------------------------------------------



|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------



For the fiscal year ended September 30, 2003; or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from
 to



Commission file number 000-31116



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CAMBRIDGE ANTIBODY TECHNOLOGY GROUP PLC

(Exact name of registrant as specified in its charter)



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England and Wales

(Jurisdiction of Incorporation or Organization)



Milstein Building

Granta Park

Cambridge CB1 6GH UK

(Address of Principal Executive Offices)



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Securities to be registered pursuant to Section 12(b) of the Act:

None



Securities to be registered pursuant to Section 12(g) of the Act:



American Depositary Shares

(Title of Class)



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

None



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Indicate the number of outstanding shares of each of the issuers
classes of capital or common stock as of the close of the period covered by the annual report.



American Depositary Shares: 3,072,240 as of September 30, 2003

Ordinary Shares: 38,338,320 as of September
30, 2003



Indicate by check mark whether the registrant: (1)
has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days:    Yes  x    No ̈Not Applicable ̈



Indicate by check mark which financial statement item the registrant has
elected to follow:    Item 17 ̈Item 18  x



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Pursuant to Rule 12b-23(a) of the Securities Exchange Act of 1934, as amended, certain information for
the Annual Report on Form 20-F of Cambridge Antibody Technology Group plc (the Company or CAT) as indicated below is being incorporated by reference from the Companys Annual Report and Accounts for the year ended
September 30, 2003 filed as Exhibit 14.1 to this Form 20-F (the Annual Report).



Where information is being incorporated by reference as described above, unless otherwise indicated, references below to major headings in the Annual
Report include all information under such major headings, including subheadings, unless such reference is part of a reference to a subheading, in which case such reference includes only the information contained under such subheading.



Information from CATs Report of Foreign Private Issuer on Form 6-K
filed with the Securities and Exchange Commission on December 2, 2003 is being incorporated by reference into this Form 20-F as indicated below. The exhibit to such report containing the information being incorporated by reference herein is filed as
Exhibit 14.2 to this Form 20-F.



Unless otherwise indicated,
all financial information in the Form 20-F is presented in accordance with generally accepted accounting standards in the United Kingdom (UK GAAP).



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FORWARD-LOOKING STATEMENTS



This document includes forward-looking statements. All statements other than statements of historical facts included in this
document, including any statements preceded by, followed by or that include the words targets, plans, believes, expects, aims, intends, will, may,
anticipates or similar expressions or the negative thereof, are forward-looking statements. Forward-looking statements include statements relating to the following:



| | future capital expenditures, expenses, revenues, economic performance, financial condition, dividend policy, losses and future prospects;
|- | -----------------------------------------------------------------------------------------------------------------------------------------



| | future performance in clinical trials of the product candidates that were developed using CATs technology;
|- | -----------------------------------------------------------------------------------------------------------



| | the ability of CAT and its collaborators to commercialize products;
|- | -------------------------------------------------------------------



| | business and management strategies and the expansion and growth of CATs operations;
|- | ------------------------------------------------------------------------------------



| | the effects of government regulation on CATs business;
|- | -------------------------------------------------------



| | expansion and other development trends of CATs current and future customers and its industry; and
|- | --------------------------------------------------------------------------------------------------



| | acquisitions, including the timing, nature, availability, location and significance of those acquisitions.
|- | ----------------------------------------------------------------------------------------------------------



These forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance or achievements of CAT, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking
statements. These forward-looking statements are based on numerous assumptions regarding CATs present and future business strategies and the environment in which CAT will operate in the future. Certain factors that could cause CATs
actual results, performance or achievements to differ materially from those in the forward-looking statements are described in Item 3.D (Risk Factors). These forward-looking statements are being made as of the date hereof. CAT is under no duty to
update any of these forward-looking statements after the date hereof, other than as required by law.



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ITEM 1 -IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS



Not applicable.



ITEM 2 -OFFER STATISTICS AND EXPECTED TIMETABLE



Not applicable.



ITEM 3 -KEY INFORMATION



A. Selected Financial Data



See Item 5 under the caption Selected Financial Data.



B. Capitalization and Indebtedness



Not applicable.



C. Reason for the Offer and Use of Proceeds



Not applicable.



D. Risk Factors



An investment in CATs ordinary shares and American Depositary Receipts (ADRs) is subject to certain risks and shareholders should
consider the risk factors described below.



The following
describes the material risks known to CAT that could affect CAT. Additionally, some risks may be unknown to CAT and other risks, currently believed to be immaterial, could turn out to be material. All of these could materially adversely affect
CATs business, turnover, profits, assets, liquidity and capital resources.



CAT has a history of losses and expects to continue to incur losses for the foreseeable future.



For the year ended September 30, 2003, CATs consolidated losses after taxation were approximately £39.2 million and its consolidated
accumulated losses at that time were approximately £122.5 million. These losses result principally from the costs incurred in the research and development of potential products and also from general and administrative costs associated with
operations. While CAT has received a payment from Abbott with respect to royalties from the sales of HUMIRA (formerly D2E7) and expects that it will receive further royalty payments in the future, no other product developed using CATs technology has yet been marketed and thus has not
generated royalties from sales. CAT expects to incur further substantial losses for the foreseeable future as research and development activities continue. CAT may not be able to generate meaningful revenue or achieve or sustain profitability. If
CAT is unable to do so, it may be required to seek additional financing in the future. Additional financing may not be available on acceptable terms or at all.



CATs early stage of development makes it difficult to evaluate its business and prospects.



With the recent exception of HUMIRA, CAT and its collaborative partners have not begun commercial sales of CATs
products. Accordingly, CATs revenue and profit potential are unproven. CATs limited operating history makes it difficult for an investor to evaluate CATs business and prospects. CATs technology may not result in any
meaningful benefits to CATs current or potential



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collaborative partners. Further, due to CATs limited operating history, CAT has difficulty accurately forecasting its revenue. In addition, because the
number of product candidates to which CAT and CATs collaborative partners can devote development effort is limited by the availability of financial and scientific resources, CAT is exposed to the risk that the delay or failure of individual
product development programs will adversely affect the content and delivery over time of CATs product development pipeline. Investors should consider CATs business and prospects in light of the heightened risks and unexpected expenses
and problems CAT may face as a company in an early stage of development in a new and rapidly evolving industry.



The unpredictability of CATs financial results may cause CATs operating results to fail to meet market expectations.



CAT expects that a majority of its revenues for the near future will result
from payments pursuant to collaborative arrangements in the form of contract research payments, license fees and technical performance and product development milestone payments. Royalties from sales of HUMIRA will first be recognized during the
year ending September 30, 2004. Payments pursuant to CATs collaborative arrangements will be subject to significant fluctuation in both timing and amount. CATs revenues may not be indicative of its future performance or of its ability to
continue to achieve milestones and other performance criteria on which CATs revenues depend. CATs revenues and results of operations for any period may also not be comparable to the revenues or results of operations for any other period.
It is possible that in some future periods, CATs operating results may be below expectations of analysts and investors. If this happens, the price of the CATs shares and ADRs is likely to decrease.



CAT depends on collaborators for product development, manufacturing and marketing. Failure
to enter into collaborative arrangements or failure of CATs collaborators to perform adequately under existing arrangements will harm CATs ability to develop and market products and earn revenue.



CATs strategy depends on entering into arrangements with collaborators
and licensees. CAT currently does not plan to develop significant manufacturing, marketing or sales capabilities and will rely heavily on collaborators for these functions. Collaborations are necessary in order for CAT to:



| | access proprietary disease targets against which CAT intends to generate drug products;
|- | ---------------------------------------------------------------------------------------



| | access skills and information that it does not possess;
|- | -------------------------------------------------------



| | fund its research and development activities;
|- | ---------------------------------------------



| | fund pre-clinical testing, clinical trials and manufacturing of product candidates;
|- | -----------------------------------------------------------------------------------



| | seek and obtain regulatory approvals for product candidates; and
|- | ----------------------------------------------------------------



| | successfully market and sell existing and future product candidates.
|- | --------------------------------------------------------------------



CATs success, therefore, will depend on the ability and efforts of these outside parties in performing their responsibilities. Many of these
collaborative arrangements give the partner the exclusive right to market and sell certain products developed in the collaboration. These collaborators will have significant discretion over the resources they devote to these efforts. CATs
ability to earn revenues, including royalties based on products sales and certain milestones, depends on these efforts. These collaborators may not devote sufficient resources to collaborations with CAT.



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In addition, collaborative arrangements are governed by legal agreements which are often complex and may
be subject to differing interpretations of their various terms by the parties which may in turn lead to a dispute between the parties. These disputes may divert the attention of our management. CAT is currently involved in a dispute with Abbott
regarding royalties on HUMIRA. Following
unsuccessful efforts to resolve the matter with Abbott, CAT has commenced legal proceedings against Abbott Biotechnology Limited and Abbott GmbH in the High Court in London. If CAT is not successful in this litigation, CATs ability to earn
royalty revenues from HUMIRA over the minimum royalties stipulated in the agreement will be materially and adversely affected.



If CAT is not able to establish further collaborative arrangements, if any collaborator fails to adequately perform its responsibilities under a
collaborative arrangement or if any or all of CATs existing collaborative arrangements are terminated, then CAT may be required to seek new collaborative arrangements or to undertake product development and commercialization at its own
expense. CAT may not be able to develop and commercialize the relevant product candidates without the collaborators. If CAT must seek new arrangements or undertake these matters itself:



| | the number of product candidates that CAT will be able to develop and commercialize may be limited;
|- | ---------------------------------------------------------------------------------------------------



| | the likelihood of successful product introduction may be reduced;
|- | -----------------------------------------------------------------



| | the collaborative arrangements may not be on terms favorable to CAT; and
|- | ------------------------------------------------------------------------



| | CATs capital requirements may be increased significantly.
|- | ----------------------------------------------------------



Any of the above would harm CATs ability to earn revenues from its products and recover its research and development expenditures.



CAT may not obtain adequate legal protection over its technology.



CAT must obtain adequate legal protection for the technology that it
develops. CATs success thus depends on its ability to:



| | obtain patents;
|- | ---------------



| | protect trade secrets;
|- | ----------------------



| | operate without infringing the proprietary rights of others; and
|- | ----------------------------------------------------------------



| | prevent others from infringing its proprietary rights.
|- | ------------------------------------------------------



CAT will be able to protect its proprietary rights from unauthorized use by third parties only to the extent that its proprietary rights are covered by
valid and enforceable patents or are effectively maintained as trade secrets. CAT tries to protect its proprietary position by filing patent applications related to its proprietary technology, inventions and improvements that are important to the
development of its business. CAT owns or co-owns or has licensed patents, and has applied for patents, covering its core technology. CATs patents are described in Item 4.B in Intellectual Property  Key Patents.



The patent position of biopharmaceutical companies involves complex legal and
factual questions and, therefore, enforceability cannot be predicted with certainty. Patents, if issued, may be challenged, invalidated or circumvented. Thus, any patents that CAT owns or licenses from third parties may not provide any protection
against competitors. CATs pending patent applications, those it may file in the



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future or proprietary rights it may license from third parties, may not result in patents being issued. Also, patent rights may not provide CAT with adequate
proprietary protection or competitive advantages against competitors with similar technologies.



If CAT is unable to obtain sufficient legal protection of its technology, other companies may use similar technology to develop and produce products,
which may deprive CAT of the competitive advantages provided by its technology.



CAT has been involved in litigation and other legal proceedings with third parties regarding the validity of its key patents and may be involved in litigation in the future.



CATs strategy includes vigorously enforcing its intellectual property
rights, including its patents. CAT has been, and is, involved in litigation involving its key patents, some of which is described in Item 8 in Financial Information  Legal Proceedings. This litigation included suits to invalidate
certain of CATs key patents. CAT may become involved in similar litigation in the future. If CAT does not successfully defend these suits, CATs competitors may gain access to technology that CAT believes is proprietary to it. CATs
competitors may use this technology to assist their research and development efforts, which would deprive or weaken one of CATs primary competitive advantages. In addition, if some or all of CATs key patents were invalidated, this could
impact on CATs ability to obtain royalties from its current and future collaborations.



The biotechnology and pharmaceutical industries have been characterized by extensive litigation regarding patents and other intellectual property rights. The defense and prosecution of intellectual property suits,
interference and opposition proceedings and related legal and administrative proceedings involve complex legal and factual questions. As a result, such proceedings are costly and time-consuming to pursue and their outcome is uncertain. Litigation
may be necessary to:



| | enforce patents that CAT owns or licenses;
|- | ------------------------------------------



| | protect trade secrets or know-how that CAT owns or licenses; or
|- | ---------------------------------------------------------------



| | determine the enforceability, scope and validity of the proprietary rights of others.
|- | -------------------------------------------------------------------------------------



CAT may be denied access to important technology and subject to costly litigation if it infringes the intellectual property
rights of third parties.



CATs commercial success depends
significantly on its ability to operate without infringing the patents and other proprietary rights of third parties.



CATs technologies may unintentionally infringe the patents or violate other proprietary rights of third parties. In addition, in developing products
for particular targets or uses CAT and its collaborative partners may infringe the patents or violate the intellectual property of others. If CAT is found to infringe the intellectual property rights of third parties, CAT and its collaborative
partners may be prevented from pursuing product development or commercialization based on the infringing technology, target or use and may be subject to significant liabilities.



To gain access to such technology, targets or uses, CAT may be required to seek licenses that may not be available from
third parties on acceptable terms, if at all. Costs associated with license arrangements may be substantial and may include ongoing royalties payable by CAT.



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Clinical trials for product candidates based on CATs technology will be lengthy and expensive and may not be
successful.



Before obtaining regulatory approvals for the
commercial sale of any products, CAT or its licensees or partners (alone or with CAT) must demonstrate through pre-clinical testing and clinical trials that its human antibody-based therapeutic products are safe and effective for use in humans. Part
of CATs strategy is to conduct its own pre-clinical trials and clinical trials over some potential product candidates prior to entering into a collaborative arrangement concerning the further development and marketing of these candidates.
Conducting clinical trials is a lengthy and expensive process. CAT will incur substantial expense for, and devote a significant amount of time to, pre-clinical testing and clinical trials. Moreover, CAT will continue to be subject to the
pre-clinical testing and clinical trials over certain product candidates conducted by its licensees and collaborative partners over which CAT has no control.



In addition to HUMIRA, there are eight products based on CATs technology in various clinical trials stages. While results from early stage clinical
trials have generally been encouraging, data obtained from such clinical trials has been insufficient to conclusively demonstrate safety and effectiveness under applicable regulatory guidelines. As a result, this data will not support an application
for regulatory approval without further clinical trials. Historically, the results from pre-clinical testing and early clinical trials have often not been predictive of results obtained in later clinical trials. A number of new drugs and biologics
have shown promising results in clinical trials, but subsequently failed to establish sufficient safety and effectiveness data to obtain necessary regulatory approvals. Data obtained from pre-clinical and clinical activities is susceptible to
varying interpretations, which may delay, limit or prevent regulatory approval. In addition, regulatory delays or rejections may be encountered as a result of many factors, including changes in regulatory policy during the period of product
development.



Completion of clinical trials may take several
years or more. The length of time generally varies substantially according to the type, complexity, novelty and intended use of the product candidate. CATs commencement and rate of completion of clinical trials may be delayed by many factors,
including:



| | inability to manufacture sufficient quantities of materials for use in clinical trials;
|- | ---------------------------------------------------------------------------------------



| | slower than expected rate of patient recruitment;
|- | -------------------------------------------------



| | inability to adequately follow patients after treatment;
|- | --------------------------------------------------------



| | unforeseen safety issues;
|- | -------------------------



| | lack of effectiveness during the clinical trials; or
|- | ----------------------------------------------------



| | government or regulatory delays.
|- | --------------------------------



Obtaining required regulatory approvals for drug candidates is a lengthy, expensive and uncertain process. CAT or its collaborators may not obtain, or may be required
to expend substantial resources to obtain, the necessary regulatory approvals to market products.



The pre-clinical and clinical evaluation, manufacture and marketing of the product candidates based on CATs technology are all subject to regulation
administered and enforced by the governmental regulatory agencies in countries where CAT and any of its potential partners or licensees intend to test, manufacture or market such products. CAT or its collaborative partner will be required to obtain
from the relevant regulatory authority an approval, called a marketing authorization, to market a drug in the territory which is subject to the regulatory authoritys jurisdiction. The grant of a marketing authorization for a drug requires the
detailed evaluation of data relating to the quality, safety and effectiveness of the



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drug in the proposed use or uses submitted by the applicant in accordance with regulatory requirements. Many countries, including member states of the
European Union and the United States, impose extensive data requirements and have very high standards of technical appraisal. Accordingly, pre-clinical testing and clinical research of medicinal products can be a very lengthy and costly process. The
manufacture of drugs is also subject to specific authorization and to the regular inspection of premises, staff and procedures by regulatory authorities.



One product candidate based on CATs technology, HUMIRA, has been approved by the FDA for marketing in the United States and by the EMEA for
marketing in the European Union as a treatment for rheumatoid arthritis. However, CAT or its licensees and collaborative partners may not receive required regulatory approvals to manufacture and market product candidates that are identified and
pursued now or in the future. Furthermore, different regulatory authorities worldwide may impose their own differing conditions upon marketing (by, for example, restricting a products indicated uses). Regulatory authorities may refuse to
grant, or may require CAT or its collaborative partners to supply additional data before granting, a marketing authorization, even though the relevant product may have been approved by another regulatory authority. If an authorization is obtained,
the product and its manufacture are subject to regular review. Approvals may be withdrawn or restricted at some point in the future. Changes in applicable legislation or regulatory policy, serious breaches of regulatory requirements or the discovery
of problems related to the safety, quality or effectiveness of the product or to the production process, site or manufacturer may result in the imposition of restrictions upon sale, supply or manufacturer including, at worst, the withdrawal of the
product from the market or the loss of the relevant authorizations, or may otherwise harm CATs business or income from licensees and collaborative partners.



If CAT is not able to procure manufacturing of its products and product candidates on acceptable terms, its clinical trials may be
delayed and it may be unable to provide products on a cost effective basis.



CAT and its collaborators often rely on third parties to manufacture product candidates for clinical trial and marketing purposes. CAT currently relies on third party manufacturers for the production of Trabio (CAT-152), CAT-192 (metelimumab) and CAT-213
(bertilimumab) for clinical trials. Suitable manufacturers that are able to produce products on a timely and competitive basis on acceptable terms may not be available. Manufacturers may not have the capacity to produce the products demanded by CAT
and its collaborators to meet the schedule required by clinical trials or to satisfy commercial demand. Manufacturing runs of products may fail for technical or other reasons which may delay CAT from conducting clinical trials or from supplying
products for commercial purposes. Suitable manufacturing processes may be proprietary to other persons. CAT may be required to pay amounts to license these manufacturing processes or may not have access to these processes at all.



The manufacture of product candidates and products will be subject to
authorization and to the Good Manufacturing Practice standards prescribed by the appropriate regulatory agencies. Compliance with these regulatory requirements will be expensive and could further limit the number of suitable
manufacturers available to CAT and its collaborators.



CATs
competitors may market products before CAT does or produce superior products.



The biotechnology and pharmaceutical industries are highly competitive and subject to significant and rapid technological change. CAT is aware of several pharmaceutical and biotechnology companies that are actively
engaged in research and development in areas related to antibody therapy. These companies have begun clinical trials of antibody products or have successfully commercialized antibody products and may succeed in marketing products before CAT does.
Many of these companies, either alone or together with their collaborative partners, have substantially greater financial resources and larger research and development staffs than CAT has and may have greater expertise in product development and
marketing activities.



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Many of these companies are addressing the same diseases and disease indications as CAT or CATs
collaborative partners. HUMIRA is competing in the market for the treatment of rheumatoid arthritis with Enbrel, a TNFainhibitor developed by Immunex (now Amgen) and American Home Products, which was
approved in the United States in 1998 and in Europe in 2000, from Remicade, a TNFaantibody developed by Centocor, which was approved in the United States in 1999 and Europe in 2000 and from
Kineret, an IL1 receptor antagonist developed by
Amgen, which was approved in the United States and Europe in November 2001. CAT is aware that other potentially competitive products are in late stage development for rheumatoid arthritis. Celltech, Medarex and other companies have antibody products
in clinical trials. Consumers and physicians may choose to use these or other products of CATs competitors rather than CATs products or the products of CATs collaborative partners.



Also, CAT competes with companies that offer antibody generation services to
companies that have antigens. These competitors have specific expertise or technology related to antibody development. These companies include Medarex, Medarexs joint venture partner, Kirin Brewing Co., Ltd, Abgenix Inc., Protein Design Labs,
Inc., Crucell N.V., MorphoSys AG, BioInvent and Dyax Corporation. CAT also faces, and will continue to face, competition from academic institutions, government agencies and research institutions, many of whom have substantial available resources.



CAT faces and will continue to face intense competition from
other companies for establishing collaborative arrangements with pharmaceutical and biotechnology companies, for establishing relationships with academic and research institutions and for licenses to proprietary technology. CAT relies heavily on
these types of arrangements in its product development and marketing efforts and for access to technology.



CATs product candidates compete with established drug therapies and may compete with newer, more effective techniques. As a result, CATs technology may not be accepted in the market.



Any product candidate that CAT successfully develops may compete with
existing therapies that have long histories of safe and effective use. For example, HUMIRA is facing competition from many products, including Disease Modifying Anti Rheumatoid Drugs (DMARDs), for the treatment of rheumatoid arthritis. Competition
may also arise from:



| | other drug development technologies and methods of preventing or reducing the incidence of a disease;
|- | -----------------------------------------------------------------------------------------------------



| | new small molecules; or
|- | -----------------------



| | other classes of therapeutic agents.
|- | ------------------------------------



Developments by competitors may render CATs product candidates or technologies obsolete or uncompetitive. CATs collaborative partners may
pursue other technologies. These competitors, either alone or with their collaborative partners, may succeed in developing technologies or products that are more effective than CATs. If they do, then products based on CATs technology
will be obsolete or become uncompetitive and CAT will fail to earn expected revenue.



If CAT fails to attract and retain key employees and consultants, its business will be harmed.



CAT depends significantly on its management and scientific personnel. The loss of the services of any key employee could cause harm to CATs
business. CATs strategy depends on hiring key



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scientific and management personnel. CAT faces significant competition in the hiring and retention of key employees. If CAT fails to recruit scientific and
managerial employees in the future or loses any of its key employees, CATs business, financial condition and results of operations may be harmed.



Furthermore, as CATs business continues to develop, the skills of existing personnel may not be appropriate to meet the future needs of the business
and it may not be possible to redeploy such personnel to alternative activities. Additionally, if the level of available staff resources exceeds that necessary for current activity levels then consideration will be given as to whether it is in the
interests of the business to retain certain personnel. Either circumstance could result in the need for redundancies with attendant costs and potential for litigation from ex-employees.



If CATs license agreements violate the competition provisions of the Treaty of Rome, then some terms of its key agreements may be
unenforceable.



Certain license agreements that CAT has
entered into, may enter into, will grant or may grant exclusive worldwide licenses of patents, patent applications and know-how, which are or may be arguably restrictive of competition under Article 81(1) of the Treaty of Rome. Article 81(1)
prohibits agreements which restrict competition within the European Community and affect trade between member states. CAT determines on an agreement-by-agreement basis where an exemption from the application of Article 81(1) applies to the agreement
and, if it does not, whether to apply to the European Commission for an individual exemption from the application of Article 81(1). If an exemption is not applicable and CAT, does not apply for, or is unsuccessful in obtaining, an exemption from the
European Commission (an individual exemption), provisions of any license agreement which are restrictive of competition under Article 81(1), including those relating to the exclusivity or rights, may be unenforceable and CAT could lose
the benefit of the rights granted under the provision. As of May 1, 2004, the individual exemption regime will no longer apply (except in very restricted circumstances) and companies will only be able to rely on exemptions to avoid infringing
Article 81(1).



CAT may be subject to product liability claims, which are
expensive to insure against and, if successful, may force CAT to incur unforeseen expenditures.



As a designer and developer of drug products, CAT is exposed to potential product liability risks which are inherent in the research and development,
pre-clinical study, clinical trials, manufacturing, marketing and use of these products. Consumers, healthcare producers or persons selling products based on CATs technology may be able to bring claims against CAT based on the use of
CATs products in clinical trials and the sale of products based on CATs technology. In addition, it may be necessary for CAT to secure certain levels of insurance as a condition to the conduct of clinical trials. Insurance coverage may
not be available to CAT at an acceptable cost, if at all. In the event of any claim, CATs insurance coverage may not be adequate.



CATs operations involve the use of potentially hazardous materials. An accident involving these materials could subject CAT to liability.



As a biopharmaceutical company, CAT is subject to environmental and safety
laws and regulations, including those governing the use of potentially hazardous materials. The design, development and testing of CATs products involves the use of hazardous materials. Although CAT believes that its procedures for handling
and disposing of such materials comply with the standards prescribed by applicable laws and regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. In the event of an accident, CAT may incur unforeseen
liabilities.



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The market for CATs securities is volatile, which may cause unexpected changes in CATs share price.



The share prices of publicly traded biotechnology and
pharmaceutical companies can be highly volatile. The market prices and trading volumes of CATs shares and ADRs are volatile, and it is expected that the price of the Companys securities will be volatile for the foreseeable future. The
price at which the CATs shares and ADRs are quoted and the price which investors may realize for their securities will be influenced by a large number of factors, some specific to CAT and its operations and some which may affect the quoted
healthcare and pharmaceutical sector, or quoted companies generally. These factors could include the performance of CATs research and development program, large purchases or sales of CATs shares and ADRs, currency fluctuations,
legislative changes in the healthcare environment, litigation, in particular intellectual property litigation, and general economic conditions.



The ability of investors to enforce civil liabilities obtained against CAT in the United States may be limited.



CAT is a public limited company incorporated under the laws of England and
Wales. None of CATs directors and senior management are residents of the United States. Substantially all of the assets of such persons and a substantial majority of the assets of CAT and its subsidiaries are located outside the United States.
As a result, it may not be possible for investors to effect service of process within the United States upon such person or CAT or to enforce against them judgments of courts of the United States predicated upon civil liability provisions of the
U.S. federal or state securities laws.



Investors will not receive cash
dividends in the foreseeable future.



CAT has not paid
cash dividends on its ordinary shares (including the ordinary shares which underlie its ADRs) and does not plan to pay cash dividends on its ordinary shares in the foreseeable future.



ITEM 4 -INFORMATION ON THE COMPANY



A. History and Development of the Company



Incorporation and History



CAT was incorporated and registered under the laws of England and Wales on August 5, 1996, under the name Intercede 1186 Limited as a private company
limited by shares. CAT changed its name from Intercede 1186 Limited to Cambridge Antibody Technology Group Limited on August 22, 1996 and was re-registered as a public limited company under the name Cambridge Antibody Technology Group plc on
December 20, 1996. CATs principal business address is:



Milstein Building

Granta Park

Cambridge CB1 6GH

UK



The telephone number of CATs registered office is +44-(0)1223-471-471.



Capital Expenditures



For information regarding capital expenditures for the last three financial years, please see Item 5 in Operating and Financial Review and
Prospects.



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Public Takeover Bids



CAT is not aware of any public takeover bids made in respect of its shares during the 2003 financial year or since the beginning of the 2004 financial
year.



Proposed Merger with Oxford GlycoSciences



In January 2003, CAT and Oxford GlycoSciences Plc announced that they had
agreed to terms for the merger of the two companies by way of a share for share exchange. CAT shareholders subsequently approved the merger at an Extraordinary General Meeting in March 2003. However, a decline in CATs share price, particularly
after the announcement of the dispute with Abbott over the level of HUMIRA royalties, depressed the value of CATs offer. Subsequently, Oxford GlycoSciences Plc shareholders accepted a competing cash offer made by Celltech.



Antibody Microarrays



CAT terminated all activity in its development of the application of antibodies on microarrays for personalized medicine in
the Summer of 2003.



B. Business Overview



Overview



CAT is a biotechnology company with an advanced platform technology for the rapid isolation of human monoclonal antibodies,
which have potential to identify and treat human diseases. CAT uses its proprietary technology for the discovery and development of human monoclonal antibodies as treatments for human disease.



Based near Cambridge, Cambridgeshire, UK, CAT was established in 1990 by Dr.
David Chiswell, the former Chief Executive Officer, and leading scientists from the Medical Research Council. As of September 30, 2003, CAT employed 279 people. In March 1997, CAT completed its initial public offering and listing on the London Stock
Exchange, raising approximately £38.4 million (net of expenses). In April 2000, CAT raised a further £89.5 million (net of expenses) in a share offering. In June 2001, CAT listed ADRs representing its shares on the Nasdaq Stock Market.



Background to Antibodies



The Function of Antibodies



Antibodies are part of the bodys principal defense mechanism against
disease-causing organisms and other foreign molecules. They are proteins made naturally by the immune system and each recognizes and binds to a specific molecular structure on a target known as an antigen. The specificity of antibodies is such that
they are capable of distinguishing the subtlest of molecular differences. They serve to recognize, bind to and eliminate disease-causing organisms and to neutralize toxins. Antibodies are naturally present in the blood and can survive in the
circulation for extended periods in order to perform their surveillance and defense functions.



Each individual B-cell (which is the class of human white blood cell that produces antibodies) produces a unique antibody that can be capable of recognizing and binding to one type of antigen. A monoclonal antibody is
derived from a single clone of cells, all molecules of which have identical target (antigen) binding sites.



The basic structure of an antibody comprises two protein chains, designated as heavy chain and light chain because of their
relative size. Each chain has a variable domain, which contains the binding site for an antigen and gives the antibody its specificity, and a constant domain, which interacts with other parts of the immune system to facilitate the removal of the
pathogen or foreign molecule.



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As with all proteins, antibody structure is defined largely by genes. Different antibodies are produced,
in part, as a result of the random pairing of genes for the variable domains. As a result, the immune system is able to adapt and produce antibodies against virtually any antigen. When an antibody encounters an antigen to which it binds, the B-cell
which produces the antibody proliferates to generate more antibodies against the target antigen.



Antibodies as Drugs



Monoclonal antibodies are an increasingly important class of drugs and today represent the second fastest growing therapeutic protein class.



There are just over a dozen products approved and marketed by industry participants today. They include Rituaxan®/MabThera®, Zevalin® and
Bexxar® for Non-Hodgkin lymphoma, Orthoclone®, Simulect® and Zenapzx® for transplant rejection, Campath® and Mylotarg® for leukemia, Reopro® for use in angioplasty, Synagis® for prevention of RSV infection,
Remicade® for rheumatoid arthritis and Crohns disease, Herceptin® for cancer and more recently Xolair® for asthma and HUMIRA for rheumatoid arthritis. HUMIRA is the first human monoclonal antibody obtained by modern technologies to
reach market.



Development in the class is very active with
well over 100 products at various stages of clinical studies. The product of this class with the most sales (Rituxan/MabThera) almost reached a worldwide sales figure of $1.5 billion in 2002.



Early efforts to develop monoclonal antibodies into human therapeutic
products were based on immunizing mice with a target antigen and isolating the mouses B-cells that produce the antibodies that bind the antigen. Those B-cells were then used to produce the desired monoclonal antibodies. This process generally
took between two and six months. Mouse-derived monoclonal antibodies were flawed, however, because when administered, they were recognized as foreign by the human immune system, thus causing an adverse immune reaction. Generally this reaction
increases in severity with repeat dosing, which reduces or negates the effectiveness of the antibody and may be harmful to recipients. The mouse-derived antibodies were also poorly effective at interacting with other components of the human immune
system.



In an attempt to make mouse-derived monoclonal
antibodies better tolerated and more effective, monoclonal antibodies were designed to be more human. Monoclonal antibodies were therefore developed composed of variable regions from mouse antibodies and constant regions from human antibodies, which
are known as chimaeric antibodies. Subsequently, mouse antibodies were converted into a human form by grafting the mouse amino acid sequences which comprise the antigen-binding regions of the antibody into a human framework. These
antibodies are known as humanized or CDR-grafted antibodies. These techniques reduce the mouse genetic content from 100% to approximately 30% in the case of chimeric antibodies and 10% in the case of humanized antibodies. A number of
chimeric and humanized monoclonal antibodies have been approved for marketing as therapeutic products. However, these antibodies still contain elements derived from mouse genes.



CAT has developed a process to isolate quickly and effectively human monoclonal antibodies of the required specificity from
CATs libraries of antibodies. CATs libraries are derived from antibody-producing cells from human donors and other sources of human antibody genes. This system does not require immunization of mice or humans. Human monoclonal antibodies
should reduce or remove adverse human immune response, such as that caused by foreign mouse protein. Companies other than



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CAT have developed alternative methods for obtaining human monoclonal antibodies, such as those involving the use of transgenic mice, whereby immunizing
those mice with antigens causes those mice to produce genetically human antibodies.



Antibody Libraries



CAT has created
extensive human monoclonal antibody libraries for the discovery and identification of drug candidates. CAT has developed its libraries primarily using phage display technology. All antibodies share the same basic structure. They are large
Y shaped protein molecules, comprising two chains, a heavy chain and a light chain. The tips of the forked region, which come into contact with the antigen, are highly variable in structure, enabling the antibody
to be specific for a particular antigen. The backbone of the molecule is reasonably consistent between different antibodies and has an important role in activating the next steps in the bodys process to neutralize or eliminate the
foreign molecule or pathogen. CATs libraries are derived from the combination of human heavy chain and light chain genes, which encode the antigen binding parts (variable domain) of the antibody.



Phage display is the process by which a phage is made to display human
antibody proteins on its surface. A phage, which is a bacterial virus that is harmless to humans, can be engineered, when combined with human antibody genes, to display functional antibody proteins  in this case fragments of human antibodies
capable of specifically recognizing and binding to an antigen. Genes from the human antibody libraries are inserted into a population of phage. Each phage carries the genes for an antibody and thus displays that antibody protein on its surface.
These genes can be recovered and made available for use in the onward development and potential manufacture of antibody products.



A large and diverse antibody library has a greater chance of containing high quality antibodies that will bind to any given target molecule. Each of
CATs phage antibodies contains a combination of human antibody genes, giving each one its specificity. CAT has engineered combinations of these to produce libraries that currently incorporate around 100 billion distinct antibodies allowing it
to isolate antibodies to potential disease targets rapidly and efficiently.



CATs antibody libraries are contained in phage particles and stored under refrigeration. A copy of the library has the appearance of a clear fluid. One teaspoon of this fluid would represent approximately 400
copies of the libraries. When testing the libraries against a target antigen, the target is typically bound to a solid surface, such as a plastic microplate, and incubated with the antibody libraries. The antibody libraries are so large that in a
typical case many phage antibodies will bind the target, whatever the target is. A simple wash removes those phage antibodies which do not bind to the target. The bound phage antibodies are recovered and allowed to infect bacteria, one phage
entering a single bacterium. These infected bacteria are spread on agar plates where each bacterial cell grows into a colony of identical bacterial cells. Each colony produces small quantities of a single monoclonal antibody. All of CATs
libraries can be screened against a target molecule (antigen) in less than a week. CAT believes than no other antibody isolation technology can match the speed and capacity of this approach.



As the phage antibody contains the genes that code for the antibody protein,
the genes are available for use in the onward development and potential manufacture of human monoclonal antibody therapeutic products.



CAT believes that it has strengthened its position in antibody display technology through its July 1998 acquisition of Aptein, giving CAT key patents in
the field of ribosome display. Ribosome display involves the use of ribosomes, a type of molecular complex responsible for protein synthesis within living organisms, to display functional antibody proteins in a laboratory environment. Using ribosome
display technology, there is no need for phage particles and bacteria to generate antibodies as described above. Since its acquisition of Aptein, CAT has continued to refine the ribosome display technology platform.



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Together with CATs phage display technology, this new technology has the potential to enhance significantly CATs capabilities and its leading
position in combinatorial antibody libraries through the creation of even larger antibody libraries offering greater efficiency in the development of antibody therapeutics.



Advantages of CATs Technology



CAT believes that its platform technology has a number of advantages over alternative techniques for obtaining antibodies.



CATs platform technology:



| |  | avoids the need for immunization in animals, which is lengthy; and
| | - | ------------------------------------------------------------------



| |  | enables the rapid identification and isolation of antibodies, usually within days.
| | - | ----------------------------------------------------------------------------------



CATs platform technology enables the isolation of:



| |  | antibodies to a large number of target antigens simultaneously and cost effectively;
| | - | ------------------------------------------------------------------------------------



| |  | a broad spectrum of antibodies to each target antigen;
| | - | ------------------------------------------------------



| |  | antibodies to a diverse range of target antigens directly (including naturally occurring proteins that the immune system would not normally respond to);
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | antibodies of completely human origin, reducing the likelihood of an adverse immunological response; and
| | - | --------------------------------------------------------------------------------------------------------



| |  | antibodies which can be further engineered, if required, to optimize potential utility as the basis for a human therapeutic product.
| | - | ------------------------------------------------------------------------------------------------------------------------------------



CATs technology processes can be automated in many areas which allows
CAT to screen potential antibody drug candidates rapidly and efficiently.



CATs Product Candidates and Product Development Activities



Product Development



The pipeline of
CAT-derived human monoclonal antibody product candidates has three CAT products in clinical development and two further product candidates in pre-clinical development. At CATs licensees, there are six CAT-derived products in various stages of
clinical development and a further three in pre-clinical development. In addition, there are ongoing research programs at CAT involving 14 distinct molecular targets.



HUMIRA



HUMIRA (adalimumab), a human anti-TNFamonoclonal
antibody, has become the first CAT-derived antibody to receive approval for marketing and the first human monoclonal antibody approved anywhere in the world for the treatment of rheumatoid arthritis. It was isolated and optimized by CAT in
collaboration with Abbott.



On December 31, 2002, Abbott
announced that it had received U.S. Food and Drug Administration approval to market HUMIRA in the United States as a treatment for rheumatoid arthritis.



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On April 16, 2003, Abbott received marketing approval for HUMIRA in Switzerland and on September 10, 2003 Abbott announced that it had received approval from
the European Commission to market HUMIRA for the treatment of adult rheumatoid arthritis in the European Union. HUMIRA is now being marketed in the United States, the United Kingdom and Germany. Abbott reported global sales of HUMIRA of $161 million
in the first nine months of 2003, and has stated global sales expectations of over $250 million for 2003, over $500 million in 2004 and peak sales of over $1 billion in rheumatoid arthritis alone, excluding the potential of the other indications in
development.



During the year, Abbott announced the expansion
of its HUMIRA program. Phase III clinical trials are now underway in psoriatic arthritis, juvenile arthritis, Crohns disease and ankylosing spondylitis, and a Phase II clinical trial in patients with chronic plaque psoriasis continues.



CAT receives royalties on the sales of HUMIRA and received its
first payment in October 2003. This payment represented Abbotts calculation of the royalties due to CAT on HUMIRA sales in the six month period ended June 30, 2003.



CATs entitlement to royalties in relation to sales of HUMIRA is governed by an agreement dated April 1, 1995 between
Cambridge Antibody Technology Limited and Knoll Aktiengesellschaft. The agreement allows for offset, in certain circumstances, of royalties due to third parties against royalties due to CAT, subject to a minimum royalty level. Abbott indicated to
CAT in March 2003 its wish to initiate discussions regarding the applicability of these royalty offset provisions for HUMIRA. CAT strongly believes that the offset provisions do not apply and is seeking an outcome consistent with that position.
Following unsuccessful efforts to resolve the matter with Abbott, CAT has commenced legal proceedings against Abbott Biotechnology Limited and Abbott GmbH in the High Court in London.



CAT Product Candidates



TrabioTM



There are three ongoing clinical trials of
Trabio (lerdelimumab, CAT-152), a human anti-TGFß2monoclonal antibody with anti-scarring effects being
developed for improving outcomes in glaucoma filtration surgery (trabeculectomy).



In June 2003, CAT announced the completion of enrollment in the Phase II/III European clinical trial of Trabio, with 344 patients undergoing first time trabeculectomy enrolled at major eye hospitals in six countries.
Data from this trial are expected to be available towards the end of 2004 when all patients will have completed at least one year of follow-up post surgery.



In the International Phase III clinical trial in patients undergoing first time trabeculectomy, patient enrollment is nearing completion. This trial is
being carried out in major eye hospitals in six European countries and South Africa. Data from this trial are expected in early 2005.



Following CATs first successful Investigational New Drug application and regulatory clearance from the Food and Drug Administration
(FDA) within the U.S. Department of Health and Human Services at the end of 2002, a clinical trial of Trabio has been initiated in the United States. The trial is a head-to-head comparison of Trabio with 5-Flurouracil (5-FU) in patients
undergoing trabeculectomy. Patient recruitment in this trial is ongoing.



In May 2003, three-year follow-up results of an earlier trial of Trabio, the Phase I/IIa clinical trial of Trabio in patients undergoing first time trabeculectomies, were presented at the annual meeting of the
Association for Research in Vision and Ophthalmology. The results show a clinically significant benefit in the outcome of surgery in patients treated with Trabio. Additionally, there were no significant long-term safety issues observed.



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Having held initial discussions with a number of potential marketing partners for Trabio, it is now more
likely that CAT will wait until the results of the European Phase III clinical trial are available before bringing in a partner.



CAT-192



In the Phase I/II clinical trial of CAT-192 (metelimumab), a human anti-TGFß1monoclonal antibody
being developed with Genzyme as a potential treatment for diffuse systemic sclerosis, patient recruitment was completed early in 2003. 45 Patients in five countries were recruited to the trial, which is being conducted by Genzyme, and data are
expected to be made available in early 2004.



GC-1008



GC-1008 is a pan-specific human anti-TGFß
monoclonal antibody, one of the GC-1000 series of human monoclonal antibodies against TGFß that are being developed by CAT and Genzyme. It is currently in pre-clinical studies and it is expected that an Investigational New Drug application
will be filed towards the end of the fourth quarter of 2003 for a clinical trial in the United States in idiopathic pulmonary fibrosis.



CAT-213



CAT-213 (bertilimumab) is a human anti-eotaxin1monoclonal antibody which CAT has been evaluating as a treatment for severe allergic disorders. During the year, a Phase I/IIa allergen challenge study of a topically applied single dose of CAT-213 in patients with allergic
conjunctivitis was carried out. The results showed CAT-213 to be safe and well tolerated, however, there was no effect on symptoms. Analysis has shown that the allergen challenge did not provoke a large enough late phase response involving
eosinophils, thus denying the opportunity to show an effect of CAT-213.



Data from a non-interventional study of the effects of CAT-213 on sputum from asthmatic sufferers, carried out separately, suggest a possible role for CAT-213 as a treatment for severe and unstable asthma. These results add to those
obtained from the single-dose Phase I/IIa allergic rhinitis challenge study carried out in 2002 which showed that CAT-213 had a significant positive effect upon nasal patency and reduced the numbers of tissue eosinophils and mast cells associated
with nasal allergen challenge. Following an internal review of its product development portfolio, and specifically the opportunities in asthma, CAT has commenced the process of partnering CAT-213.



CAT-354



CAT-354, a human anti-IL13 monoclonal antibody derived from CATs
proprietary research programs and optimized using ribosome display, has commenced pre-clinical development. It is being developed as a potential treatment for asthma and also, possibly, for other indications. Subject to the achievement of
pre-clinical milestones it is expected that CAT-354 will enter clinical development by the end of 2004.



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Licensed Product Candidates



During the year, there has been significant progress in CATs collaboration with Human Genome Sciences, Inc
(HGSI), with four CAT-derived antibodies being developed by HGSI now in clinical trials.



HGSI Candidates



In April 2003, HGSI announced that LymphoStat-BTM(belimumab) had received Fast Track Product Designation from the FDA for the treatment of systemic lupus erythematosus (SLE) and reported positive results from the Phase I clinical trial
which showed LymphoStat-B to be safe and biologically active in patients with SLE. In September 2003, HGSI announced that it had commenced a double-blind, placebo-controlled, multi-center Phase II clinical trial in approximately 300 patients with
SLE, designed to evaluate safety, optimal dosing and preliminary efficacy. In addition, HGSI plans to initiate a phase II clinical trial of LymphoStat-B for the treatment of rheumatoid arthritis before the end of 2003.



TRAIL-R1 mAb is an apoptosis-inducing human monoclonal antibody that
recognizes TRAIL Receptor-1 (TRAIL-R1) expressed on a number of solid tumor and haemotopoetic cancer cells. Phase I clinical trials, being carried out by HGSI in patients with advanced cancers, continue and HGSI expects to report results in 2004. A
Phase I clinical trial in patients with multiple myeloma has also commenced.



At the annual meeting of the American Association for Cancer Research (AACR) in July 2003, HGSI presented data that demonstrated that TRAIL-R2 mAb (an agonistic human monoclonal antibody which binds to
TRAIL Receptor-2 (TRAIL-R2) expressed on the surface of some types of cancer cell), induces apoptosis and has anti-tumor activity in a broad range of tumor types, both as a single agent and in combination with chemotherapy. HGSI subsequently
initiated a Phase I open-label, dose-escalating study in the UK to evaluate the safety and pharmacology of TRAIL-R2 mAb in patients with advanced tumors.



In March 2003, HGSI publicized its work in developing a human anti-protective antigen monoclonal antibody, ABthrax,and reported its effect in protecting against anthrax exposure in multiple
experimental models. This antibody was isolated and developed by HGSI from antibody libraries licensed from CAT. In June 2003, HGSI announced that it had received clearance from the FDA to begin human trials and, in August 2003, HGSI announced that
it had received Fast Track Product Designation from the FDA for ABthrax and confirmed that it had initiated a Phase I placebo-controlled, dose-escalation clinical trial in healthy adult volunteers.



ABthrax has been demonstrated to be effective in preventing the lethal
effects of anthrax exposure in two relevant models and, more recently, has been demonstrated to be effective in protecting against the lethal effects of anthrax when administered at different time points following spore challenge. According to the
guidelines of the U.S. Bioterrorism Act, clinical trials will be required to establish safety, tolerability, and pharmacology, but not efficacy in man. HGSI has stated that large-scale development and manufacture of ABthrax is dependent on U.S.
government funding.



ABT-874



In May 2003, Abbott announced development progress with ABT-874 (formerly
J695), a human anti-IL12 monoclonal antibody isolated and optimized by CAT in collaboration with Abbott and licensed by CAT to Abbott under the 1995 agreement between CAT and Knoll Aktiengesellschaft (which has since been acquired by Abbott) as
HUMIRA. Abbott discussed promising Phase II Crohns disease data for ABT-874, and announced plans for a Phase II study in multiple sclerosis in the first half of 2004.



There are three product candidates at pre-clinical development stage at CATs collaborators.



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Discovery Stage Programs



There are ongoing research programs to 14 distinct molecular targets at CAT. Over half of these programs are funded or
co-funded by CAT, including co-development programs with Amgen, Amrad and Elan.



Markets



Information regarding markets can be
found in the second table under Note 2 in the financial statements included in this Form 20-F.



Collaborative Arrangements



A key element of CATs strategy is to exploit its technology platforms in partnership with other companies. CAT has been successful in attracting partners and continues to seek further collaborations.



CATs own product development activities focus on the value-adding
stages from identification of potential antibody targets through to clinical demonstration of effectiveness for an antibody-based drug. In general, CAT will seek partners for further clinical trials of product candidates, in gaining marketing
approval of product candidates and for subsequent marketing of products. If a product based on CATs technology is developed solely by CATs collaborative partner, CAT will generally receive long term revenue in the form of milestone
payments and royalties should the product be marketed. CAT will typically receive royalties until the later of (1) the expiration of the last of CATs patents upon which the product is based and (2) at least ten years after the first commercial
sale of the product. Where CAT is responsible for product development, either on its own or with a partner, it can expect to receive a higher share of the revenues derived from the product.



Our significant collaboration agreements are described below.



Genzyme



CAT, through its wholly owned subsidiary Aptein, and Genzyme are
collaborating under an agreement entered into in September 2003 which replaces their original strategic alliance entered into in September 2000. Under the collaboration, Genzyme has received an exclusive worldwide license to CATs human
antibodies targeted against TGFß for all uses except in the eye. CAT and Genzyme have focused initially on developing a human monoclonal antibody-based treatment for diffuse systemic sclerosis; a second human monoclonal antibody has been
developed for ideopathic pulmonary fibrosis. Other potential clinical indications of anti-TGFß treatment include post-surgical scarring, fibrosis of other major organs such as the liver and kidneys and certain forms of cancer.



The parties will jointly fund the research, development and commercialization
activities and will share profits resulting from the sale of commercialized products. Genzyme will manage the clinical and regulatory development of any products developed by the collaboration, and will also be responsible for worldwide marketing
and sales. CAT will be responsible for antibody optimization and will co-develop antibodies with Genzyme. Under the September 2003 amendment to the agreement, CAT has increased its commitment to the program by agreeing to fund 50% of program costs
through to early 2006. In addition, CAT will receive an additional credit in the formula by which profits arising from the program are apportioned between the parties, which significantly enhances CATs position with respect to its share of
profits from the program.



Either party may terminate the
alliance at any time upon one years notice after the earlier of (1) the date that Genzyme receives final marketing approval for the first collaboration product and



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(2) December 31, 2006. CAT may terminate the alliance upon six months notice if Genzyme has not filed a biologics license application for a
collaboration product on or before September 30, 2010. If the alliance is terminated as described above, the continuing party has the ability to produce and market products developed in the collaboration after termination, subject to the payment of
a payout amount. The September 2003 amendment to the agreement also amends the rights of the parties in the event of a change of control, giving the party not subject to the change of control the right to purchase the others
interest in the program for fair value.



Additionally, Genzyme
has received a non-exclusive worldwide license for non-antibody antagonists of TGFß in exchange for milestones and royalties. CAT may receive fixed milestone payments with respect to non-antibody products conditional upon the occurrence of
certain events. No such milestones have been received to date.



In October 2000, CAT issued 307,982 of its ordinary shares to Genzyme for $20 million. The shares were valued at 15% premium to CATs average share price over the 20 days preceding the date of the agreement.



CAT and Genzyme entered into a further subscription agreement on September
19, 2003. Under this subscription agreement, Genzyme made a further equity investment in CAT of approximately £22.9 million through a cash purchase of 4.3 million shares. This purchase was effected in two tranches; an initial purchase of 1.8
million shares and a subsequent purchase of 2.5 million shares. Following these purchases, Genzyme now holds approximately 11.28% of the enlarged share capital of CAT. Under the terms of the subscription agreement, Genzyme has agreed, except in
certain specified circumstances, not to sell or otherwise dispose of the subscription shares for a period of six months from the date of the subscription agreement and, subject to certain exceptions, not to increase its percentage holding of CAT
shares for a period of three years from the date of the subscription agreement.



Pfizer



In December 1999, CAT entered
into a strategic alliance with Pharmacia for the development of human monoclonal antibody-based therapeutic drugs, focusing particularly on the field of cancer. Pfizer has since acquired Pharmacia.



CAT and Pfizer are both committing technology, intellectual property and
expertise to the alliance. Pfizer is supplying target proteins, and both companies are performing collaborative research to demonstrate and validate their disease association.



CAT is isolating human monoclonal antibodies directed to the targets. Over the initial three year term of the research
collaboration, CAT received research funding.



Subject
to CATs obligations existing at the time of exercise, Pfizer may obtain exclusive licenses to produce and market products against selected targets in return for which CAT will be entitled to receive technical performance and clinical
development milestones (which together amount to up to U.S.$15 million per product) and a royalty on product sales.



CAT has also granted Pfizer multi-site options to license CATs library technology for use in-house.



Pfizer has the option to extend the research collaboration for additional
one-year periods on similar terms. A slightly amended version of the agreement extended the collaboration through to September 2003; the agreement was subsequently extended by a further two months. CAT currently has the right to terminate the
collaboration. If the agreement is terminated, Pfizer would remain obligated to pay royalties on product sales.



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CAT has recognized £8.1 million in revenues under U.K. GAAP pursuant to this arrangement during the
three years ended September 30, 2003.



Human Genome Sciences, Inc.
(HGSI)



In August 1999, CAT entered into a
collaborative agreement with HGSI for up to three target human proteins identified by HGSI. HGSI may obtain exclusive licenses to produce and sell products directed to these targets.



CAT will be entitled to receive contract research funding, milestone payments and royalties.



In March 2000, CAT and HGSI expanded their arrangement by entering into a ten
year collaboration agreement. The 1999 arrangement was not terminated as a result of this agreement. HGSI and CAT will collaborate to develop and sell therapeutic antibody products. CAT may access selection gene sequence and biological information
derived by HGSI and has the right to select up to 24 antigens proprietary to HGSI for pre-clinical development. CAT has an option to obtain an exclusive license to develop six such products on its own. CAT is obligated to pay HGSI clinical
development milestones and royalty payments on such products. HGSI has the option to share clinical development costs and to share the profits equally with CAT on up to 18 such products.



Subject to CATs obligations at the time of exercise, the agreement gives HGSI the right to obtain exclusive licenses
to develop and sell human antibodies against selected targets for therapeutic and diagnostic purposes. HGSI will pay CAT license fees, milestone payments and royalties. HGSI also has rights to use CATs antibody technology for the use and sale
of research tools incorporating antibodies. CAT will receive a proportion of revenues on any such sales. HGSI paid an initial licensing fee to CAT, which included consideration for research support at CAT for a period of three years to develop human
antibody products.



Under the 1999 and 2000 agreements,
four exclusive license options have been exercised, namely Lymphostat B for use in Lupus and Rheumatoid Arthritis in October 2000, TRAIL-R1 for use in the treatment of certain cancers in January 2002, TRAIL-R2 for use in the treatment of a number of
solid tumors (including prostate, lung and breast tumors) in May 2002 and Abthrax, a human anti-protective antigen monoclonal antibody for use in protecting against anthrax exposure.



In addition to royalties on sales of products, CAT may receive milestone payments of up to between U.S.$8 million and
U.S.$10 million for each therapeutic product developed pursuant to the arrangement.



CAT has recognized £6.6 million in revenues under U.K. GAAP pursuant to these HGSI arrangements during the three years ended September 30, 2003.



Wyeth-Ayerst



In March 1999, CAT entered into a strategic alliance with Wyeth-Ayerst. Under the agreement, CAT received contract research funding and was entitled to
possible library option payments, product license fees, milestones and royalties. The term of the contract research arrangement was initially three years but was extended to four years.



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Wyeth-Ayerst and CAT also collaborated for three years to validate and develop a portfolio of antibody
product candidates directed at proprietary Wyeth-Ayerst targets. The companies shared equally the initial target and product validation costs. After this stage, each company had the opportunity to select candidates from this portfolio for further
development and obtain a license to commercialize these products. For products developed by Wyeth-Ayerst, CAT was entitled to receive milestone fees and royalties on product sales. For those products developed by CAT, CAT could pay Wyeth-Ayerst
license fees, royalties on product sales and clinical milestone payments. Wyeth-Ayerst had limited rights to partner products developed by CAT after those products completed Phase II clinical trials.



Under the agreement, in September 2000, CAT granted Wyeth-Ayerst an exclusive
product license and in June 2002, CAT granted Wyeth Research (the pharmaceutical arm of Wyeth) an exclusive product license. Both were to human monoclonal antibodies identified by CAT against targets supplied by Wyeth Research. CAT received a
license fee and will potentially receive clinical milestones and royalties associated with product sales.



In addition to royalties, CAT may receive license fees and milestone payments of up to U.S.$7 million for each therapeutic product developed and marketed
by Wyeth-Ayerst pursuant to this arrangement.



CAT has
recognized £3.6 million in revenues under U.K. GAAP pursuant to this arrangement during the three years ended September 30, 2003.



Abbott



CATs collaborative program with Knoll AG commenced in 1993. Knoll was acquired by Abbott Laboratories in 2001. Under the program Abbott may select
up to six target antigens against which CAT will develop antibodies. Abbott has the right to obtain an exclusive license to produce and sell products against these antigens. CAT in conjunction with Knoll, has isolated and optimized human monoclonal
antibodies against the first two targets selected by Knoll, which are now in clinical trials (HUMIRA and ABT-874). CAT receives a license fee at the time Abbott obtains an exclusive license, milestones based on product development events, clinical
trial progression and regulatory approvals and royalties on product sales. In addition to royalties, CAT may receive payments of up to between £5 million and £5.6 million in license fees and milestones for each product developed pursuant
to this arrangement. CAT has commenced legal proceedings against Abbott regarding HUMIRA royalties as discussed in Item 8 under Legal Proceedings.



During the 2002 financial year, CAT amended its agreement with Abbott to allow Abbott to internally develop antibodies in the case of the remaining
four available antibody targets; two of these four targets have been selected.



CAT has recognized £1.3 million in revenues under U.K. GAAP pursuant to these arrangements during the three years ended September 30, 2003. This figure does not include royalty payments. As described in Item 8
under Legal Proceedings, CAT has commenced litigation against Abbott.



Elan



In January 2001 CAT entered into
an alliance with Elan Pharma International Limited (Elan) under which the companies will jointly discover and develop antibody-based therapeutics targeted at a variety of neurological diseases and disorders. Under the terms of the four
year agreement, the two companies will fund all research and development jointly and share commercialization profits equally. CAT will have primary responsibility for the discovery and optimization of human antibodies against



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multiple targets identified by Elan. Elan will evaluate clinical antibody candidates in pre-clinical models, manage clinical and regulatory development and
will be responsible for global commercialization. Either party may terminate the agreement for convenience on 60 days notice. If the agreement is terminated for convenience, then the non-terminating party will have the right to continue to
develop and commercialize products developed in the collaboration and would be required to pay the terminating party (a) a royalty on sales of those products and (b) a milestone payment of between US$ 5 million and US$ 15 million when those products
receive regulatory approval. The amount of the royalty and milestone would depend on the stage of development of those products achieved at the date of termination.



Chugai Pharmaceutical Co., Ltd. (Chugai)



In September 2002, CAT entered into an agreement with Chugai. Under the terms of the agreement, CAT granted to Chugai a
non-exclusive research license to use the CAT antibody library technology for which a license fee was payable, contingent upon the successful completion of preliminary work by CAT. The license fee is being recognized as revenue over between three
and six years, the preliminary work having been completed. Chugai has the right to obtain exclusive royalty bearing licenses under the CAT antibody library technology to develop and commercialize potential therapeutic and diagnostic products to
targets, and non-exclusive licenses in relation to potential products that are not derived from the CAT antibody library. The non-exclusive research license is for a period of three years which may be extended by Chugai for up to a further three
years upon payment of additional fees.



Chugai may terminate
this agreement for convenience at any time on thirty days notice. In addition to royalties and the above initial license fee, CAT may receive payments of up to U.S. $11.5 million in license fees and milestones for each therapeutic product
developed from the CAT antibody library pursuant to this arrangement.



CAT has recognized £0.6 million in revenues under U.K. GAAP pursuant to this arrangement from inception to the end of the 2003 financial year.



Other Collaborations



In addition to the above, CAT has on-going collaborations with Merck and Co., Inc., Immunex Corporation and Xerion Pharmaceuticals.



Technology License Agreements



CAT initially developed its platform technology in conjunction with Medical
Research Council (MRC). CATs rights in respect of this technology are governed by a license agreement of January 7, 1997 with MRC. Under this agreement, CAT receives exploitation rights to key underlying intellectual property and
know-how relating to the production and screening of phage antibody display libraries. CAT has exclusive rights, subject to certain rights retained by MRC, to exploit the technology for the development of therapeutic, diagnostic or prophylactic
entities arising from gene sequencing data, including:



| | to identify, develop, manufacture and commercially exploit antibodies for human use;
|- | ------------------------------------------------------------------------------------



| | to provide antibody isolation services on behalf of customers; and
|- | ------------------------------------------------------------------



| | to use the molecules isolated by the technology for use in the manufacture of pharmaceutical products or intermediaries.
|- | ------------------------------------------------------------------------------------------------------------------------



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CAT pays MRC royalties of 3% of the net invoice price on the sale by CAT of products made using the
patent rights and technology licensed under this agreement. Where CATs sub-licensees sell such products, CAT is obligated to pay MRC between 1% and 2.3% of the net invoice price, calculated in accordance with a specified formula. The royalty
obligations of CAT may be reduced under certain circumstances. CATs license with MRC includes the Winter II, McCafferty and Griffiths patent families (discussed below in  Intellectual Property). CAT will be required to pay a
royalty to MRC in connection with Abbotts sales of HUMIRA.



Under agreements entered into in 1997, CAT also has a non-exclusive license from Dyax Corporation (Dyax) for rights under certain of its Ladner phage display patents and CAT has granted certain limited rights to Dyax under
antibody phage display patents controlled by CAT.



Following
two agreements with Dyax in January 2003 and September 2003, CAT and Dyax have agreed to expand Dyaxs access and freedom to operate under CATs phage display patents and, as a result, removed CATs obligations to pay royalties to
Dyax on all antibody products CAT may develop.



CAT has
licensed intellectual property relating to the use of certain inhibitors of TGFß (for prevention of fibrosis) from the Burnham Institute and Integra Life Sciences Corporation (Burnham and Integra). CATs license is exclusive,
royalty bearing and worldwide and allows CAT to make, use and sell certain products that incorporate the intellectual property; it also provides for CAT to pay to Burnham and Integra a proportion of any up front, milestone or similar payments
received in relation to the intellectual property. The use of CAT-152 and CAT-192 for the prevention and treatment of fibrosis fall within the terms of this license from Burnham and Integra.



Intellectual Property



Key Patents



CAT has a patent portfolio of approximately 30 patent families comprising over 300 patents. There are three key patent families: (i) Winter II and
Winter/Lerner/Huse, which covers production of expression libraries of antibody genes; (ii) McCafferty, which protects CATs phage display method used to obtain specific antibodies from these libraries; and (iii) Griffiths, which covers human
antibodies specific for human self antigens isolated from CATs libraries.



Winter II covers CATs processes for generating the collections of antibody genes that comprise CATs libraries. Patents from the Winter II family have been granted in Europe, the United States, Japan, South
Korea and Australia. A patent application is pending in Canada. The Winter II patent is co-owned by MRC, Scripps and Stratagene. Pursuant to CATs agreements with those parties, CAT has exclusive commercial exploitation rights over Winter II,
subject to certain rights held by MRC, Scripps and Stratagene and their pre-existing licensees.



As part of normal patent challenge procedure at the European Patent Office, CAT has been and is currently involved in certain oppositions and appeals at
the Opposition Division on patents granted to it by the European Patent Office. The European Winter II patent was upheld by the Opposition Division. After this decision both CAT and MorphoSys appealed against a modification of one claim of the
Winter II patent that was requested by the Opposition Division. MorphoSys has withdrawn its appeal under its recent settlement agreement with CAT. Oral proceedings have been scheduled for January 13, 2004.



McCafferty covers CATs phage display and target screening technology.
Patents from the McCafferty family have been granted in Europe, the United States, Japan, South Korea and Australia. A patent application is pending in Canada. These patents are co-owned by CAT and MRC. CAT may use the related technology to develop
and commercialize products under the terms of the MRC license agreement.



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The parent European McCafferty patent was upheld by the Opposition Division. After this decision
BioInvent and MorphoSys lodged appeals against the Opposition Divisions decision to maintain the main claims. CAT has also appealed requesting reinstatement of some minor dependent claims. MorphoSys has withdrawn its appeal under its recent
settlement agreement with CAT. The patent remains opposed by BioInvent.



A further patent in the McCafferty family was granted in Europe in January 2002 with claims covering a filamentous phage particle containing a phagemid genome and displaying a Fab or scFv on its surface. This patent was opposed by Dyax,
MorphoSys, Crucell and BioInvent. MorphoSys, Crucell and Dyax have withdrawn their oppositions under recent agreements. The patent remains opposed by BioInvent.



Griffiths covers the use of phage display technology to isolate human anti-self antibodies that bind to molecules found in the human body.
Patents have been granted in the United States and Australia. In July 2003, a key patent in the Griffiths family of patents was issued in the United States, bringing the number of patents in the Griffiths family issued in the United States during
2003 to five. CAT has patent applications pending in Canada, Europe and Japan. This patent is co-owned by CAT and MRC. CAT may use the related technologies and develop and commercialize products under the terms of the MRC license agreement.



In December 2002, CAT settled all patent disputes with
MorphoSys including litigation in the United States regarding the Griffiths, McCafferty, Winter II and Winter/Huse/Lerner patents as well as oppositions launched by MorphoSys at the European Patent Office against the Winter II and McCafferty
patents.



In addition, as referred to above, CAT has settled
all patent disputes with Crucell, including litigation in the Netherlands as well as the opposition launched by Crucell at the European Patent Office against one of the McCafferty patents.



During the 2002 financial year, CATs previously granted European
patents on anti- TGFß antibodies (covering CAT-192) and anti-CEA antibodies were not opposed in the Opposition Division.



In April 2002, CAT was granted a UK patent in relation to CAT-213 and other anti-eotaxin antibodies.



In connection with its acquisition of Aptein in the 1998 financial year, CAT
acquired patents covering ribosome display technology, under which human monoclonal antibody fragments can be displayed in a laboratory environment without the use of a phage. Patents have been granted in Europe, the United States, South Korea,
Japan, Australia and Canada.



Other Intellectual Property



In addition to patents, CAT relies on trade secrets
and proprietary know-how. CAT seeks protection, in part, through confidentiality and proprietary information agreements. These agreements may not provide meaningful protection or adequate remedies for CATs technology in the event of
unauthorized use or disclosure of confidential and proprietary information. The parties to these agreements may breach them. Also, CATs trade secrets may otherwise become known to, or be independently developed by, its competitors.



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CAT has a policy of defending its patents forcefully. Due to the nature of its business, CAT continues to
be involved in litigation and opposition cases, which are described in Item 8 under Legal Proceedings. CAT may also face claims from third parties that it infringes patents.



CAT has been named, together with numerous other defendants who practice or rely on antibody phage display, as a defendant
in a complaint dated August 14, 2003 filed by Dr. George Pieczenik in the United States Federal District Court for the Southern District of New York. The complaint, among other allegations, purports to assert claims of patent infringement with
respect to a patent issued on August 12, 2003 to Dr. Pieczenik with a request for a permanent injunction against the commercial use and licensing of unspecified patents and for damages for past infringement. The complaint also purports to assert
non-patent related claims. After an initial court conference the plaintiff has amended his complaint adding certain other defendants. CAT intends to vigorously defend itself. CAT currently believes that the outcome of the litigation will not
materially impact the operation of its business.



Competition



CAT is aware of several pharmaceutical and biotechnology
companies that are actively engaged in research and development in areas related to antibody therapy. These companies have commenced clinical trials of antibody products or have successfully commercialized antibody products. Also, CAT competes with
companies that offer antibody generation services to companies that have antigens. These competitors have specific expertise or technology related to antibody development. These companies include Medarex, Medarexs joint venture partner, Kirin
Brewing Co., Ltd, BioInvent, Abgenix Inc., Protein Design Labs, Inc., MorphoSys AG, Dyax Corporation and Crucell N.V. Products based on CATs technology will also face competition from established therapies.



The nine product candidates based on CATs technology that are currently
in clinical trials will face competition from established therapies as well as new antibody products. The competition for the two product candidates in the latest stages of clinical trials is discussed below.



HUMIRA. HUMIRA is competing in the market for the treatment of
rheumatoid arthritis with Enbrel, a
TNFainhibitor developed by Immunex and American Home Products, which was approved in the United States in 1998 and in Europe in 2000, from
Remicade, a TNFaantibody developed by Centocor and Johnson & Johnson, which was approved in the United States in 1999 and Europe in 2000, and from Kineret, an IL1 receptor antagonist developed by Amgen, which was approved in the
United States and Europe in November 2001. CAT is aware that other potentially competitive products are in late stage development for rheumatoid arthritis. Celltech, Medarex, Genmab, Alexion Antibody Technologies and other companies have antibody
products in clinical trials. Many other products are also potentially competitive with HUMIRA.



Trabio. CAT is not aware of any other products in development being specifically developed for the treatment of scarring after glaucoma surgery. Trabio which is used as an adjunct to surgery, would potentially
compete with new or existing therapies to lower intraocular pressure, including topical medications such as carbonic anhydrase inhibitors and prostaglandin analogues, and laser surgery and drainage devices. CAT is aware that there are several
topical glaucoma drugs and devices under development, and that improved drugs may reduce the need for surgical corrective procedures.



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Manufacturing Arrangement



In November 2001, CAT entered into an arrangement with Lonza Biologics plc, which guarantees capacity for the manufacture of
clinical trial supplies (of CATs human monoclonal antibodies) for up to five years.CAT can terminate the agreement after three years without penalty and on 90 days notice subject to the provision that CAT pay a cancellation charge
based on guaranteed capacity for a future period from the cancellation date.



Environmental and Safety



CAT is subject to
environmental and safety laws and regulations, including those governing the use of hazardous materials. The cost of compliance with these and similar future regulations is substantial. Although CAT believes that its procedures for handling and
disposing of such materials comply with the standards prescribed by applicable laws and regulations, the risk of accidental contamination or injury from these materials cannot be eliminated.



CAT believes it is in compliance in all material respects with applicable
health and safety and environmental regulations. CAT believes that it deals with health and safety and environmental legislation in a responsible, proactive and professional manner in order to safeguard personal and environmental safety. The
organization and management of health and safety at CAT is clearly stated in a CAT policy document which is available to all staff. The board of directors receives formal reports on health and safety from the safety manager on a quarterly basis and
has given one executive director, Dr. David Glover, special responsibility for health and safety.



The primary umbrella legislation dealing with health and safety in the U.K. is the Health and Safety at Work Act etc 1974, as amended, which is now
supplemented by the Management of Health and Safety at Work Regulations 1999, as amended.



In order to facilitate providing a safe working environment, regulation 3 of the Management of Health and Safety at Work Regulations 1999, as amended, requires employers to make a suitable and sufficient
assessment of the risks to the health and safety of both their employees while at work and to other people arising out of or in connection with their businesses. This process requires CAT to undertake stringent risk assessments to systematically
identify hazards in the workplace and put in place any preventative or control measures necessary. Where an assessment is required under other statutory provisions (for example, the Control of Substances Hazardous to Health Regulations 2002, as
amended, or the Genetically Modified Organisms (Contained Use) Regulations 2000, as amended), it will often be required to comply with the standard set by the Management of Health and Safety at Work Regulations 1999, as amended, and so one
assessment may be carried out so as to satisfy the requirements of both pieces of legislation.



These assessments, once completed, are available as paper copy held by the relevant line manager, or as electronic copy to all staff via CATs company intranet. Assessments are reviewed when work practices change
or on an annual basis, whichever occurs sooner.



CAT is
satisfied that the overall processes involved in its scientific operations do not require authorization under U.K. environmental legislation. However, it does hold certain permits relating to specific aspects of its operations. These include a
discharge consent under the U.K. Water Resources Act 1991, as amended, and an authorization for the use and disposal of radioactive substances under the U.K. Radioactive Substances Act 1993, as amended. CAT also has in place a standard operating
procedure to ensure the proper disposal of waste regulated under the Special Waste Regulations 1996, as amended.



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Regulatory Background



Introduction



In most countries, the development of drug products is subject to relatively high levels of regulation. By setting detailed and specific requirements for
data which must be generated and evaluated before a product can be placed on the market, most systems of regulation ensure that such products are subject to extensive testing and evaluation before being made widely available.



The testing required once a potential product candidate has been identified
involves both preclinical and clinical research. The precise tests undertaken and methods used vary according to the products under development, but basic principles and requirements must be addressed. The performance of preclinical and clinical
research is generally subject to legal provisions which are additional to, and separate from, those setting out the data requirements for the purposes of applying for approval to market a product.



In most jurisdictions, any dealings in drug products at any point in the
chain of distribution will be regulated through a system of authorization. In order to place a product on the market, a marketing authorization is required. This is a fundamental requirement since, subject to fairly limited exemptions and the
provisions for clinical research, all dealings must be undertaken in relation to authorized products. Manufacturers and wholesalers must have appropriate authorizations covering their activities. Manufacturing, which includes assembly of products
into their final dosage forms and packaging operations, is generally strictly regulated. Wholesalers, who supply to the trade, must meet certain criteria both as to staff and premises in order to obtain authorization. Supply at retail level to
members of the public is generally controlled through the limitations and conditions placed upon retail outlets through, for example, pharmacy registration and the imposition of statutory limitations, conditions and obligations upon other retail
suppliers. Exemptions from the requirements for authorization tend to be extremely limited.



Regulation by the European Community



The system of regulation of medicinal products for human use at the European Community (EC) level dates back to 1965. There is a broad range of EC legislation which has been implemented by European Union
(EU) member states governing all aspects of dealing in medicinal products. It is supplemented by numerous guidelines which are not legally binding in most cases. However, failure to comply with, or departure from, their provisions in
practice requires justification.



Pre-clinical Research



European legislation (Directive 2001/83/EC) imposes
certain specific requirements for pre-clinical testing where the data to be generated will be used for an application for a product marketing authorization in the EC. The basic provisions in legislation are expanded upon in guidance issued by the
Committee for Proprietary Medicinal Products (CPMP) which, while not usually formally incorporated into the legislation, are important. Deviation by companies from such guidance would generally require a strong justification upon
application for a marketing authorization. Aspects of pre-clinical research involving animal testing are subject to the provisions of Directive 86/609/EEC setting down standards to be met by animal testing institutions and those conducting the
research. These provisions are enforced through registration and inspection. High standards of practice are also laid down for laboratories by Directive 87/18/EEC and associated legislation, with compliance monitored through a system of inspection.



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Clinical Research



Directive 2001/83/EC also establishes the data requirements in respect of research undertaken in humans where the data is intended to be utilized in a
marketing authorization application. There are also any number of guidance documents issued by the CPMP. In particular, these include guidelines addressing the conduct of trials in particular therapeutic categories and patient groups and on Good
Clinical Practice (GCP). The GCP guideline was developed by the International Conference for Harmonisation. These guidelines came into force in early 1997 and took account of earlier CPMP guidelines on GCP adopted in 1990. In addition,
some general legislation, such as the Directive concerning the Protection of Individuals with regard to the Processing of Personal Data (95/46/EEC), is also relevant to the conduct of clinical research.



Aside from these provisions, however, the conduct of research in the EC is
not yet governed by specific EC legislation. Directive 2001/20/EC, setting out the provisions governing the conduct of clinical trials, was adopted on May 1, 2001 and a number of detailed supplementary guidelines have been issued for the purposes of
public consultation. The aim of the Directive is to increase harmonization in this area. Member states have until May 1, 2004 to adopt the necessary measures to comply with the Directive and these measures will affect regulation and practice. In the
meantime, the national laws and practices of member states will continue to govern research conducted within the local jurisdiction. Variation in these laws and practices limits the extent to which the conduct of research projects can be streamlined
across multiple sites throughout the EC.



Pending specific
rules, there are some practical influences upon the conduct of research as a result of the requirements concerning the content of application dossiers. These requirements include adherence to GCP and failure to do so may lead to a rejection of an
application for a marketing authorization.



The completion of
Phase I, II and III clinical studies is a lengthy process and can take up to six years or more to achieve. Adverse, poor or inconclusive results at any stage can lead to the abandonment of a research program.



In practice, in member states, clinical studies may only be commenced after
notification to and/or approval by, an independent ethics committee. The process of application for and authorization of a clinical study by the regulatory authorities varies from state to state. Where the results of earlier phase studies do not
justify ongoing research, neither ethical nor regulatory approval (where required) will be granted.



Marketing



A
medicinal product must have a marketing authorization to be marketed in an EC member state. In 1995, the so-called New Systems for authorization of medicinal products were introduced in Europe.



Council Regulation 2309/93 established a process of European authorization
for, and supervision of, particular types of biotechnology and high technology products. This centralized application system requires an application for a marketing authorization to be made by the person who will be responsible for placing the
product on the market (who must be established in the Community) to the European Agency for the Evaluation of Medical Products (EMEA). The EMEA co-ordinates the assessment process and procedure, while the CPMP, as a body of
experts drawn from the member states, undertakes (with the assistance of nominated external experts drawn from the EC) the scientific assessment of the product dossier and produces an opinion as to whether a product satisfies the criteria for
authorization. The final decision as to the grant or refusal of a marketing authorization is taken by the Commission. If successful, an application results in a single authorization for the product which is valid in all member states. The time
limits set for the assessment procedure are intended to ensure that a product is thoroughly and expeditiously evaluated to ensure the availability to the public as soon as possible of high quality new products. It is possible for an applicants
schedule to slip, for example, where the applicant delays in responding to queries or provides



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additional data, and also in the later stages of the process where there are no specific set time limits and bureaucratic procedures can be time consuming.
Accelerated evaluation of a marketing authorization application may be initiated by the CPMP in exceptional cases when a product is intended to provide an answer to major public health need defined by: (a) the seriousness of the disease; (b) the
absence or insufficiency of an alternative therapy; and (c) the anticipation of high therapeutic benefit.



The legislation also introduced a system of Mutual Recognition under which an authorization for a product gained in one member state (the
Reference Member State) can be used as the basis for gaining authorization in others without, in theory, the repetition of the lengthy product assessment already carried out by the first member state in authorizing the product.
Objections to such recognition may be made by member states within time limits set by the legislation. The process of delaying with objections (Arbitration) may significantly lengthen the time elapsing between the initial application and
approval in the nominated member states. Arbitrations are handled by the CPMP whose decision on the matters subject to dispute, when it has been adopted by the Commission, is binding in all member states. The outcome of an Arbitration may adversely
affect marketing authorizations obtained prior to the Arbitration in cases where the result is a decision limiting the terms of, or refusing, a marketing authorization. The Mutual Recognition procedure is an option for all products for which the
centralized procedure is not compulsory under Regulation 2309/93.



Some companies will have the option under the rules to use either procedure to authorize a new product. In some cases, the relative flexibility of certain aspects of the Mutual Recognition system may recommend that system above the
centralized process. In others, the perceived benefits of a single EC-wide authorization and the relative simplicity of a single application in Europe will influence the system of choice.



The EC has recently introduced provisions in respect of orphan drugs (i.e., products for the treatment of
serious diseases affecting not more than five in 10,000 people in the Community). Previously, the requirements relating to data to support marketing authorization applications permitted the submission of a more limited set of data concerning safety,
quality and efficacy when: (a) the indications for which a product was intended were rare conditions so that the applicant could not reasonably be expected to provide comprehensive evidence; (b) the state of scientific knowledge did not enable the
provision of comprehensive data; or (c) there were ethical reasons precluding the collection of data. In such cases, a marketing authorization could be obtained despite a more limited supporting dossier but subject to: (1) the completion of an
agreed study program in a specified time, (2) strict limitation upon the basis of supply, administration and supervision of use, and (3) the insertion of text into information provided with the product and to practitioners alerting the practitioner
to the limited nature of available product data. Under the new provisions, once a marketing authorization for an orphan drug has been granted, no further applications by third parties for the authorization of similar products for the same
indications will be accepted for a period of 10 years. This period may be reduced to six years in the event the product reaches certain profit levels within five years from authorization. Licensing charges may be waived in whole or in part.



After an authorization has been granted (for a period of five
years), and a product has been brought to market, numerous obligations are imposed upon the marketing authorization holder by the legislation. These include the obligation to ensure that the product keeps pace with the state of scientific and
technical knowledge, in particular, in terms of its manufacture and control. This means applying to vary the marketing authorization when the circumstances and technical knowledge warrant updating and amendment. Requirements for pharmacovigilance
and the reporting of adverse reactions to products are central to the legislation. Advertising and the production of labeling and patient information leaflets are each specifically regulated by Directives, with local codes of conduct and practice
also in place and, in some cases, providing additional controls on corporate activity. The provisions of the legislation (which include the requirement, in relation to the function of pharmacovigilance and information services, to have a nominated
individual within CAT responsible for compliance) require significant resourcing in terms of staff and expertise, which may be sourced in-house and/or from external providers.



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The regulatory authorities have power to suspend, revoke or vary a marketing authorization after grant if
they are no longer satisfied as to product safety, quality or efficacy or any combination of these. The requirements for the performance of comprehensive pharmacovigilance and frequent reporting and assessment in respect of marketed products are of
central importance and are designed to enable companies and regulators to detect product safety concerns as early as possible and take appropriate action in the interest of public health in the EC.



The harmonization and streamlining of decision-making on such matters in the
EC through the CPMP means that a concern arising in one member state in relation to a product which is marketed in several will be examined at the European level and the outcome of the examination will affect the product and its authorization across
all members states in which it is sold and supplied.



Manufacturing



Manufacturing conducted within the EC must meet Good
Manufacturing Practice (GMP) requirements (Directive 91/356/EEC). Directive 91/356/EEC was repealed as of November 2, 2003 and has been replaced by Directive 2003/94/EC, laying down principles and guidelines of good manufacturing
practice with respect to medicinal products for human use and investigational medical products for human use, which is to be implemented by member states by April 30, 2004. Directive 91/356/EEC applies only to marketed products, while Directive
2003/94/EC will also apply to products intended for clinical research purposes. The legislation (Directive 2001/83/EC) imposes precise obligations upon manufacturers, in particular with regard to control, batch testing and release of products onto
the European market and the qualifications, which must be held by the personnel authorized to undertake such activities. Inspection of manufacturing site facilities and validation of procedures are a prerequisite to a product gaining a marketing
authorization and to a manufacturer being authorized to produce or assemble medicinal products and are regularly undertaken by regulatory authorities, both by local inspectors and by inspectors representing other countries in which the products in
question are to be sold. The failure of an inspection can be a serious matter. Product supplies may be interrupted and/or a recall required in the most serious cases, plant closure, pending rectification of defects may be ordered. The legislation
also requires clear, contractual documentation concerning the provision of manufacturing services by one company to another, in particular, where aspects of the manufacturing process are contracted out by the main manufacturer to others.



Wholesaling



As with manufacturing operations, all wholesalers must be authorized by the authorities in the country in which they
operate. Wholesale distribution in the EC is governed by Directive 2001/83/EC and the Good Distribution Practice Guidelines cross-referenced in it. Wholesalers must meet minimum requirements in terms of staff, facilities and procedure in order to
obtain and retain an authorization.



Pricing



In a number of member states, it is not possible to market a product until
pricing negotiations with the responsible government authorities have been concluded. Authorization by the regulatory authorities does not guarantee the negotiation of a satisfactory price, or of reimbursement status under national public health
systems, for the products concerned.



Supplementary Protection
Certificates



The time taken to research and develop
medicinal products eats into the marketing time protected by a product patent or patents and can therefore reduce the period available to the developer in which to recoup its investment through sales. In 1992, the EC introduced Regulation 1768/92
creating a



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Supplementary Protection Certificate (SPC) for authorized products. While this does not constitute an extension to the patent from which a
product derives, it does confer certain rights of a similar nature in respect of the product(s) derived from the patent after that patent has expired. The period during which the certificate is effective depends on calculations based upon the date
of the application for the patent and the grant of the first marketing authorization for a product derived from the patent, with an upper limit of five years.



Abridged Applications  Market Exclusivity



In cases where the patent and SPC have expired (or are not available), medicinal products can benefit from EC provisions which are commonly described as
the rules of market exclusivity, but which in fact govern the making of so-called abridged applications for marketing authorizations. An abridged application is one in which the full data requirements are relaxed, allowing the submission
of a more limited dossier provided that the conditions under Directive 2001/83/EC (Article 10) are met.



Most significantly, under EC law, a third party whose product is said to be essentially similar to one already on the market is effectively prevented for
a period of between six and ten years (from authorization) from relying upon pre-existing data submitted in support of a prior full application by another company, except in certain defined and limited circumstances.



The period is fixed at ten years for products derived from biotechnological
processes specified in Part A of the Annex to Regulation 2309/93, as amended (for which the centralized procedure is compulsory), and high-technology products viewed by the competent regulatory authorities as representing significant
innovation and falling within Part B of the Annex (for which the centralized procedure is an option). Member states may elect to extend the period of protection from six to ten years in respect of other products. This discretion has been
exercised by the United Kingdom, for example.



The rules do
not, however, prevent a competitor from making a marketing authorization application by relying upon a full data package compiled by the applicant, or by reference to published literature, or, with the consent of the owner of the original data, by
cross reference to the data held on file by the regulatory authorities.



The rules are only intended to limit the circumstances in which a marketing authorization may be granted without a full data package on the basis of cross reference to existing data generated by someone other than the applicant, in order to
protect the interests of the originator of the filed data who undertook and resourced the original research necessary to support a full application to market.



The rules are unfortunately unclear in some respects and their interpretation is subject to variation and dispute. Divergent views are taken by
regulatory authorities on the availability of protection, for example, where new data is generated in respect of a variation to an existing product involving substantial investment by the originator. There has been significant litigation
as a result.



CATs Product Candidates



Many, if not the majority, of therapeutic products developed through the
application of CATs technology will fall within the ambit of Regulation 2309/93, as amended. All products developed by means of DNA technology, controlled expression of genes coding for biologically active proteins in prokaryotes and
eukaryotes including transformed mammalian cells and hybridoma and monoclonal antibody methods will be subject to compulsory centralized authorization for the purposes of marketing within the EC. In the remaining cases, there will be an option as to
the approval process. Ten years market exclusivity will apply across all member states in either case where centralized procedures are applied. Clinical research programs must be conducted according to local and EC requirements to ensure
the acceptability of data generated for EC regulatory purposes.



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Competition Regulation



CATs activities are subject to EU and U.K. competition law, including Article 81(1) of the Treaty of Rome. Article
81(1) prohibits agreements which restrict competition within the EC and affect trade between member states. Provisions of agreements restricting competition (within the meaning of Article 81(1)) are void. In certain cases, subject to exceptions,
parties entering into agreements restrictive of competition under Article 81(1) may be subject to fines imposed by the European Commission of up to 10% of their respective annual worldwide revenue and to claims of damages from other parties who have
suffered loss by reason of the anti-competitive restriction.



Certain license agreements that CAT has entered into, or may enter into, will grant or may grant exclusive worldwide licenses of patents, patent applications and know-how, which are or may be arguably restrictive of competition under
Article 81(1). CAT determines on an agreement-by-agreement basis where an exemption from the application of Article 81(1) applies to the agreement and, if it does not, whether to apply to the European Commission for an individual exemption from the
application of Article 81(1). If an exemption is not applicable and CAT does not apply for, or is unsuccessful in obtaining, an exemption from the European Commission (an individual exemption), provisions of any license agreement which
are restrictive of competition under Article 81(1), including those relating to the exclusivity or rights, may be unenforceable. As of May 1, 2004, the individual exemption regime will no longer apply (except in very restricted circumstances) and
companies will only be able to rely on exemptions to avoid infringing Article 81(1). There will, as a result, be even greater need for CAT to assess accurately whether an exemption applies on an agreement-by-agreement basis.



U.S. Regulation



Regulatory Authorities



The development and marketing of drug products for human use in the United States is extensively regulated by the federal and state governments. The
principal federal regulatory agency is the FDA. Although most states maintain one or more agencies with power to regulate drug products, they generally defer to the FDA in matters relating to product development and approval. Some of CATs
products may be subject to state regulation as well as FDA regulation.



Cost of Pre-market Testing



Due to the
requirements imposed by the FDA, the development process for new pharmaceuticals in the United States is lengthy, expensive and commercially risky. The great majority of compounds screened for possible development are ultimately rejected at some
stage in the pre-market testing process. Total development time for successful compounds often exceeds ten years.



Under the provision of recent legislation establishing user fees (e.g., registration fees) for human drug applications (including new drug
applications and biological license applications), the FDA has made commitments to reduce the review time for marketing authorization applications. Although the agency has achieved some reductions, especially for high-priority medicines, the review
process remains lengthy and complex and approval is never certain. There has been little or no reduction in the testing required before applications are submitted, which consumes most of the time spent in developing new drug products for the U.S.
market.



Clinical Trials



All clinical trials of investigational drug products in the United States
must be carried out under investigational new drug (IND) exemptions, in accordance with FDA regulations. Those regulations



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impose requirements for documenting the safety of proposed clinical studies, provide for submissions to the FDA before clinical studies can commence and
authorize the FDA to suspend or withdraw permission to continue clinical studies. Sponsors of clinical studies must maintain records and make reports to the FDA, including reports of adverse events from human use and significant findings from
studies in animals. Although the FDA affords sponsors some discretion in the design of early phase clinical studies, it is common for sponsors to confer with the agency on the design of later phase studies, especially pivotal Phase III clinical
studies that will provide the principal evidence of safety and effectiveness for marketing approvals.



Advertising and commercial distribution of investigational products are ordinarily prohibited, but in certain circumstances, the FDA will permit sponsors
to charge patients for investigational medicines. There are special procedures for treatment INDs to allow for compassionate use while controlled clinical studies are underway.



FDA regulations impose requirements for Good Clinical Practice
(GCP) and protection of human subjects in clinical studies. Informed consent of study subjects is required, and studies must be reviewed and approved by Institutional Review Boards (IRBs) which are subject to inspection and
regulation by the FDA. Clinical studies in vulnerable populations (e.g., prisoners, children, mental incompetents and pregnant women) are subject to special scrutiny.



Approval Procedures and Criteria



U.S. drug law establishes different procedures and criteria for the approval of biological products (product license applications and establishment
license applications, or PLAs and ELAs, respectively, and a unified biological license application, or BLA, for well-characterized biological products), other new drugs (new drug applications, or NDAs) and antibiotic drugs (antibiotic drug
applications). Monoclonal antibody products are subject to regulation as biologics generally. In practice, however, the FDA applies essentially the same requirements for approval of all products, proof of safety and effectiveness, demonstration of
adequate controls in the manufacturing process and conformity with requirements for labeling. Effectiveness must ordinarily be demonstrated on the basis of two adequate and well-controlled clinical studies carried out in accordance with FDA
regulations. In addition, the FDA has issued guidelines for clinical studies of specific types of pharmaceutical products.



The FDA has substantial discretion to determine whether the data submitted in support of a drug product is adequate for approval. The agency is not
required to consult with independent experts when it reviews new products, but, in practice, it often seeks the opinion of an advisory committee. Applicants have the right to an opportunity for an administrative hearing and judicial review of the
refusal to approve a pharmaceutical product, but the FDAs decisions on issues relating to safety and effectiveness are nearly always conclusive.



Regulation of Software and Other Medical Devices



The FDA also regulates software and other medical devices used to diagnose and treat illnesses and other medical conditions. To the extent that CATs
products are or become medical devices, they will or would be subject to FDA review and regulation.



Accelerated Approval



FDA regulations authorize accelerated approval of pharmaceutical products that offer a significant improvement in the treatment of fatal or life-threatening conditions. Approval can be based on clinical studies using surrogate end-points,
but applicants must ordinarily agree to continue clinical studies after approval and to accept other conditions, including simplified procedures for withdrawal of approval.



35



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Acceptance of Foreign Clinical Data



The FDA will accept applications that include reports of foreign clinical studies if they meet requirements for GCP and are
deemed relevant to U.S. medical practice. It is, however, uncommon for the agency to approve a new pharmaceutical product without some evidence from clinical studies conducted in the United States, and most sponsors carry out at least one pivotal
study in that country. Studies conducted outside the United States are subject to special audits by the FDA and may be rejected if U.S. requirements for record-keeping, protection of human subjects and other matters relating to GCP are not met.



Non-patent Market Exclusivity



U.S. drug law creates two forms of non-patent market exclusivity. First, the
law prohibits approval of abbreviated new drug applications (ANDAs) or literature-based applications for copies of innovative products for a period of five years after the approval of a new chemical entity and three years after the
approval of a new indication or dosage form for which substantial clinical studies were required. These provisions do not preclude approval of competitive applications based on original data, and they apply only to new drugs, rather than antibiotics
or biological products.



Secondly, the law provides for a
special seven year period of protection for orphan drugs (e.g., drugs for diseases that affect fewer than 200,000 persons in the United States or that are unlikely to repay development costs). During this period, the FDA is ordinarily
precluded, subject to complex exceptions, from approving any application for the same drug, even if it is based on original data. These provisions apply to all drugs, including antibiotics and biological products as well as new drugs.



Manufacturing Controls



The FDA inspects pharmaceutical manufacturing establishments for compliance
with requirements of its Current Good Manufacturing Practice (CGMP) regulations and conformity with specifications in marketing approvals. In addition, biological manufacturing establishments must be licensed by the FDA, although for
specified products the facility is approved within the BLA. The agency inspects foreign manufacturing facilities that supply bulk or finished products for the U.S. market; if companies cannot meet FDA requirements, their products may be excluded
from the United States.



Export Controls



U.S. drug laws restrict exports of unapproved new drugs and biological
products for commercial distribution and clinical investigation outside the United States. Such drugs can only be exported for commercial use if they have been approved in designated jurisdictions (including the EC and the individual member states).
Exports are also permitted for clinical studies in the designated countries after notification to the FDA, but exports for clinical studies in other countries may require prior approval. Less restrictive rules apply to exports of unapproved
antibiotics.



Advertising and Promotion



The FDA closely regulates advertising, promotion and marketing of
prescription drugs. Promotion for unapproved uses is prohibited, and sponsorship of medical symposia and publications is restricted. Financial incentives to prescribers are regulated under federal and state civil and criminal laws as well as codes
of practice for the medical professions. Advertising of over-the-counter drugs is chiefly regulated by the Federal Trade Commission.



36



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Enforcement Powers



The U.S. federal government has extensive powers to compel compliance with medicines laws. Violative products are subject to
seizure, and imported products may be detained. Companies and individuals that violate the law are subject to sanctions, including injunctions and criminal penalties with no requirement for proof of negligence or intent. Persons and companies
convicted of certain offenses can be temporarily or permanently barred from involvement in the drug approval process. The U.S. federal government can suspend or withdraw approval of products if questions arise concerning safety or effectiveness.



Product Liability



Companies that market drug products in the United States are subject to suit
in state and federal courts for personal injuries caused by their products. The risk of product liability is significantly greater than in most European jurisdictions, and damage awards can be substantial. FDA approval is seldom a defense to
liability, but failure to comply with FDA requirements may constitute evidence of negligence or conduct warranting punitive or exemplary damages.



Potential Limitations on U.S. Third-party Reimbursement and U.S. Health Care Reform



Sales of CATs products will depend in part on the availability of reimbursement from third party payors and the U.S.
federal and state governments. Revenues also may be negatively impacted by ongoing U.S. healthcare reform efforts which seek to contain costs and may limit or prescribe treatments and/or services reimbursed by the government.



C. Organizational Structure



Please see Note 12 to the financial statements, Fixed asset
investments and Basis of Consolidation under Note 1 to the financial statements, Description of business and accounting policies included in this 20-F.



D. Property, Plants and Equipment



CATs principal establishments, and summary details of them, are as follows:



|Property                                                              |  | Principalactivity                              |  | Size(square feet) |  | Nature oftitle |  | Unexpired term        
|--------------------------------------------------------------------- |  | ---------------------------------------------- |  | ----------------- |  | -------------- |  | ----------------------
|The Franklin Building Granta Park
Cambridge Cambridgeshire CB2 6HR UK |  | Laboratories and offices                       |  | 20,000            |  | Leasehold      |  | Approximately 14 years
|                                                                      |  |                                                |  |                  
|Milstein Building Granta Park Cambridge Cambridgeshire CB2 6HR UK     |  | Laboratories and offices and registered office |  | 66,000            |  | Leasehold      |  | Approximately 20 years



37



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During the 2001 financial year, CAT moved some of its departments to the Franklin building. The lease for
this building will expire in 2016 and is subject to CATs right to terminate early in certain defined circumstances. In November 2002 the majority of CATs other operations moved to the Milstein Building, a purpose-built building
consisting of 66,000 sq ft of laboratory and office space also on Granta Park in South Cambridgeshire which have been tailored to meet CATs specific requirements.



ITEM 5 -OPERATING AND FINANCIAL REVIEW AND PROSPECTS



Selected Financial Data



Our audited historical consolidated financial statements are presented in British pounds sterling and are prepared in accordance with UK GAAP. UK GAAP differs in certain
respects from US GAAP. A reconciliation of certain amounts from UK GAAP to US GAAP, as well as a summary of principal differences between UK GAAP and US GAAP applicable to us, are presented in Note 28 to our audited historical consolidated financial
statements included in this Form 20-F.



The following summary financial data
should be read in conjunction with the information set forth under the heading

-Managements Discussion and Analysis of Financial
Condition and Results of Operations below, and our historical consolidated financial statements, including the notes thereto. The summary statement of income data set forth below for the fiscal years ended September 30, 2003, 2002 and 2001,
and the consolidated balance sheet data at September 30, 2003 and 2002 have been derived from our audited historical consolidated financial statements. The summary statement of income data for the fiscal years ended September 30, 2000 and 1999, and
the consolidated balance sheet data at September 30, 2001, 2000 and 1999 were derived from our historical consolidated financial statements which are not included in or incorporated by reference in this 20-F.



|Income statement                                     |  | 2003 £000 |   |  | 2002 £000 |   |  | 2001 £000 |   |  | 2002 £000 |   |  | 1999 £000 |  
|---------------------------------------------------- |  | ---------- | - |  | ---------- | - |  | ---------- | - |  | ---------- | - |  | ---------- | -
|                                                     |  |            |   |  |           
|UK GAAP                                              |  |            |   |  |            |   |  |            |   |  |            |   |  |            |  
|                                                     |  |            |   |  |           
|Turnover                                             |  | 8,743      |   |  | 9,471      |   |  | 7,121      |   |  | 7,018      |   |  | 2,165      |  
|                                                     |  |            |   |  |           
|Gross profit                                         |  | 8,053      |   |  | 9,391      |   |  | 6,770      |   |  | 6,637      |   |  | 2,084      |  
|                                                     |  |            |   |  |           
|Research and development expenses                    |  | 44,981     |   |  | 31,307     |   |  | 21,393     |   |  | 15,728     |   |  | 13,574     |  
|                                                     |  |            |   |  |           
|General and administration expenses(1)               |  | 9,196      |   |  | 16,234     |   |  | 6,443      |   |  | 4,842      |   |  | 2,684      |  
|                                                     |  |            |   |  |           
|Operating Loss                                       |  | (46,124    | ) |  | (38,150    | ) |  | (21,066    | ) |  | (13,933    | ) |  | (14,174    | )
|                                                     |  |            |   |  |           
|Net loss on ordinary activities before taxation      |  | (41,764    | ) |  | (31,764    | ) |  | (11,771    | ) |  | (8,289     | ) |  | (12,364    | )
|                                                     |  |            |   |  |           
|Taxation on loss on ordinary activities              |  | 2,573      |   |  | 3,557      |   |  |           |   |  |           |   |  | (1         | )
|                                                     |  |            |   |  |           
|Net loss                                             |  | (39,191    | ) |  | (28,207    | ) |  | (11,771    | ) |  | (8,289     | ) |  | (12,365    | )
|                                                     |  |            |   |  |           
|Net loss per share (basic and diluted) (in pence)(2) |  | (107.5p    | ) |  | (78.7p     | ) |  | (33.3p     | ) |  | (27.5p     | ) |  | (50.9p     | )



38



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|                                                   |  |            |   |  |           
|-------------------------------------------------- |  | ---------- | - |  | ----------
|US GAAP                                            |  |            |   |  |           
|                                                   |  |            |   |  |           
|Turnover                                           |  | 9,165      |   |  | 9,893     
|                                                   |  |            |   |  |           
|Operating loss                                     |  | (46,552    | ) |  | (41,234   
|                                                   |  |            |   |  |           
|Net loss                                           |  | (36,619    | ) |  | (31,291   
|                                                   |  |            |   |  |           
|Basic and diluted net loss per share (in pence)(2) |  | (108.7p    | ) |  | (87.3p    
|                                                   |  |            |   |  |           
|Balance sheet                                      |  |            |   |  |           
|                                                   |  |            |   |  |           
|UK GAAP                                            |  |            |   |  |           
|                                                   |  |            |   |  |           
|Cash and investments in liquid resources           |  | 108,972    |   |  | 129,775   
|                                                   |  |            |   |  |           
|Total assets                                       |  | 138,551    |   |  | 156,908   
|                                                   |  |            |   |  |           
|Current liabilities                                |  | (12,657    | ) |  | (12,563   
|                                                   |  |            |   |  |           
|Long term liabilities                              |  | (18,152    | ) |  | (8,580    
|                                                   |  |            |   |  |           
|Net assets                                         |  | 107,742    |   |  | 135,765   
|                                                   |  |            |   |  |           
|Shareholders funds  all equity                   |  | 107,742    |   |  | 135,765   
|                                                   |  |            |   |  |           
|Number of ordinary shares outstanding              |  | 38,338,320 |   |  | 36,214,349
|                                                   |  |            |   |  |           
|US GAAP                                            |  |            |   |  |           
|                                                   |  |            |   |  |           
|Cash and investments in liquid resources           |  | 108,972    |   |  | 129,775   
|                                                   |  |            |   |  |           
|Total assets                                       |  | 138,768    |   |  | 157,035   
|                                                   |  |            |   |  |           
|Current liabilities                                |  | (12,985    | ) |  | (12,904   
|                                                   |  |            |   |  |           
|Long term liabilities                              |  | (19,683    | ) |  | (10,533   
|                                                   |  |            |   |  |           
|Net assets                                         |  | 106,100    |   |  | 133,598   
|                                                   |  |            |   |  |           
|Shareholders funds  all equity                   |  | 106,100    |   |  | 133,598   

---

|(1) | General and administration expenses for the year ended September 30, 2002 included £7,913,000 of costs incurred in the year relating to two transactions entered into with Drug
Royalty Corporation during the year (comparative periods none).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Under UK GAAP and US GAAP, potentially dilutive issuable shares are only included in the calculation of fully diluted earnings per share if their issue would decrease net profit per
share or increase net loss per share. Since CAT has reported losses, its basic and fully diluted loss per share are therefore equal.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Exchange Rate Information



The table below sets forth, for the periods and dates indicated, information concerning the noon buying rates in New York City for pounds sterling
expressed in U.S. dollars per £1.00. Fluctuations in the exchange rate between the pound sterling, as certified by the Federal Reserve Bank of New York for customs purposes, and the U.S. dollar will affect, among other things, the U.S. dollar
equivalent of the pound sterling price of CATs shares on the Daily Official List of the London Stock Exchange plc and the market price of CATs American Depositary Shares on the Nasdaq Stock Market. Averages represent the average of the
noon buying rates in New York City on the last day of each full month during the period.



39



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|Years ended September 30, |  | High   |  | Low    |  | Average |  | Periodend
|------------------------- |  | ------ |  | ------ |  | ------- |  | ---------
|1999                      |  | 1.7222 |  | 1.5515 |  | 1.6258  |  | 1.6457   
|2000                      |  | 1.6765 |  | 1.4005 |  | 1.5528  |  | 1.4787   
|2001                      |  | 1.5045 |  | 1.3730 |  | 1.4410  |  | 1.4691   
|2002                      |  | 1.5800 |  | 1.4074 |  | 1.4701  |  | 1.5700   
|2003                      |  | 1.6840 |  | 1.5418 |  | 1.6055  |  | 1.6620   



The following table
sets forth the high and low noon buying rate for pounds sterling expressed in U.S. dollars per £1.00 for each of the previous six months. On December 4, 2003, the exchange rate was $1.7200 to £1.00.



|               |  | High   |  | Low   
|-------------- |  | ------ |  | ------
|May 2003       |  | 1.6484 |  | 1.5930
|June 2003      |  | 1.6840 |  | 1.6278
|July 2003      |  | 1.6718 |  | 1.5867
|August 2003    |  | 1.6170 |  | 1.5728
|September 2003 |  | 1.6642 |  | 1.5732
|October 2003   |  | 1.7025 |  | 1.6598
|November 2003  |  | 1.7219 |  | 1.6693



Operating and Financial Review



The following review is based on CATs consolidated
financial statements which are prepared under UK GAAP. A summary of the significant differences between UK and US GAAP is given below and more detailed information is provided in Note 28 of the financial statements included in this Form 20-F.



Results of Operations for Years Ended September 30, 2003, 2002 and 2001



Revenues, consisting of contract research fees and
technical and clinical milestone payments decreased by 8% to £8.7 million in the 2003 financial year from £9.5 million in the 2002 financial year which had increased from £7.1 million in the 2001 financial year.



The decrease in revenue from the 2002 financial year to the 2003 financial
year was primarily a result of the reductions in activity levels on research collaborations reflecting the recent weak market in this area between biotechnology and major pharmaceutical companies. Contract research fees fell by £1.7 million
from the 2002 financial year to the 2003 financial year. Against this, revenues arising from milestone payments and licenses increased by £1.6 million as CAT granted new licenses in the year and as CATs collaborators continued to utilize
the libraries they had licensed from CAT in previous years.



Revenue arising from clinical milestone payments increased from £1.4 million in the 2002 financial year to £1.8 million in the 2003 financial year. HGSI received clearance to begin Phase I trials for both ABthrax and TRAIL-R2
mAb during the 2003 financial year, triggering milestone payments for each. A clinical milestone payment was received from Abbott during the third quarter of the 2003 financial year following product license approval of HUMIRA in Switzerland. During
the 2002 financial year, clinical milestone payments were received from HGSI with the initiation of Phase I clinical trials for LymphoStat-B and TRAIL-R1 mAb. All of the above clinical milestone payments have been recognized in full as revenue under
CATs accounting policy.



40



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Technical milestone payments increased from £0.04 million in the 2002 financial year to £0.2
million in the 2003 financial year. Technical milestone payments of £0.2 million were received from Pfizer during the 2003 financial year. A technical performance milestone payment was received during the 2002 financial year under a
collaboration arrangement. The above technical milestone payments have been recognized in full as revenue under CATs accounting policy.



Revenues recognized from license fees increased from £1.7 million for the 2002 financial year to £2.6 million in the 2003 financial year. The
library licenses granted to Chugai in September 2002 and Merck in October 2002 both came into effect during the 2003 financial year upon completion of the successful transfer of CATs technology, accounting for the majority of this increase. In
December 2002, CAT entered into agreements with Crucell and MorphoSys. License fees have been recognized during the 2003 financial year regarding both these agreements. CAT received license fees following the granting of five exclusive product
licenses during the 2002 financial year. Three were to HGSI, for TRAIL-R1 mAb, TRAIL-R2 mAb and ABthrax. In addition, licenses for undisclosed targets were granted to Amgen and Wyeth Research. Revenues derived from license payments have been
deferred and are being spread over the license term or the period to expiration of the relevant patents. Therefore, in addition to revenues being recognized from the new license agreements in each financial year, revenue is also realized on license
fees released from deferred income brought forward at the beginning of each financial year.



Contract research fees decreased from £5.6 million in the 2002 financial year to £3.9 million in the 2003 financial year. Through both financial years, contract research fees were recognized from ongoing
collaborations with HGSI, Pfizer, Wyeth Research and Merck. The research collaboration with HGSI concluded in March 2003 when the planned three year term expired. The three year term of the research collaboration with Pfizer expired in December
2002. In January 2003, it was agreed with Pfizer that the term of the research contract be extended by nine months to September 30, 2003. Since then both parties agreed to extend the agreement by a further two months to November 30, 2003.



Other revenues of £0.2 million were received in the 2003
financial year as compared to £0.8 million in 2002. During the 2002 financial year, revenue of £0.7 million was recognized under an agreement with Drug Royalty Corporation (DRC) as compared to nil in the 2003 financial year.
Under the agreement, CAT received a payment of £1.5 million in 1994 in return for rights to a percentage of revenues (and certain other payments) received by CAT over a period terminating in 2009. This obligation was bought out during the 2002
financial year resulting in the remaining balance of deferred income of £0.6 million being released and recognized as revenue.



The increase in revenue from the 2001 financial year to the 2002 financial year resulted primarily from an increase in milestone payments. Milestone
payments increased from nil during the 2001 financial year to £1.4 million in the 2002 financial year with the receipt of two clinical milestone payments from HGSI. These clinical milestone payments were received following initiation of Phase
I clinical trials on LymphoStat-B and TRAIL-R1 mAb during the 2002 financial year. A technical performance milestone payment was also received during the 2002 financial year under another collaboration arrangement.



Revenues recognized from license fees increased from £1.6 million for
the 2001 financial year to £1.7 million for the 2002 financial year. CAT received non-recurring license fees following the grant of five exclusive product licenses during the 2002 financial year. Three were to HGSI, for TRAIL-R1 mAb, TRAIL-R2
mAb and ABthrax. In addition, licenses for undisclosed targets were granted to Amgen and Wyeth Research. During the 2001 financial year one non-recurring license fee was received pursuant to CATs collaborative arrangement with Amgen. These
revenues have been deferred and are being spread over the shorter of the license term or the period to expiration of the relevant patents.



41



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Contract research fees increased from £5.4 million in the 2001 financial year to £5.6 million
in the 2002 financial year. The increase resulted from increased activity on CATs collaborative arrangement with Pfizer and fees being recognized from the new collaborative arrangement entered into with Merck at the beginning of the 2002
financial year, offset by a reduction in activity with Wyeth Research following the completion of the functional genomics element of that agreement.



Other revenue increased from £0.1 million in the 2001 financial year to £0.8 million in the 2002 financial year due to the release of all
deferred income regarding the DRC agreement. Under the agreement, CAT received a payment of £1.5 million in 1994 in return for rights to a percentage of revenues (and certain other payments) received by CAT over a period terminating in 2009.
This obligation was bought out during the 2002 financial year resulting in the remaining balance of £0.6 million being released and recognized as revenue.



CATs direct costs are typically payable as a proportion of certain types of its revenues, such as royalties payable to third parties. Direct
costs were £0.7 million in the 2003 financial year, £0.1 million in the 2002 financial year and £0.4 million in the 2001 financial year. Direct costs in the 2003 and 2002 financial years included agency fees incurred in obtaining
new contracts. In addition, in the 2003 financial year, direct costs included an amount payable to The Scripps Research Institute and Stratagene following CATs settlement of all pending litigation with MorphoSys. Substantially all of the
direct costs reported in the 2001 financial year were DRCs share of revenues which have not been incurred in the following years due to the termination of this agreement. In future periods, when CAT receives royalties on product sales under
its various licenses and collaboration agreements, direct costs will also include royalties payable to the Medical Research Council and other licensors.



Operating expenses, consisting of research and development expenses and general and administrative expenses, for the 2003 financial year were £54.2
million compared to £47.5 million (£39.6 million excluding DRC transaction costs) in the 2002 financial year and £27.8 million in the 2001 financial year. The increase reflects, in particular, the continuing increase in activity on
clinical trials.



Research and development expenses increased
to £45.0 million in the 2003 financial year from £31.3 million in the 2002 financial year and £21.4 million in the 2001 financial year. External development costs rose from £4.4 million in the 2001 financial year to
£8.3 million in 2002 to £15.2 million in the 2003 financial year. The increases reflect a significant rise in spending on clinical trials over the last two years, on CAT-funded programs, particularly Trabio, and on CATs co-funded
collaboration with Genzyme. The combined external development costs for Trabio and the Genzyme program were £12.8 million, £6.6 million and £2.4 million for the 2003, 2002 and 2001 financial years respectively. Research and
development staff numbers increased from 165 at the start of the 2001 financial year to 232 at the end of the 2003 financial year. Staff costs and spending on laboratory and general supplies rose in line with this growth in staff numbers. Research
and development expenditures in the 2003 financial year include the one-off cost of the cross-licensing arrangement with Xoma for antibody related technologies, entered into during December 2002.



General and administrative expenses decreased to £9.2 million in the
2003 financial year from £16.2 million, (£8.3 million excluding the DRC transaction costs) in the 2002 financial year which was an increase from £6.4 million in the 2001 financial year. For the 2003 financial year, general and
administrative expenses include £0.6 million of net costs incurred relating to the offer made for OGS (comparative periods: none). This comprised costs incurred of £1.7 million offset by a break fee of £1.1 million received from
OGS. Included in the 2002 financial year were £7.9 million of costs incurred with regard to the two DRC transactions entered into during that year (comparative years: none). CAT made a bid for DRC in January 2002. However, a competing offer
was subsequently accepted. Following



42



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acceptance of the competing offer, CAT bought out its obligation to DRC for £6.1 million with the issuance of 463,818 CAT shares to DRC. The
professional fees incurred in CATs bid and buy-back were £1.8 million. Other general and administrative expenses include fees relating to patent litigation of £0.9 million in the 2003 financial year compared to £1.9 million
in the 2002 financial year and £2.0 million in the 2001 financial year. The reduction in these costs in the 2003 financial year results from the successful resolution of all principal outstanding patent litigation in the first quarter of the
financial year. The remaining increases in general and administrative costs in the 2003 and 2002 financial years were primarily caused by costs associated with increased personnel, (from 26 employees at the start of the 2001 financial year to 47
employees at the end of 2003 financial year), larger facilities and more complex operations.



Due to the nature of CATs business, its staff are a key resource and represent a significant proportion of operating expenses. Staff numbers decreased during the 2003 financial year from 293 to 279 (the average
during the year was 296) and increased during the 2002 financial year from 247 to 293 (the average during the year was 274) and in the 2001 financial year from 191 to 247 (the average during the year was 224). The charge for the cost of shares to be
allocated under employee share schemes was £0.5 million in the 2003 financial year compared to £0.6 million in the 2002 financial year and £0.4 million in the 2001 financial year.



Total depreciation costs, the majority of which are included within research
and development expenses, increased from £2.1 million in the 2001 financial year to £2.6 million in the 2002 financial year and to £3.0 million in the 2003 financial year. This reflected a substantial investment in fixed assets in
recent years, particularly the fitting out and equipping of the Franklin Building during the 2001 financial year and the Milstein Building during the 2002 financial year. The total cost of the fit out of the Milstein and Franklin buildings was
£6.7 million. Amortization expenses, included within research and development expenses, amounted to £1.1 million in the 2003 financial year, £0.9 million in the 2002 financial year and £0.4 million in the 2001 financial year.
Amortization of the Aptein patents was £0.4 million in all three of the above financial years. Amortization of the Incyte license purchased during the 2002 financial year was £0.7 million in the 2003 financial year and £0.5 million
in the 2002 financial year.



Net interest income fell to
£4.4 million in the 2003 financial year from £6.4 million in the 2002 financial year and from £9.3 million in the 2001 financial year. Average balances of cash and liquid resources decreased during the 2003 and 2002 financial years
as cash was consumed by operating activities which, alongside lower prevailing rates of interest, resulted in reduced interest income. In the 2001 financial year, cash and liquid resources increased due to the issuance of ordinary shares to Genzyme
in October 2000 as part of a corporate agreement. This resulted in increased interest income during the 2001 financial year. CAT established a finance leasing facility during the 2003 financial year which resulted in interest payments of £0.06
million in the year (comparative periods: none).



CAT submitted
one claim in the 2003 financial year and two claims in the 2002 financial year under the research and development tax credit scheme for Small and Medium sized Enterprises in the UK. The scheme was operative from April 1, 2000. CAT chose to surrender
tax losses created through qualifying research and development expenditure in exchange for a cash refund. A claim of £0.9 million was made for the 2000 financial year, £2.6 million for the 2001 financial year and £3.1 million for
the 2002 financial year. CAT no longer qualifies as a Small and Medium sized Enterprise and hence no further claims for cash refunds under this scheme can be made. Tax of £0.6 million was withheld on the license payments received from Chugai
during the year.



43



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Liquidity and Capital Resources



Since formation, CAT has financed its operations primarily through:



| |  | an ordinary share offering in April 2000
| | - | ----------------------------------------



| |  | The initial public offering of ordinary shares in 1997
| | - | ------------------------------------------------------



| |  | subscriptions for ordinary shares in connection with strategic collaborations
| | - | -----------------------------------------------------------------------------



| |  | subscriptions for ordinary shares by corporate partners
| | - | -------------------------------------------------------



| |  | revenue from collaborative arrangements
| | - | ---------------------------------------



| |  | private placements of its ordinary shares prior to its initial public offering
| | - | ------------------------------------------------------------------------------



During the 2003, 2002 and 2001 financial years, CATs net cash used by operating activities was £35.8 million,
£26.8 million and £19.2 million respectively, in each case resulting principally from operating losses, offset by depreciation, amortization and other non-cash movements. In the 2003 and 2002 financial years, operating losses were also
offset by increases in creditors. In the 2003 financial year this was due to increases in deferred income resulting from license income received from Chugai and Merck during the year to be recognized as revenue in future periods. In the 2002
financial year the increase in creditors arose as a result of higher trade creditor balances. This was due to the invoice for the second payment on the Incyte license being received in September 2002.



A clinical milestone payment was received from Abbott during the 2003
financial year following FDA approval of HUMIRA. This has not been recognized as revenue in the period as it is creditable against future royalties receivable from Abbott.



CAT received a £5.7 million research and development tax credit during the 2003 financial year and £0.9 million
during the 2002 financial year. The credit received in the 2003 financial year was based on the claim for the 2002 and 2001 financial years and the credit received in the 2002 financial year was based on the claim for the 2000 financial year. No
similar tax credits were received in the 2001 financial year.



CAT made capital expenditures of £8.1 million, £10.0 million and £3.5 million in the 2003, 2002 and 2001 financial years, respectively. CATs capital expenditures are primarily for laboratory equipment, laboratory
facilities and related information technology equipment. CAT also invested in office and administrative facilities. Approximately half the increase in capital expenditures from the 2001 to 2002 financial year was due to the fit out of the Milstein
Building situated in Granta Park. The Milstein Building comprises approximately 66,000 square feet and was constructed specifically for CAT to lease. The remainder of the increase in capital expenditures resulted from investments made in laboratory
equipment during the 2002 financial year. The fall in capital expenditures from the 2002 to 2003 financial year was due to lower spending on laboratory equipment and the completion of the fit out of the Milstein Building early in the 2003 financial
year.



CATs net cash inflows from financing activities
during the 2003, 2002 and 2001 financial years were £11.7 million, £1.4 million and £15.4 million respectively, in each case primarily resulting from the issuance of ordinary shares. In the 2003 financial year, Genzyme increased
its equity stake in CAT through a subscription of £9.6 million for 1.8 million shares. The subscription for shares was the first of two tranches. The second tranche was a further 2.5 million shares with a value of £13.3 million, issued
following shareholder approval at the EGM held in October 2003. No significant financing transactions were completed during the 2002 financial year. In the 2001 financial year, shares were issued to Genzyme for US$20 million as part of a strategic
collaboration.



As of September 30, 2003, CAT had net current
assets of £101.3 million. During August 2003, CAT received 588,160 newly issued shares from MorphoSys as part of an agreement entered into in December 2002. A proportion of these shares have been recognized as a current asset investment,
reflecting the amount due to The Scripps Research Institute and Stratagene. The shares are due to be transferred to The Scripps Research Institute and Stratagene in three equal tranches during the next two



44



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years. The remaining shares have been accounted for as a fixed asset investment. During the 2003 financial year, CAT established a finance leasing facility
under which equipment with a cost of £1.4 million has been financed. This is repayable over four years. Creditors included an amount of £1.2 million as of September 30, 2003 regarding this finance lease facility. CATs creditors at
the end of the 2003 financial year included a total of £21.7 million of deferred income, representing non-refundable income received which will be recognized in future periods. The corresponding amount in the 2002 financial year was
£11.1 million.



CAT has incurred net losses of
£39.2 million, £28.2 million and £11.8 million in each of the 2003, 2002 and 2001 financial years. As of September 30, 2003, CAT had an accumulated loss of £122.4 million. CATs losses have resulted principally from
costs incurred in performing research and development on human monoclonal antibody product candidates and from general and administrative costs associated with CATs operations.



CAT expects to incur additional losses for a number of future years as a result of its expenditures on research and product
development, including costs associated with conducting preclinical testing and clinical trials of such product candidates, obtaining necessary regulatory approvals or other aspects of its business. This will result in substantial losses and cash
outflows for several years. CAT may be required to expend substantial funds if unforeseen difficulties arise in the course of completing required additional development of product candidates or other aspects of its business.



CATs future liquidity and capital requirements will depend on many
factors, including:



| |  | the retention of existing, and establishment of further, collaborative arrangements, if any;
| | - | --------------------------------------------------------------------------------------------



| |  | continued progress in research and development programs conducted by CAT alone, CAT with its collaborators and by CATs corporate partners affecting costs incurred and the
realization of incomes;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the scope and results of preclinical testing and clinical trials;
| | - | -----------------------------------------------------------------



| |  | the time and expense involved in obtaining regulatory approvals;
| | - | ----------------------------------------------------------------



| |  | competing technological and market developments;
| | - | ------------------------------------------------



| |  | investment in, or acquisition of, other companies;
| | - | --------------------------------------------------



| |  | purchase of intellectual property; and
| | - | --------------------------------------



| |  | other factors not within CATs control.
| | - | ---------------------------------------



Taking into account existing facilities, cash balances and investments in liquid resources, CAT believes that the working capital available to CAT is
sufficient for its requirements for at least the next twelve months. However, as a result of transactions or conditions that are not currently expected, CAT may need additional financing in the future. CAT may need to raise additional funds through
public or private financing, collaborative relationships or other arrangements. CAT cannot assure investors that such additional funding, if needed, will be available on terms favorable to CAT. Furthermore, any additional equity financing may be
dilutive to stockholders, and debt financing, if available, may involve restrictive covenants. Collaborative arrangements may require CAT to relinquish its rights to certain of its technologies, products or marketing territories. CATs failure
to raise capital when needed may have a material and adverse effect on its business, financial condition and results of operations.



As of September 30, 2003, CAT had cash and liquid resources of approximately £107.8 million. CAT has invested funds that are surplus to its current
requirements in highly liquid short-term securities managed on a discretionary basis by a third party. The principal purpose of CATs liquid resources is for future funding. Hence, their safeguarding is considered to be a greater priority than
the return made on the investments. This is reflected in the criteria within the mandate under which the fund managers operate. As the majority of CATs investments are short-term investments, exposure to interest rate changes has been minimal.
Realization of losses from interest rate movements is unlikely as investments are generally held to maturity. Declines in interest rates over time would, however, reduce CATs interest income.



45



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In October 2003, CATs shelf registration with the US Securities and Exchange Commission was
declared effective. Under this registration, CAT may, in the future, raise up to $175 million in one or more fund raisings, the size and terms of which would be determined at the relevant time.



HUMIRA Royalties



CAT received the first payment of royalties on sales of HUMIRA from Abbott in October 2003, representing
Abbotts calculation of royalties due on HUMIRA sales in the six month period ended June 30, 2003. This payment has not been accounted for as revenue in the 2003 financial year. The royalty payment will be recognized as revenue in the first
quarter of the 2004 financial year.



Financial Outlook for 2004



Recurring revenues, representing contract research
revenues and release of deferred income from licensing arrangements entered into prior to September 30, 2003, are expected to be approximately £4 million for the 2004 financial year. Additional revenues may arise from technical and clinical
milestone payments and any further licensing or contract research arrangements, including extensions to existing arrangements. In addition, royalty income from Abbott with respect to HUMIRA will be recognized as revenue during the 2004 financial
year.



In line with CATs strategy, CATs plans for
the 2004 financial year are to continue to focus on its core development programs, including Trabio, CAT-354 and its co-funded programs with Genzyme. As a result, external development expenditure, including expenditure on clinical trials, is
expected to rise again, leading to an overall increase in operating costs over 2003.



Capital expenditure over the year is expected to be significantly lower than last years level following the completion of the fit out of CATs new facilities at Granta Park. Total capital expenditure for
the year is expected to be approximately £1.5 million.



It is expected that CATs net cash outflow before financing for the current year will be up to £40 million, which net of the proceeds of the Genzyme subscription would result in a cash outflow after financing of up to £27
million.



Critical Accounting Policies and Estimates



Critical accounting policies are those policies that require the
application of managements most challenging, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Critical accounting
policies involve judgments and uncertainties that are sufficiently sensitive to result in materially different results under different assumptions and conditions. Management believe that CATs significant critical accounting policies, which
apply to both UK and US GAAP, are those set out below. For a detailed discussion of these and other policies, refer to Note 1 and Note 28 of the financial statements included in this Form 20-F.



Revenue Recognition



Revenues consist of income derived in the normal course of business from
license fees, technical milestones, clinical milestones, fees for research and development services, purchased rights and royalties.



46



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The principal area in which management is required to use estimates is in the recognition of license
fees. License fees received are deferred and recognized as revenues over the period of the license term or associated research and development agreement. In circumstances where no such defined period exists, the license fee is deferred and
recognized over the period to expiration of the relevant patents. These estimates represent managements assessment of the period over which the licensee will realize value from the relationship.



This estimate may change as the associated products to which the license
relates progress through clinical development and relevant product approvals. The impact of revised estimates could result in revenues being recognized over a revised term in future periods but without retrospective adjustment.



Non-monetary Transactions



CAT enters into certain non-monetary transactions that involve the granting
of a license over CATs proprietary technology in exchange for a license over a third partys proprietary technology. CAT accounts for these transactions at fair value where CAT is able to determine the fair value within reasonable limits.
To the extent that CAT concludes that it is unable to determine the fair value of a cross licensing transaction, that transaction is accounted for at the recorded amounts of the assets. Management is required to exercise its judgment in determining
whether or not the fair value of the asset received or that given up can be determined. In doing so, management considers, amongst other things, previous license agreements over similar intellectual property rights where there is monetary
consideration. CAT has a limited number of comparable historical license agreements. Management has determined that for all non-monetary transactions recorded to date, the fair value of the exchanged licenses is not determinable. Consequently, such
transactions have been recognized at recorded value. In the future, as CAT has further transactions, there may be a fair value assigned to similar transactions resulting in a different accounting treatment.



Intangible Assets



As of September 30, 2003, CAT had £6.9 million of intangible assets
relating to acquired patents and acquired licenses. Such assets are capitalized on the balance sheet and are amortized over their useful economic lives. Management reviews these assets for events and changes in circumstances, using cash flow
projections, that would indicate either the carrying value has been impaired or that there has been a change to the useful economic lives. The cash flow projections require assumptions about the timing and the amount of future cash inflows and
outflows, risk, the cost of capital and terminal values. If these estimates change in the future, CAT may be required to record impairment charges for these assets in future periods.



Deferred Taxation



CAT has significant deferred tax assets due to net operating losses (NOLs). The realization of these
assets is not assured and is dependent on the generation of sufficient taxable income in the future. Management has exercised judgment in determining the extent of the realization of these losses based upon estimates of future taxable income in the
various jurisdictions in which these NOLs exist. Where there is an expectation that on the balance of probabilities there will not be sufficient taxable profits to utilize these NOLs, a valuation allowance has been made against these
deferred tax assets. If actual events differ from managements estimates, or to the extent that these estimates are adjusted in the future, any changes to the valuation allowance could materially impact CATs financial position and results
of operations. Due to managements decision to apply for a research and development credit in the 2003 financial year of £5.2 million, in the 2002 financial year of £0.9 million and the resulting decrease in available NOLs
that had a valuation allowance established against it, CAT recognized £5.2 million tax benefit in the 2003 financial year and £0.9 million tax benefit during the 2002 financial year.



47



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Contingent Liabilities



CAT is involved in three cases of litigation. Management has estimated there to be no requirement to provide for liabilities
in respect of these cases. In making these estimates, management has considered the nature of the litigation (and in particular that the current litigation does not involve a material claim against CAT for damages) as well as the probability of
various outcomes. Should facts and circumstances surrounding these litigation cases change in the future there may be a requirement for management to revise estimates as to future liabilities and to record them in future financial statements.
Further information on litigation is given in Note 27 of the financial statements included in this Form 20-F.



Contractual Obligations and Commitments



CAT has various contractual obligations to make future payments including operating and finance lease obligations and other contractual commitments.



The following table summarizes CATs annual future obligations (as of September 30, 2003) under these contracts due by
financial year:



|                        |  | Payments due by period
|----------------------- |  | ----------------------
|Contractual obligations |  | Less  than1 year £000
|Debt (finance leases)   |  | 425                   
|Operating leases        |  | 1,877                 
|Purchase obligations    |  | 1,560                 
|                        |  |                       
|Total                   |  | 3,862                 
|                        |  |                       



In addition to the
commitments above, CAT has agreed to bear 50% of program costs through to early 2006 under an amended collaboration agreement with Genzyme. Due to the nature of this collaborative arrangement it does not give rise to specified cash outflows.



Differences Between UK and US GAAP



CATs consolidated financial statements are prepared in accordance with
UK GAAP, which differs in certain respects from US GAAP reporting requirements.



The principal differences relate to accounting for stock compensation, which results in increased operating expenses under US GAAP, and revenue recognition whereby revenues under US GAAP are higher than under UK GAAP.
Additionally there is a difference between UK and US GAAP relating to the accounting for the termination of the DRC agreement during the 2002 financial year, which resulted in a reduction in operating expenses under US GAAP. More details as to the
differences between UK and US GAAP are set out in Note 28 of the financial statements included in this Form 20-F.



48



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Recently Issued Accounting Pronouncements



On October 1, 2002, CAT adopted Financial Accounting Standards Board (FASB) Statement No. 142, Goodwill
and Other Intangible Assets (SFAS 142). The statement directs that goodwill and intangible assets that have indefinite lives will not be amortized, but rather will be tested at least annually for impairment. Intangible assets that
have finite lives will continue to be amortized over their useful lives, but without the constraint of an arbitrary ceiling. The adoption of this statement did not have any impact on CATs consolidated financial position or results of
operations.



On October 1, 2002, CAT adopted FASB Statement No.
143, Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. The adoption of
this statement did not have an impact on CATs consolidated financial position or results of operations.



On October 1, 2002, CAT adopted FASB Statement No. 145, Rescission of FASB Statements No.4, 44 and 64, Amendment of FASB Statement No.13 and
Technical Corrections (SFAS 145). SFAS 145 requires that gains and losses from the extinguishment of debt will no longer be classified as extraordinary unless they meet the criteria for extraordinary treatment as set out in
Accounting Principles Board Opinion No. 30. The adoption of this statement did not have an impact on CATs consolidated financial position or results of operations.



On January 1, 2003, CAT adopted FASB Statement No. 146, Accounting for Costs Associated with Exit or Disposal
Activities, which requires companies to recognize a liability for costs associated with exit or disposal activities when they are incurred, rather than at the date of commitment to an exit plan or disposal plan. The adoption of this statement
did not have any impact on CATs consolidated financial position or results of operations.



In December 2002, the FASB issued Statement No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure  an amendment to
FASB Statement No. 123 (SFAS 148). SFAS 148 provides alternative transaction methods for companies that make a voluntary change to the fair-value based method of accounting for stock-based employee compensation. In addition, SFAS
148 amends the disclosure requirements of SFAS 123 to require disclosures in both annual and interim financial statements about the method of accounting for stock based compensation and the effect of the method used on reported results. CAT has
adopted the disclosure provisions of SFAS 148 and decided to continue to account for stock options under APB 25 and, as a result, adoption of this standard did not have any impact on its consolidated financial position or results of operations.



In April 2003, the FASB issued Statement No. 149,
Amendment of SFAS No. 133 on Derivative Instruments and Hedging Activities (SFAS 149). The Statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS 133. In particular, it (1) clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative as discussed in SFAS 133, (2) clarifies when a
derivative contains a financing component, (3) amends the definition of an underlying to conform it to the language used in FIN 45 and (4) amends certain other existing pronouncements. The adoption of this Statement did not have any impact on
CATs results of operations and financial position.



In
May 2003, the FASB issued Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS 150). SFAS 150 modifies the accounting for certain financial instruments
that, under previous guidance, issuers could account for as equity. SFAS 150 requires that those instruments be classified as liabilities in statements of financial position. SFAS



49



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150 became effective for financial instruments entered into or modified after May 31, 2003, and otherwise became effective at the beginning of the first
interim period beginning after June 15, 2003. The adoption of SFAS 150 did not have any impact on the results of operations and financial position of CAT.



In November 2002, the Emerging Issues Task Force reached a final consensus related to Revenue Arrangement with Multiple Deliverables (EITF
00-21). The consensus requires that revenue arrangements with multiple deliverables should be divided into separate units of accounting (a) if a delivered item has value to the customer on stand alone basis, (b) if there is objective and
reliable evidence of the fair value of the undelivered item and (c) if the arrangement includes a general right of return and delivery or performance of the undelivered items is considered probable and substantially in the control of the vendor.
Arrangement consideration should be allocated among the separate units of accounting based on their relative fair value and appropriate revenue recognition criteria that would be applied to each separate unit of accounting. CAT has not yet
determined what effect, if any, EITF 00-21 would have on revenue and net income determined in accordance with US GAAP. The Task Force agreed that the effective date for the consensus will be for all revenue arrangements entered into in fiscal
periods beginning after June 15, 2003, with early adoption permitted. CAT is still evaluating the impact of this EITF 00-21 on its financial statements. EITF 00-21 will be effective for CAT for revenue arrangements entered into after October 1,
2003.



In November 2002, the FASB issued Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). This interpretation requires certain disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The disclosure requirements of FIN 45 are effective for interim and annual periods after December 15, 2002 and therefore, CAT has adopted these requirements. The initial recognition and initial measurement requirements of FIN
45 are effective prospectively for guarantees issued or modified after December 31, 2002. The adoption of FIN 45 did not have any impact on CATs financial statements.



In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities  and
Interpretation of ARB No. 51, (FIN 46). FIN 46 requires an enterprise to consolidate a variable interest entity (previously known as a special purpose entity) if that enterprise has a variable interest that will absorb a majority
of the entitys expected losses, receive a majority of the entitys expected residual returns, or both. This interpretation applies immediately to variable interest entities created or obtained after January 31, 2003. For those variable
interest entities created or obtained prior to that date, the interpretation required adoption in the third quarter of 2003. On October 9, 2003, the FASB issued FSP FIN 46-6, Effective Date of FASB Interpretation No. 46, Consolidation of
Variable Interest Entities. This FSP provides for two separate deferrals of the effective date for applying the provisions of FIN 46. This FSP provides a deferral for interests held by public entities in a variable interest entity or potential
variable interest entity until the end of the first interim or annual period ending after December 15, 2003, if certain conditions apply. However, early application is encouraged. CAT does not expect that the adoption of FIN 46 will have any impact
on its consolidated financial position or results of operations.



Off-Balance Sheet Arrangements



None



50



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ITEM 6 -DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES



A. Directors and Senior Management



The information set forth in the Annual Report under the headings Board of Directors, Senior
Executives and Scientific Advisory Board is incorporated herein by reference.



B. Compensation



The information set forth in the Annual Report under the heading Remuneration Report under the subheadings Benefits,
Pensions, Performance Related Remuneration, Options, Non-Executive Directors, Directors emoluments, Share incentive arrangements, Directors share options
and Share incentive plan. In addition, please see Note 18 of the financial statements included in this Form 20-F.



C. Board Practices



The information set forth in the Annual Report under the headings Board of Directors, Remuneration ReportService Contracts,
Corporate GovernanceThe Board of Directors, Corporate GovernanceThe Audit Committee and Corporate GovernanceThe Remuneration Committee is incorporated herein by reference.



D. Employees



Information regarding employees can be found in the first table under Note 7
(under the heading Staff Costs) in the financial statements included in this Form 20-F.



E. Share Ownership



The information set forth in the Annual Report under the heading Remuneration Report under the subheadings Directors share
options, Directors shareholdings, Options and Share Incentive Plan. Further information regarding share ownership can be found in Note 7 (under the heading Staff Costs) and Note 18 (under
the heading Called up share capital and share premium (in the options table)) in the financial statements included in this Form 20-F.



51



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ITEM 7 -MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS



Major Shareholders and U.S. Holdings



The information set forth in the Annual Report under the headings
Directors ReportSubstantial Shareholdings and Directors ReportU.S. Shareholdings.



On November 14, 2003, Morgan Stanley Securities Limited disclosed that it no longer was required to report to CAT, pursuant to sections 198-212 of the
Companies Act 1985, the amount of its holdings in CATs shares.



On November 21, 2003, various directors acquired CAT shares. Details of such acquisitions, and the shareholdings of such directors thereafter, are set forth on Exhibit 14.2, which is incorporated herein by reference.



The identified significant shareholders do not have different voting rights
from holders of ordinary shares. To CATs knowledge, CAT is not controlled by any person. CAT is not aware of any current arrangement, the operation of which may result in a change in control of CAT at a later date.



Changes in Holdings



CAT has been notified pursuant to sections 198-212 of the Companies Act 1985 and/or pursuant to Rule of the City Code on
Takeovers and Mergers of the following beneficial interests of the share capital of the Company:



Genzyme Corporation initially reported holdings of 4,607,982 shares as of October 24, 2003. CAT had issued 307,982 shares to Genzyme in October 2000.



Wellington Management Company LLP, who reported holdings of
3,002,500 shares as of August 19, 2003, initially reported holdings of 1,150,053 shares on February 6, 2003.



OrbiMed Advisors LLC and Samuel D. Islay initially reported holdings of 2,752,700 shares as of September 11, 2003.



Deutsche Asset Management Ltd (UK) initially reported holdings of 2,917,406
shares during the 2003 financial year.



FMR Corp., Fidelity
International Limited and Edward C. Johnson, who no longer have a notifiable interest in shares, initially reported shareholdings of 1,452,633 shares on June 28, 2000.



Human Genome Sciences Inc., who holds 1,670,000 shares acquired its shares in connection with a strategic collaboration with
CAT in April 2000 and has not reported changes in such shareholding.



Oracle Partners L.P., who no longer has a notifiable interest in shares, initially reported holdings of 1,369,945 shares on October 2, 1999.



Capital Group Inc., who no longer has a notifiable interest in shares, initially reported its holding over 3% of CATs shares during the 2001
financial year.



Legal & General Investment Management who
reported holdings of 1,584,689 shares during the 2003 financial year, initially reported its holding over 3% of CATs shares during the 2002 financial year.



52



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Related Party Transactions



None



ITEM 8 -FINANCIAL INFORMATION



Please see Item 18.



Legal Proceedings



Please see Note 27 of the financial statements included in this Form 20-F.



53



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ITEM 9 -THE OFFER AND LISTING



CATs ordinary shares began trading publicly on what was then the Official List of London Stock Exchange Limited on
March 25, 1997, under the symbol CAT. CATs ADRs (each of which represents a single ordinary share) commenced trading on the Nasdaq Stock Market on June 11, 2001 under the symbol CATG. The following table lists
information on the price range of CATs ordinary shares and ADRs. It is based on reported closing prices for CATs ordinary shares on the Official List of London Stock Exchange and closing prices for CATs ADRs as reported by
Nasdaq.



|                    |  | HighU.S.$ |  | LowU.S.$ |  | High £ |  | Low £
|------------------- |  | --------- |  | -------- |  | ------ |  | -----
|                    |  |           |  |         
|Financial year 1999 |  |           |  |          |  |        |  |      
|                    |  |           |  |         
|First quarter       |  |           |  |          |  | 2.50   |  | 1.30 
|Second quarter      |  |           |  |          |  | 2.50   |  | 1.89 
|Third quarter       |  |           |  |          |  | 2.46   |  | 1.92 
|Fourth quarter      |  |           |  |          |  | 2.25   |  | 1.67 
|                    |  |           |  |         
|Financial year 2000 |  |           |  |          |  |        |  |      
|                    |  |           |  |         
|First quarter       |  |           |  |          |  | 49.00  |  | 5.85 
|Second quarter      |  |           |  |          |  | 29.25  |  | 18.25
|Third quarter       |  |           |  |          |  | 30.25  |  | 18.25
|Fourth quarter      |  |           |  |          |  | 41.50  |  | 29.00
|                    |  |           |  |         
|Financial year 2001 |  |           |  |          |  |        |  |      
|                    |  |           |  |         
|First quarter       |  |           |  |          |  | 43.88  |  | 26.05
|Second quarter      |  |           |  |          |  | 35.50  |  | 13.38
|Third quarter       |  |           |  |          |  | 26.65  |  | 15.38
|Fourth quarter      |  | 31.44     |  | 13.10    |  | 21.69  |  | 8.70 
|                    |  |           |  |         
|Financial year 2002 |  |           |  |          |  |        |  |      
|                    |  |           |  |         
|First quarter       |  | 30.50     |  | 19.80    |  | 20.00  |  | 13.18
|Second quarter      |  | 26.75     |  | 19.00    |  | 19.28  |  | 12.91
|Third quarter       |  | 22.70     |  | 14.00    |  | 14.90  |  | 9.80 
|Fourth quarter      |  | 16.74     |  | 6.76     |  | 10.05  |  | 4.24 
|                    |  |           |  |         
|Financial year 2003 |  |           |  |          |  |        |  |      
|                    |  |           |  |         
|First quarter       |  | 9.87      |  | 7.20     |  | 6.20   |  | 4.57 
|Second quarter      |  | 9.69      |  | 5.32     |  | 5.90   |  | 3.21 
|Third quarter       |  | 9.81      |  | 5.45     |  | 5.80   |  | 3.30 
|Fourth quarter      |  | 9.35      |  | 6.91     |  | 5.80   |  | 4.15 
|June 2003           |  | 9.81      |  | 7.71     |  | 5.80   |  | 4.85 
|July 2003           |  | 8.71      |  | 6.91     |  | 5.25   |  | 4.15 
|August 2003         |  | 9.35      |  | 7.17     |  | 5.65   |  | 4.50 
|September 2003      |  | 9.20      |  | 8.19     |  | 5.80   |  | 4.87 
|October 2003        |  | 9.26      |  | 7.47     |  | 5.50   |  | 4.46 
|November 2003       |  | 8.80      |  | 7.20     |  | 5.30   |  | 4.25 



54



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ITEM 10 -ADDITIONAL INFORMATION



A. Share Capital



Not applicable.



B. Memorandum and Articles of Association



The information set forth under the heading Description of Share Capital in the Companys Registration Statement on Form 20-F/A, as
amended, dated June 5, 2001, is incorporated herein by reference.



C. Material Contracts



The information required by this item is contained in Item 3.B. of this Form 20-F.



D. Exchange Controls



None.



E. Taxation



United Kingdom Tax Considerations



The following is a brief description of the material United Kingdom tax
consequences of the acquisition, ownership and disposition of shares, including ADRs. The summary is of a general nature and does not address all of the tax consequences that may be relevant to you in light of your particular situation. You should
consult your own tax advisors as to the particular tax consequences to you under United Kingdom, United States federal, state and local and other foreign laws, of the acquisition, ownership and disposition of shares or ADRs.



Taxation of Dividends and Distributions



Under current U.K. taxation legislation, no tax will be withheld from cash
dividend payments by CAT.



U.S. holders of shares or ADRs will
not receive any payment from the U.K. Inland Revenue in respect of any tax credit on dividends paid by CAT. A new taxation treaty between the U.S. and the U.K., which came into effect in 2003, does not provide for a tax credit on a dividend payment
made by a U.K. company. Provision is made in the new treaty for a twelve month transitional period, during which a resident of the U.S. may continue to rely on the terms of the existing treaty if those terms are favorable.



55



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You should consult your own tax advisors as to whether any tax credit or the notional U.K. withholding
tax under the income tax treaty will be considered to have been paid with respect to dividends.



United Kingdom Taxation of Capital Gains



U.S. holders of shares or ADRs who are not resident or ordinarily resident in the United Kingdom will not be liable for U.K. tax on capital gains realized on the disposal of a share or ADR unless, at the time of the
disposal, such holder carries on a trade, including a profession or vocation, in the United Kingdom through a branch or agency and such share or ADR is, or has been, held or acquired for the purposes of such trade or branch or agency.



A holder of shares or ADRs who is an individual and who has on or after March
17, 1998 ceased to be resident or ordinarily resident for tax purposes in the United Kingdom and continues not to be resident or ordinarily resident in the United Kingdom for a period of less than five years and who disposes of shares of ADRs during
that period may also be liable to U.K. tax on capital gains, notwithstanding that he or she is not resident or ordinarily resident in the United Kingdom at the time of the disposal.



Neither the surrender of ADRs in exchange for the deposited ordinary shares represented by the surrendered ADRs nor the
deposit of ordinary shares for ADRs representing the ordinary shares will be a taxable event for the purposes of U.K. income and corporation tax or U.K. capital gains tax. Accordingly, U.S. holders will not realize any gain or loss on surrendering
ADRs or depositing shares.



United Kingdom Inheritance Tax



Subject to the discussion of the estate tax treaty in
the next paragraph, shares of ADRs beneficially owned by an individual will be subject to U.K. inheritance tax on the death of the individual or, in some circumstances, if the shares or ADRs are the subject of a gift, including a transfer at less
than full market value, by such individual. Inheritance tax is not generally chargeable on gifts to individuals or to some types of settlement made more than seven years before the death of the donor. Special rules apply to shares or ADRs held in a
settlement.



A share or ADR held by an individual whose
domicile is determined to be the United States for purposes of the estate tax treaty and who is not a national of the United Kingdom, will not be subject to U.K. inheritance tax on the individuals death or on a lifetime transfer of the share
of ADR except where the share or ADR:



| | is part of the business property of a U.K. permanent establishment of an enterprise, or
|- | ---------------------------------------------------------------------------------------



| | pertains to a U.K. fixed base of an individual used for the performance of independent personal services.
|- | ---------------------------------------------------------------------------------------------------------



The estate tax treaty generally provides a credit against U.S. federal tax liability for the amount of any tax paid in the
United Kingdom in a case where the share or ADR is subject both to U.K. inheritance tax and to U.S. federal estate or gift tax.



56



---

United Kingdom Stamp Duty and Stamp Duty Reserve Tax (SDRT)



U.K. stamp duty or SDRT will, subject to specific exceptions, be payable at
the rate of 1.5% rounded up to the nearest £5 of the amount of the consideration paid for the shares in registered form which are issued or transferred:



| | to, or to a nominee or agent for, a person whose business is or includes the provision of clearance services or
|- | ---------------------------------------------------------------------------------------------------------------



| | to, or to a nominee or agent for, a person whose business is or includes issuing depositary receipts. This would include issues or transfers of shares in registered form to the
Custodian for deposits under the ADR deposit agreement. In circumstances where stamp duty is not payable on the transfer of shares in registered form to the Custodian at the rate of 1.5%, such as where there is no chargeable instrument, SDRT will be
payable to bring the charge up to 1.5% in total.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



No U.K. stamp duty will be payable on the acquisition of any ADR or on any subsequent transfer of an ADR, provided that the instrument of transfer and any subsequent instrument of transfer is executed and remains at all times outside the
United Kingdom. In any other case, the transfer of, or agreement to transfer, an ADR or beneficial ownership of an ADR could, depending on all the circumstances of the transfer, give rise to a charge to ad valorem stamp duty. The current rate of ad
valorem stamp duty is 0.5% of the value of the consideration (rounded up to the nearest £5) (a transfer in contemplation of sale being stampable by reference to the value of the property transferred). Interest will be charged on duty that is
not paid within 30 days of execution of a transfer of securities subject to stamp duty, wherever execution takes place. Interest paid will not be allowable as a deduction in computing profits and losses for U.K. tax purposes. Penalties will also
apply to documents submitted for stamping more than 30 days after the document was executed where the document was executed in the United Kingdom. For documents executed outside the U.K., penalties will apply to documents not submitted for stamping
within 30 days after they are first brought into the U.K. An agreement to transfer an ADR or beneficial ownership of an ADR will not give rise to SDRT.



Subject to some exceptions, a transfer on sale of shares in registered form will attract ad valorem U.K. stamp duty at the rate of 0.5% of the amount or
value of the consideration for the transfer rounded up to the nearest £5. Generally ad valorem stamp duty applies neither to gifts nor on a transfer from a nominee to the beneficial owner, although in cases of transfers where no ad valorem
stamp duty arises, a fixed U.K. stamp duty of £5 will generally be payable. SDRT at a rate of 0.5% of the amount or value of the consideration for the transfer may be payable on an unconditional agreement to transfer shares. If, within six
years of the date of the agreement, an instrument transferring the shares is executed and stamped, any SDRT paid will be repayable or, if the SDRT has not been paid, the liability to pay such tax, but not necessarily interest and penalties, will be
cancelled. SDRT is chargeable whether the agreement is made or effected in the United Kingdom or elsewhere and whether or not any party is resident or situated in any part of the United Kingdom.



Paperless transfers of shares within the U.K. CREST system are generally
liable to SDRT, rather than stamp duty, at a rate of 0.5% of the amount or value of the consideration payable. CREST is obliged to collect SDRT on relevant transactions settled within the CREST system. Deposits of shares into CREST will not
generally be subject to SDRT, unless the transfer into CREST is made for consideration.



United States Federal Income Tax Considerations



Taxation of Dividends



The gross amount
of a distribution paid on a share (including ADRs), including the full amount of any notional U.K. withholding tax thereon, will be a dividend for U.S. federal income tax purposes to the extent paid out of current or accumulated earnings and
profits. To the extent that a distribution exceeds CATs current or accumulated earnings and profits, it will be treated as a nontaxable return of capital and thereafter as a capital gain. Dividends paid by CAT generally will be treated as
foreign source income and will not be eligible for the dividends received deduction allowed to corporate shareholders under the U.S. Internal Revenue Code.



57



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Recently enacted legislation provides that dividends paid by U.S. corporations and certain foreign
corporations will be taxed in the hands of individuals at the same preferential tax rate as long term capital gains. Dividends paid by CAT will be eligible for this preferential tax rate in any year that CAT is not treated as a PFIC (as defined
below) for that year.



The amount of any distribution paid in
pounds sterling will equal the fair market value in U.S. dollars of the pounds sterling received on the date received by you in the case of shares, or by the Depositary, in the case of ADRs, based on the spot exchange rate on such date. You will
have a basis in any pounds sterling distributed, equal to the dollar value of pounds sterling on the date received by you, in the case of shares, or by the Depositary, in the case of ADRs. Any gain or loss recognized upon a subsequent disposition of
pounds sterling will be U.S. source ordinary income or loss.



Subject to complex limitations, and further subject to changes in the treaty between the U.S. and the U.K., the U.K. notional withholding tax will be treated for U.S. tax purposes as a foreign tax that may be claimed as a foreign tax credit
against your U.S. federal income tax liability. Dividends distributed by CAT will generally be categorized as passive income or, in the case of some holders, as financial services income, for purposes of computing allowable
foreign tax credits for U.S. tax purposes. The rules relating to the determination of the foreign tax credit are complex and you should consult your own tax advisers to determine whether and to what extent a credit would be available. In lieu of
claiming a credit, you may claim a deduction of foreign taxes paid in the taxable year. Unlike a tax credit, a deduction generally does not reduce U.S. tax on a dollar-for-dollar basis.



Taxation of Capital Gains



Upon the sale or exchange of a share or an ADR, you generally will recognize a gain or a loss for U.S. federal income tax purposes in an amount equal to
the difference between the amount realized and your adjusted tax basis in the share or the ADR. Such gain or loss will be a capital gain or loss. Such gain or loss will generally be treated as U.S. source gain or loss. If you are an individual, any
such capital gain will generally be subject to U.S. federal income tax at preferential rates if specified minimum holding periods are met.



The surrender of ADRs in exchange for shares will not be a taxable event for U.S. federal income tax purposes. Accordingly, you will not recognize any
gain or loss upon such surrender.



United States Anti-Deferral Provisions



The U.S. Internal Revenue Code contains certain
anti-deferral provisions which, if applicable, would change the U.S. federal income tax consequences of owning or disposing of shares or ADRs discussed above. These provisions generally seek to reduce or eliminate the effect of the
deferral of U.S. taxes on certain undistributed earnings of foreign corporations, with the result that in some cases income may be required to be recognized before an actual cash distribution is made. As of the date of this prospectus, except as set
forth below with respect to the rules regarding passive foreign investment companies, CAT believes that these anti-deferral provisions will not apply to holders of shares or ADRs.



United States Information Reporting and Backup Withholding



Dividend payments with respect to shares and ADRs and proceeds from the sale, exchange or redemption of shares or ADRs may
be subject to information reporting to the IRS and possible U.S. backup withholding currently at a 28% rate. Backup withholding will not apply to you, however, if you furnish a correct taxpayer identification number and make any other required
certification or if you are otherwise exempt from backup withholding. If you are required to establish your exempt status, you generally must provide such certification on IRS Form W-9.



58



---

Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability,
and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the IRS and furnishing any required information.



PFIC Annual Information Statement



For the 2003 financial year, CAT believes that it is a PFIC (as defined
below).



Definition of Passive Foreign Investment Company
(PFIC)



In general, shares or ADRs of U.S.
holders will be treated as stock in a PFIC if, for any taxable year in which the shares or ADRs are held:



| | at least 75% of CATs gross income for the taxable year is passive income, or
|- | -----------------------------------------------------------------------------



| | at least 50% of the value, determined on the basis of a quarterly average, of CATs assets is attributable to assets that produce or are held for the production of passive
income.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Passive income generally includes
dividends, interest, royalties, rents (other than certain rents and royalties derived in the active conduct of a trade or business), annuities and gains from assets that produce passive income. If a foreign corporation owns at least 25% by value of
the stock of another corporation, the foreign corporation is treated for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation, and as receiving directly its proportionate share of the other
corporations income.



Because CAT likely is a PFIC, if a
U.S. holder of CAT shares does not make a mark-to-market election (as described below), the U.S. holder will be subject to special rules with respect to any gain realized on the sale or other disposition of CATs ordinary shares or ADRs.



Under these rules:



| | the gain will be allocated ratably over your holding period for the shares or ADRs,
|- | -----------------------------------------------------------------------------------



| | the amount allocated to the taxable year in which the gain is realized and any tax year before CAT qualified as a PFIC will be taxed as ordinary income,
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------



| | the amount allocated to each prior year during which CAT qualified as a PFIC, with certain exceptions, will be taxed at the highest tax rate in effect for that year, and
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such prior year in which CAT qualified as a PFIC to which
such gain is allocated.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



CAT does not intend to
pay dividends for the foreseeable future. If, however, CAT should make an excess distribution to shareholders (generally, any distributions to shareholders during a single taxable year that are greater than 125% of the average annual
distributions received by shareholders in respect of the shares or ADRs during the three preceding taxable years or, if shorter, the holding period for the shares or ADRs) and CAT is treated as a PFIC, the excess distribution would be treated the
same way a gain would be treated, as described in the preceding paragraph.



Because the shares of CAT are publicly traded, holders may make a mark-to-market election. If this election is made, the PFIC rules described above will not apply. Instead, in general, ordinary income will include
each year the excess, if any, of the fair market value of the shares or ADRs at the end of the



59



---

taxable year over the adjusted basis in the shares or ADRs. Holders will also be allowed to take an ordinary loss in respect of the excess, if any, of the
adjusted basis of the shares or ADRs over their fair market value at the end of the taxable year (but only to the extent of the net amount of previously included income as a result of the mark-to-market election). The basis in the shares or ADRs
will be adjusted to reflect any such income or loss amounts. If a particular Holder does not make the mark-to-market election in the later of the first year that CAT is a PFIC or the first year when the Holder acquires shares of CAT, any unrealized
gain at the time of the election is made will be taxed under the special rules set forth above.



Holders who own ADRs during any year that CAT is a PFIC must file Internal Revenue Service Form 8621.



F. Dividends and Paying Agents



Not applicable.



G. Statement by Experts



Not applicable.



H. Documents on Display



The exhibits to this Form 20-F are available for review at the
Companys registered office.



I. Subsidiary
Information



Not applicable.



ITEM 11 -QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Information regarding quantitative and qualitative disclosures about market
risk can be found in Note 17 (under the heading Financial Instruments) in the financial statements included in this Form 20-F.



ITEM 12 -DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES



Not applicable.



PART II



ITEM 13
-DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES



(a)
There has been no material default in payment of principal, interest, a sinking or purchase fund installment, or any other material default with respect to any indebtedness of the Company or any of its significant subsidiaries.



(b) There have been no arrears in the payment of dividends on, and no
material delinquency with respect to, any class of preferred stock of any significant subsidiary of the Company.



ITEM 14 -MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS



Not applicable.



60



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ITEM 15 -CONTROLS AND PROCEDURES



The Company has carried out an evaluation, under the supervision and with the participation of the Companys Disclosure
Committee and the Companys management including the Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures pursuant to Exchange Act Rule 15d-15. Based on that
evaluation the Chief Executive Officer and the Chief Financial Officer concluded that, as of September 30, 2003, the Companys disclosure controls and procedures are effective. There was no change in the Companys internal control over
financial reporting that occurred during the 2003 financial year that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



ITEM 16A AUDIT COMMITTEE FINANCIAL EXPERT



CATs board of directors has determined that Åke Stavling, the
chairman of its audit committee, is an audit committee financial expert.



ITEM 16B CODE OF ETHICS



CAT has
adopted a code of ethics that applies to all of its employees, including its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of CATs code of
ethics has been filed as an exhibit to this Form 20-F.



PART
III



ITEM 17 -FINANCIAL STATEMENTS



The Company has responded to Item 18 in lieu of this item.



ITEM 18 -FINANCIAL STATEMENTS



The Companys financial statements are included beginning on page F-1.



ITEM 19 -EXHIBITS



Please see the attached Index of Exhibits.





61



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Report of independent auditors



We have audited the accompanying consolidated balance sheets of Cambridge Antibody Technology Group plc as at September 30, 2003 and 2002,
and the related consolidated profit and loss accounts, the consolidated cash flow statements and the consolidated statements of total recognised gains and losses for each of the three years in the period ended September 30, 2003, all expressed in
pounds sterling. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the financial statements based on our audits.



We conducted our audits in accordance with auditing standards generally accepted in the
United States of America. Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.



In our
opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Cambridge Antibody Technology Group plc as at September 30, 2003 and 2002 and the results of their operations and their cash flows
for each of the three years in the period ended September 30, 2003 in conformity with accounting principles generally accepted in the United Kingdom.



Accounting principles generally accepted in the United Kingdom differ in certain significant respects from accounting principles generally accepted in the United States
of America. The application of the latter would have affected the determination of net loss for each of the three years in the period ended September 2003 and the determination of shareholders equity as at September 30, 2003 and 2002, to the
extent summarised in Note 28 to the consolidated financial statements.



Deloitte & Touche LLP

Cambridge, England.

November 14, 2003



|Annual Report 2003 |  | F-1 |  | Cambridge Antibody Technology Group plc
|------------------ |  | --- |  | ---------------------------------------



---

Consolidated profit and loss account



|For the year ended 30 September 2003                   |  | Notes |  | 2003 £000 |   |  | 2002 £000 |   |  | 2001 £000 |  
|------------------------------------------------------ |  | ----- |  | ---------- | - |  | ---------- | - |  | ---------- | -
|Turnover                                               |  | 2     |  | 8,743      |   |  | 9,471      |   |  | 7,121      |  
|Direct costs                                           |  |       |  | (690       | ) |  | (80        | ) |  | (351       | )
|                                                       |  |       |  |            |   |  |            |   |  |            |  
|Gross profit                                           |  |       |  | 8,053      |   |  | 9,391      |   |  | 6,770      |  
|Research and development expenses                      |  |       |  | (44,981    | ) |  | (31,307    | ) |  | (21,393    | )
|                                                       |  |       |  |            |   |  |            |   |  |            |  
|Drug Royalty Corporation transaction costs             |  | 3     |  |           |   |  | (7,913     | ) |  |           |  
|Other general and administration expenses              |  | 4     |  | (9,196     | ) |  | (8,321     | ) |  | (6,443     | )
|                                                       |  |       |  |            |   |  |            |   |  |            |  
|General and administration expenses                    |  |       |  | (9,196     | ) |  | (16,234    | ) |  | (6,443     | )
|Operating loss                                         |  |       |  | (46,124    | ) |  | (38,150    | ) |  | (21,066    | )
|Finance income (net)                                   |  | 6     |  | 4,360      |   |  | 6,386      |   |  | 9,295      |  
|                                                       |  |       |  |            |   |  |            |   |  |            |  
|Loss on ordinary activities before taxation            |  | 5     |  | (41,764    | ) |  | (31,764    | ) |  | (11,771    | )
|Taxation on loss on ordinary activities                |  | 8     |  | 2,573      |   |  | 3,557      |   |  |           |  
|                                                       |  |       |  |            |   |  |            |   |  |            |  
|Loss for the financial year                            |  | 19    |  | (39,191    | ) |  | (28,207    | ) |  | (11,771    | )
|                                                       |  |       |  |            |   |  |            |   |  |            |  
|Loss per share  basic and diluted (pence)             |  | 9     |  | 107.5      | p |  | 78.7       | p |  | 33.3       | p
|                                                       |  |       |  |            |   |  |            |   |  |            |  
|Shares used in calculating net loss per share (number) |  | 9     |  | 36,440,993 |   |  | 35,828,446 |   |  | 35,313,260 |  



The losses for all years arise from
continuing operations.



Consolidated statement of total recognised gains and
losses



|For the year ended 30 September 2003         |  | 2003 £000 |   |  | 2002 £000 |   |  | 2001 £000 |  
|-------------------------------------------- |  | ---------- | - |  | ---------- | - |  | ---------- | -
|Loss for the financial year                  |  | (39,191    | ) |  | (28,207    | ) |  | (11,771    | )
|Gain on foreign exchange translation         |  | 606        |   |  | 96         |   |  | 1          |  
|                                             |  |            |   |  |            |   |  |            |  
|Total recognised losses relating to the year |  | (38,585    | ) |  | (28,111    | ) |  | (11,770    | )
|                                             |  |            |   |  |            |   |  |            |  



The accompanying notes are an integral
part of this consolidated profit and loss account and consolidated statement of total recognised gains and losses.



|Cambridge Antibody Technology Group plc |  | F-2 |  | Annual Report 2003
|--------------------------------------- |  | --- |  | ------------------



---

Consolidated balance sheet



|At 30 September 2003                         |  | Notes |  | 2003 £000 |   |  | 2002 £000 |  
|-------------------------------------------- |  | ----- |  | ---------- | - |  | ---------- | -
|Fixed assets                                 |  |       |  |            |   |  |            |  
|Intangible assets                            |  | 10    |  | 6,883      |   |  | 7,933      |  
|Tangible assets                              |  | 11    |  | 14,366     |   |  | 12,429     |  
|Investments                                  |  | 12    |  | 3,373      |   |  | 215        |  
|                                             |  |       |  |            |   |  |            |  
|                                             |  |       |  | 24,622     |   |  | 20,577     |  
|Current assets                               |  |       |  |            |   |  |            |  
|Debtors                                      |  | 13    |  | 4,526      |   |  | 6,556      |  
|Short term investments                       |  | 14    |  | 108,347    |   |  | 126,694    |  
|Cash at bank and in hand                     |  |       |  | 1,056      |   |  | 3,081      |  
|                                             |  |       |  |            |   |  |            |  
|                                             |  |       |  | 113,929    |   |  | 136,331    |  
|Creditors                                    |  |       |  |            |   |  |            |  
|Amounts falling due within one year          |  | 15    |  | (12,657    | ) |  | (12,563    | )
|                                             |  |       |  |            |   |  |            |  
|Net current assets                           |  |       |  | 101,272    |   |  | 123,768    |  
|                                             |  |       |  |            |   |  |            |  
|Total assets less current liabilities        |  |       |  | 125,894    |   |  | 144,345    |  
|Creditors                                    |  |       |  |            |   |  |            |  
|Amounts falling due after more than one year |  | 16    |  | (18,152    | ) |  | (8,580     | )
|                                             |  |       |  |            |   |  |            |  
|Net assets                                   |  |       |  | 107,742    |   |  | 135,765    |  
|                                             |  |       |  |            |   |  |            |  
|Capital and reserves                         |  |       |  |            |   |  |            |  
|Called-up share capital                      |  | 18    |  | 3,834      |   |  | 3,621      |  
|Share premium account                        |  | 18    |  | 212,883    |   |  | 202,534    |  
|Other reserve                                |  | 19    |  | 13,456     |   |  | 13,456     |  
|Profit and loss account                      |  | 19    |  | (122,431   | ) |  | (83,846    | )
|                                             |  |       |  |            |   |  |            |  
|Shareholders funds  all equity             |  | 20    |  | 107,742    |   |  | 135,765    |  
|                                             |  |       |  |            |   |  |            |  



The accompanying notes are an integral
part of this consolidated balance sheet.



|Annual Report 2003 |  | F-3 |  | Cambridge Antibody Technology Group plc
|------------------ |  | --- |  | ---------------------------------------



---

Company balance sheet



|At 30 September 2003                  |  | Notes |  | 2003 £000 |   |  | 2002 £000 |  
|------------------------------------- |  | ----- |  | ---------- | - |  | ---------- | -
|Fixed assets                          |  |       |  |            |   |  |            |  
|Investments                           |  | 12    |  | 101,456    |   |  | 101,456    |  
|                                      |  |       |  |            |   |  |            |  
|Current assets                        |  |       |  |            |   |  |            |  
|Debtors                               |  | 13    |  | 32,181     |   |  | 1,627      |  
|Short term investments                |  | 14    |  | 106,501    |   |  | 125,126    |  
|Cash at bank and in hand              |  |       |  | 4          |   |  | 3          |  
|                                      |  |       |  |            |   |  |            |  
|                                      |  |       |  | 138,686    |   |  | 126,756    |  
|Creditors                             |  |       |  |            |   |  |            |  
|Amounts falling due within one year   |  | 15    |  | (247       | ) |  | (1,242     | )
|                                      |  |       |  |            |   |  |            |  
|Net current assets                    |  |       |  | 138,439    |   |  | 125,514    |  
|                                      |  |       |  |            |   |  |            |  
|Total assets less current liabilities |  |       |  | 239,895    |   |  | 226,970    |  
|                                      |  |       |  |            |   |  |            |  
|Net assets                            |  |       |  | 239,895    |   |  | 226,970    |  
|                                      |  |       |  |            |   |  |            |  
|Capital and reserves                  |  |       |  |            |   |  |            |  
|Called-up share capital               |  | 18    |  | 3,834      |   |  | 3,621      |  
|Share premium account                 |  | 18    |  | 212,883    |   |  | 202,534    |  
|Profit and loss account               |  | 19    |  | 23,178     |   |  | 20,815     |  
|                                      |  |       |  |            |   |  |            |  
|Shareholders funds  all equity      |  |       |  | 239,895    |   |  | 226,970    |  
|                                      |  |       |  |            |   |  |            |  



The accompanying notes are an integral
part of this Company balance sheet.



Signed on behalf of the Board



John Aston

Director

14 November 2003



|Cambridge Antibody Technology Group plc |  | F-4 |  | Annual Report 2003
|--------------------------------------- |  | --- |  | ------------------



---

Consolidated cash flow statement



|For the year ended 30 September 2003                                 |  | Notes |  | 2003 £000 |   |  | 2002 £000 |   |  | 2001 £000 |  
|-------------------------------------------------------------------- |  | ----- |  | ---------- | - |  | ---------- | - |  | ---------- | -
|Net cash outflow from operating activities                           |  | 21    |  | (35,819    | ) |  | (26,808    | ) |  | (19,150    | )
|Returns on investments and servicing of finance                      |  | 22    |  | 5,049      |   |  | 7,558      |   |  | 8,322      |  
|Taxation                                                             |  | 22    |  | 5,210      |   |  | 920        |   |  |           |  
|Capital expenditure and financial investment                         |  | 22    |  | (8,082     | ) |  | (9,961     | ) |  | (3,481     | )
|                                                                     |  |       |  |            |   |  |            |   |  |            |  
|Net cash outflow before management of liquid resources and financing |  |       |  | (33,642    | ) |  | (28,291    | ) |  | (14,309    | )
|Management of liquid resources                                       |  | 22    |  | 18,778     |   |  | 29,534     |   |  | 274        |  
|Financing                                                            |  | 22    |  | 11,730     |   |  | 1,448      |   |  | 15,380     |  
|                                                                     |  |       |  |            |   |  |            |   |  |            |  
|(Decrease)/increase in cash                                          |  | 23    |  | (3,134     | ) |  | 2,691      |   |  | 1,345      |  
|                                                                     |  |       |  |            |   |  |            |   |  |            |  



The accompanying notes are an integral
part of this consolidated cash flow statement.



|Annual Report 2003 |  | F-5 |  | Cambridge Antibody Technology Group plc
|------------------ |  | --- |  | ---------------------------------------



---

Notes to the financial statements

---



1 Description of business and accounting policies



Cambridge Antibody Technology Group plc is the holding company of a group of biotechnology
companies based in the United Kingdom. The Company and its subsidiaries use an advanced platform technology for the rapid isolation of human monoclonal antibodies, which have potential to identify and treat human diseases. The Group uses proprietary
technologies for drug discovery and drug development, exploiting the characteristics of antibodies both to discover and validate new disease targets and to engineer human monoclonal antibodies as treatments for human diseases.



The Groups aim is to secure short term revenues through licences of its technology and
long term revenues through product development, working in partnership with other companies at all stages of the drug product discovery and development process. The Groups past and present collaborative partners include Abbott, Wyeth Research,
Pfizer, HGSI, Genzyme, Amgen, Amrad, Elan, Chugai and Merck. The Groups collaborative agreements may cover research activities or product development or both.



A summary of the principal accounting policies is set out below. These have all been applied consistently throughout the periods covered by
this report.



Basis of accountingThe financial statements have been
prepared under the historical cost convention and in accordance with generally accepted accounting standards in the United Kingdom (UK GAAP).



Basis of consolidationThe Group financial statements consolidate the financial statements of Cambridge Antibody Technology Group plc (the Company) and its
subsidiary undertakings (collectively the Group), drawn up to 30 September each year. All intercompany balances and transactions have been eliminated on consolidation.



The acquisition of Cambridge Antibody Technology Limited (CAT Limited), by way of share for share exchange on 20 December 1996 was accounted
for as a group reconstruction in accordance with Financial Reporting Standard (FRS) 6. Consequently, consolidated financial information is presented as if the Company has always owned CAT Limited. Otherwise, the results of subsidiaries acquired are
consolidated for the periods from the date on which control passed. Such acquisitions are accounted for under the acquisition method. The results of subsidiaries disposed of are consolidated up to the date on which control passed.



The profit for the financial year dealt with in the financial statements of the Company was
£2,363,000 (2002: £3,090,000). As provided by S.230 of the Companies Act 1985, no company only profit and loss account is presented in respect of the Company.



GoodwillGoodwill, representing the excess of fair value of the consideration given over the fair value of the identifiable assets
and liabilities acquired, is capitalised as an asset on the balance sheet. On disposal of a previously acquired business, the attributable amount of goodwill previously written off to reserves under the then applicable accounting policy is included
in determining the profit or loss on disposal.



TurnoverTurnover
principally consists of income received in the normal course of business from license fees, technical milestones, clinical milestones, fees for research and development services, payments for purchased rights, and royalties. These are stated net of
trade discounts, VAT and other sales related taxes.



A description of the
various elements of turnover and their accounting policies is given below.



Licence feesLicence fees are deferred and recognised over the period of the licence term or the period of the associated research and development agreement (where relevant). In circumstances where no such
defined period exists, the licence fee is deferred and recognised over the period to expiration of the relevant patents licenced. For licence fees where a proportion of the fee is creditable against research and development services to be provided
in the future that proportion of the amount received is deferred and recognised over the period during which the services are rendered.



Technical milestonesDuring certain research and development programs the Group receives non-refundable milestone payments when it achieves certain
defined technical criteria. Such milestones are recognised based on the percentage of completion of the relevant research and development program subject to the total revenue recognised being limited to the aggregate amount of non-refundable
milestone payments received. The percentage completion is determined by reference to effort in hours incurred compared to total estimated effort for the program.



Clinical milestonesThe Group receives non-refundable clinical development milestones when a licensee or corporate
partner achieves key stages in clinical trials which they are conducting with a view to the ultimate commercialisation of a product derived using the Groups proprietary technology. Such milestones are recognised when received except that if
such milestones are creditable against future royalty payments a relevant amount will be deferred and released as the related royalty payments are received.



Research and development servicesThe Group provides research and development services to certain corporate collaborators, usually in the form of a
defined number of the Groups employees working under the direction of the collaborator to further the collaborators research and development effort. Such contracts are made on the basis of Full Time Equivalent (FTE) employees and are
charged at a specified rate per FTE. Revenues from FTE services are recognised as the services are rendered.



Purchased rightsUnder an agreement with Drug Royalty Corporation (DRC) the Group received a payment of £1.5 million in 1994 in return for
rights to a percentage of revenues (and certain other payments) received by the Group over a period terminating in 2009. The Groups accounting policy is that the payment be deferred and recognised ratably over the period for which rights were
purchased. On 2 May 2002 the Group bought out this royalty obligation with the issue of CAT shares to DRC. The remaining balance of deferred income was released in the year ended 30 September 2002.



|Cambridge Antibody Technology Group plc |  | F-6 |  | Annual Report 2003
|--------------------------------------- |  | --- |  | ------------------



---

1 Description of business and accounting policiescontinued



RoyaltiesRoyalty income is generated by sales of products
incorporating the Groups proprietary technology. Royalty revenues are recognised once the amounts due can be reliably estimated based on the sale of underlying products and collectibility is assured. Where there is insufficient historical data
on sales and returns to fulfil these requirements, for example in the case of a new product, the royalty revenue will not be recognised until the Group can reliably estimate the underlying sales. This may be considerably later than when payment is
received if subsequent adjustments for product returns are possible under the terms of the relevant contract. In situations where there is adequate historical information on sales figures, royalties are recorded based on the reports received from
the licensee or based on estimated sales if the information has not been received.



Government grantsGrants of a revenue nature are credited to the profit and loss account as the related expenditure is incurred.



TaxationCurrent tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that
have been enacted by the balance sheet date.



Deferred tax is provided in full
on timing differences which result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences
arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in financial statements. Deferred tax is not provided on timing differences arising from the revaluation
of fixed assets where there is no commitment to sell the asset, or on unremitted earnings of subsidiaries and associates where there is no commitment to remit these earnings. Deferred tax assets are recognised to the extent that it is regarded as
more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted.



Research and developmentResearch and development expenditure is written off as incurred.



Collaboration arrangementsThe Group has entered into certain collaboration arrangements whereby the parties agree to work jointly on research and development of
potential therapeutic products. Under such arrangements the parties agree which elements of research and development each will perform. These arrangements do not include the creation of any separate entity to conduct the activities nor any separate
and distinct assets or liabilities. The parties agree that the combined cost of all relevant activities will be borne by the parties in a particular proportion and that net revenues derived from sales of any resulting product will be shared
similarly. The sharing of costs will result in balancing payments between the parties and such payments receivable or payable will be respectively added to or deducted from research and development costs in the profit and loss account. Any amounts
receivable or payable at a period end are included in the balance sheet under debtors or creditors.



Pension costsThe Group operates a group personal pension plan which is a defined contribution scheme. The amount charged to the profit and loss account in respect of pension costs is the Groups
contributions payable in the year. Differences between contributions payable in the year and contributions actually paid are shown as either accruals or prepayments in the balance sheet.



Intangible fixed assetsPurchased intangible assets (excluding goodwill) are capitalised as assets on the balance sheet at fair value
on acquisition and amortised over their useful economic lives, subject to reviews for impairment when events or change of circumstances indicate that the carrying value may not be recoverable using cash flow projections. To the extent carrying
values exceed fair values, an impairment is recognised and charged to the profit and loss account in that period. This applies to intangibles purchased separately from a business and also to intangibles acquired as part of the acquisition of a
business, if their value can be measured reliably on initial recognition. The Groups purchased intangible assets include access to intellectual property and options for product development rights which are being amortised over seven years and
also include certain patents which are being written off over their term to expiry which is between 12 and 16 years from the date of acquisition. When reviewing all these assets for impairment the Directors have considered future cash flows arising.



Acquired intellectual property with no defined revenue stream is written off
to research and development expenses on acquisition.



Tangible fixed assetsTangible fixed assets are stated at cost, net of depreciation and any provision for impairment. Depreciation is provided on all tangible fixed assets other than freehold land on a straight-line basis at rates calculated to write off the cost,
less estimated residual value, of each asset over its expected useful life as follows:



Freehold buildings: over 10 years.

Motor vehicles: 331/2% per annum.

Office and laboratory equipment: 25% per annum.

Fixtures and fittings: over either 5 or 20 years (or the remaining lease term if less).



InvestmentsFixed asset investments are shown at cost less provision for any impairment.



Liquid resourcesLiquid resources comprise negotiable securities and term deposits and
are shown at cost with accrued interest included in debtors. Where relevant, a provision is made such that cost plus accrued interest does not exceed market value.



|Annual Report 2003 |  | F-7 |  | Cambridge Antibody Technology Group plc
|------------------ |  | --- |  | ---------------------------------------



---

Notes to the financial statements continued



1 Description of business and accounting policiescontinued



Foreign currencyTransactions in foreign currencies are recorded at the rate of exchange at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the balance sheet date are reported at the rates of exchange prevailing at that date. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is
included as an exchange gain or loss in the profit and loss account.



The
results of overseas operations and their balance sheets are translated at the rates ruling at the balance sheet date. Exchange differences arising on translation of the opening net assets and results of overseas operations are dealt with through
reserves.



LeasesAssets held under finance leases, which confer rights
and obligations similar to those attached to owned assets, are capitalised as tangible fixed assets and are depreciated over the shorter of the lease terms and their useful lives. The capital elements of future lease obligations are recorded as
liabilities, while the interest elements are charged to the profit and loss account over the period of the leases to produce a constant rate of charge on the balance of capital repayments outstanding. Hire purchase transactions are dealt with
similarly, except that assets are depreciated over their useful lives.



Rentals
under operating leases are charged on a straight-line basis over the lease term even if payments are made on another basis.



Sale and leasebackNo gain or loss on sale is recorded for sale and leaseback arrangements where the leaseback has been identified as a finance lease.



Non-monetary transaction The Group enters into certain non-monetary transactions
that involve the granting of a licence over the Groups proprietary technology in exchange for a licence over a third partys proprietary technology. The Group accounts for these transactions at fair value where the Group is able to
determine the fair value within reasonable limits. To the extent that the Group concludes that it is unable to determine the fair value of a cross licensing transaction, that transaction is accounted for at the recorded amounts of the assets.
Management is required to exercise its judgement in determining whether or not the fair value of the asset received or that given up can be determined. In doing so management considers, amongst other things, previous licence agreements over similar
intellectual property rights where there is monetary consideration. The Group has a limited number of comparable historical licence agreements. Management has determined that for all non-monetary transactions recorded to date the fair value of the
exchanged licences is not determinable, consequently, such transactions have been recognised at recorded value. In the future, as CAT has further transactions there may be a fair value assigned to similar transactions resulting in a different
accounting treatment.



Estimates and assumptionsThe preparation of
financial statements in conformity with generally accepted accounting standards requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as
of the dates of the financial statements and the reported amounts of revenues and expenses during the year. In the preparation of these consolidated financial statements, estimates and assumptions have been made by management concerning the
selection of useful lives of fixed assets, provisions necessary for certain liabilities, the carrying value of investments, the recoverability of deferred tax assets and other similar evaluations. Actual results could differ from those estimates.



2 Turnover and loss on ordinary activities before taxation



Turnover and loss on ordinary activities before taxation relate solely to the principal
activity and are attributable to the continuing operations of the Group substantially all of which take place in the United Kingdom. CAT is managed as one overall segment with results of operations and cash flows reviewed by the chief operating
decision maker on a group wide basis.



Turnover principally consists of licence
fees, milestone payments and fees for research and development services provided under corporate agreements.



|                                                                                        |  | 2003 £000 |   |  | 2002 £000 |   |  | 2001 £000 |  
|--------------------------------------------------------------------------------------- |  | ---------- | - |  | ---------- | - |  | ---------- | -
|Total turnover                                                                          |  | 11,417     |   |  | 16,891     |   |  | 9,421      |  
|Less: intra-group eliminations                                                          |  | (2,674     | ) |  | (7,420     | ) |  | (2,300     | )
|                                                                                        |  |            |   |  |            |   |  |            |  
|Consolidated turnover                                                                   |  | 8,743      |   |  | 9,471      |   |  | 7,121      |  
|                                                                                        |  |            |   |  |            |   |  |            |  
|                                                                                       
|Consolidated turnover was generated from customers in the following geographical areas:
|                                                                                        |  |            |  
|                                                                                        |  | 2003 £000 |   |  | 2002 £000 |   |  | 2001 £000 |  
|Europe                                                                                  |  | 251        |   |  | 135        |   |  | 53         |  
|United States of America                                                                |  | 6,665      |   |  | 8,674      |   |  | 6,969      |  
|Rest of the World                                                                       |  | 1,827      |   |  | 662        |   |  | 99         |  
|                                                                                        |  |            |   |  |            |   |  |            |  
|                                                                                        |  | 8,743      |   |  | 9,471      |   |  | 7,121      |  
|                                                                                        |  |            |   |  |            |   |  |            |  



Net assets of £388,000
(excluding creditors eliminated on consolidation of £15,385,000) (2002: net liabilities of £349,000, excluding creditors eliminated on consolidation of £9,210,000) and total assets of £517,000 (2002: £549,000) are held
in the United States of America.



|Cambridge Antibody Technology Group plc |  | F-8 |  | Annual Report 2003
|--------------------------------------- |  | --- |  | ------------------



---

2 Turnover and loss on ordinary activities before taxationcontinued



Consolidated turnover by type:



|                       |  | 2003 £000 |  | 2002 £000 |  | 2001 £000
|---------------------- |  | ---------- |  | ---------- |  | ----------
|Licence fees           |  | 2,590      |  | 1,676      |  | 1,635     
|Technical milestones   |  | 225        |  | 35         |  |          
|Clinical milestones    |  | 1,850      |  | 1,396      |  |          
|Contract research fees |  | 3,904      |  | 5,611      |  | 5,369     
|Other                  |  | 174        |  | 753        |  | 117       
|                       |  |            |  |            |  |           
|Total                  |  | 8,743      |  | 9,471      |  | 7,121     
|                       |  |            |  |            |  |           



During the financial years ended 30
September 2003, 2002 and 2001 certain customers individually contributed more than 10% of the Groups revenue in each year. The amounts of those individual contributions in order of size by year were as follows:



|                                                        |  | %  |  | £000
|------------------------------------------------------- |  | -- |  | -----
|2003 Customer contributing greatest % to revenue        |  | 28 |  | 2,476
|2003 Customer contributing second greatest % to revenue |  | 21 |  | 1,885
|2003 Customer contributing third greatest % to revenue  |  | 14 |  | 1,250
|                                                        |  |    |  |      
|Total                                                   |  | 63 |  | 5,611
|                                                        |  |    |  |      
|2002 Customer contributing greatest % to revenue        |  | 36 |  | 3,424
|2002 Customer contributing second greatest % to revenue |  | 31 |  | 2,954
|                                                        |  |    |  |      
|Total                                                   |  | 67 |  | 6,378
|                                                        |  |    |  |      
|2001 Customer contributing greatest % to revenue        |  | 31 |  | 2,230
|2001 Customer contributing second greatest % to revenue |  | 30 |  | 2,101
|2001 Customer contributing third greatest % to revenue  |  | 24 |  | 1,742
|                                                        |  |    |  |      
|Total                                                   |  | 85 |  | 6,073
|                                                        |  |    |  |      



As at 30 September 2003 the three
customers shown above constituted 100% of the Groups trade receivables. As at 30 September 2002, the two customers shown above constituted 89% of the Groups trade receivables.



A significant proportion of revenue in each financial year is derived from a relatively concentrated customer base. As a result, there is a
risk that factors affecting that customer base may have an adverse effect on the Groups financial condition and results of operation.



3 Drug Royalty transaction costs



General and administration expenses include £7.9 million of costs incurred in the year ended 30 September 2002 relating to the two transactions entered into with
DRC during the year (comparative periods: none).



In January 2002, the Group
announced a recommended offer for the whole of DRC. A competing offer was made by Inwest Investments Ltd of Canada which was accepted in April 2002.



Under an agreement with DRC, the Group received a payment of £1.5 million in 1994 in return for rights to a percentage of revenues (and certain other payments)
received by the Group over a period terminating in 2009. On 2 May 2002, the Group bought out this royalty obligation to DRC for consideration of £6.1 million (CAD$14 million) with the issue of 463,818 CAT shares to DRC. The remaining balance
of £0.6 million of deferred income was all released to turnover in 2002.



The professional fees incurred in the Groups bid and royalty buy-back were £1.8 million.



4 Oxford GlycoSciences



In January
2003, the Company and Oxford GlycoSciences Plc (OGS) announced that they had agreed the terms of a merger of the two groups by way of a share for share exchange. CATs shareholders subsequently approved the merger at an Extraordinary General
Meeting held in February. However, a decline in CATs share price depressed the value of CATs offer. A competing offer made to OGS shareholders by Celltech Group plc subsequently became unconditional. Professional fees incurred of
£1.7 million relating to the offer made for OGS were offset against a break fee of £1.1 million received from OGS. The net cost of £0.6 million was recorded in general and administrative costs during the period.



|Annual Report 2003 |  | F-9 |  | Cambridge Antibody Technology Group plc
|------------------ |  | --- |  | ---------------------------------------



---

Notes to the financial statementscontinued



5 Loss on ordinary activities before taxation



|                                                                                      |  | 2003 £000 |  | 2002 £000 |   |  | 2001 £000 |  
|------------------------------------------------------------------------------------- |  | ---------- |  | ---------- | - |  | ---------- | -
|The loss on ordinary activities before taxation is stated after charging (crediting): |  |            |  |            |   |  |            |  
|Depreciation and amounts written off tangible fixed assets:                           |  |            |  |            |   |  |            |  
| owned assets                                                                        |  | 2,714      |  | 2,617      |   |  | 2,146      |  
| leased assets                                                                       |  | 275        |  |           |   |  |           |  
|Amortisation of intangible fixed assets                                               |  | 1,050      |  | 882        |   |  | 373        |  
|Auditors remuneration  audit Deloitte & Touche LLP                                  |  | 35         |  | 35         |   |  |           |  
| audit Arthur Andersen                                                               |  |           |  |           |   |  | 42         |  
| audit related fees Deloitte & Touche LLP                                            |  | 384        |  | 19         |   |  |           |  
| other Deloitte & Touche LLP                                                         |  |           |  | 9          |   |  |           |  
| other Arthur Andersen                                                               |  |           |  | 287        |   |  | 149        |  
|Foreign exchange loss/(gain)                                                          |  | 835        |  | 192        |   |  | (56        | )
|Loss on disposal of tangible fixed assets                                             |  | 94         |  |           |   |  |           |  
|Profit on disposal of Denzyme ApS                                                     |  |           |  | (2         | ) |  |           |  
|Operating lease rentals:                                                              |  |            |  |            |   |  |            |  
| plant and machinery                                                                 |  | 46         |  | 5          |   |  | 3          |  
| other operating leases                                                              |  | 1,781      |  | 874        |   |  | 721        |  
|Allocations under equity participation schemes                                        |  | 521        |  | 607        |   |  | 416        |  
|                                                                                      |  |            |  |            |   |  |            |  



Arthur Andersen resigned as auditors
to the Group on 17 May 2002 and were replaced by Deloitte & Touche. Deloitte & Touche converted to LLP status on 1 August 2003. The above figures for Deloitte & Touche LLP cover both Deloitte & Touche and Deloitte & Touche LLP.



Audit related fees paid to Deloitte & Touche LLP include fees in respect
of reporting accountant work and in connection with the filing of a shelf registration.



The Group recharged audit fees of £10,000 to the Company (2002: £10,000).



6 Finance income (net)



|                                   |  | 2003 £000 |   |  | 2002 £000 |  | 2001 £000
|---------------------------------- |  | ---------- | - |  | ---------- |  | ----------
|Interest receivable                |  | 4,416      |   |  | 6,386      |  | 9,295     
|Interest payable on finance leases |  | (56        | ) |  |           |  |          
|                                   |  |            |   |  |            |  |           
|                                   |  | 4,360      |   |  | 6,386      |  | 9,295     
|                                   |  |            |   |  |            |  |           



7 Staff costs



The average monthly number of persons (including Executive Directors) employed by the Group
during the year was:



|                                                                       |  | 2003   |  | 2002   |   |  | 2001  |  
|---------------------------------------------------------------------- |  | ------ |  | ------ | - |  | ----- | -
|Management and administration                                          |  | 47     |  | 39     |   |  | 32    |  
|Research and development                                               |  | 249    |  | 235    |   |  | 192   |  
|                                                                       |  |        |  |        |   |  |       |  
|                                                                       |  | 296    |  | 274    |   |  | 224   |  
|                                                                       |  |        |  |        |   |  |       |  
|                                                                       |  |        | 
|                                                                       |  | £000  |  | £000  |   |  | £000 |  
|Their aggregate remuneration comprised:                                |  |        |  |        |   |  |       |  
|Wages and salaries                                                     |  | 11,669 |  | 9,771  |   |  | 7,268 |  
|Social security costs  charge/(credit) provided on unapproved options |  | 13     |  | (248   | ) |  | (194  | )
| on wages and salaries                                                |  | 1,190  |  | 970    |   |  | 740   |  
|Other pension costs                                                    |  | 988    |  | 875    |   |  | 641   |  
|                                                                       |  |        |  |        |   |  |       |  
|                                                                       |  | 13,860 |  | 11,368 |   |  | 8,455 |  
|                                                                       |  |        |  |        |   |  |       |  



Further audited information on
Directors remuneration is contained in the Remuneration Report.



|Cambridge Antibody Technology Group plc |  | F-10 |  | Annual Report 2003
|--------------------------------------- |  | ---- |  | ------------------



---

7 Staff costscontinued



The Group has made a provision for employers National Insurance payable on certain options granted under the CSOP part B scheme in
December 1999. The liability will not crystallise until the options are exercised (they are exercisable from December 2002) and the ultimate liability will be determined by the difference between the exercise price paid by the employee and the
market price on exercise and on the then prevailing rate for employers contributions.



The options are exercisable subject to the condition that the proportionate increase in the closing price of shares in the Company over a specified period must exceed the proportionate increase in the total return on
the FTSE All Share Index. The specified period begins on the date of grant and ends between the third and fourth anniversary of the date of grant.



The provision has been made systematically by reference to the market value of the shares at the balance sheet dates over the period from the date of grant to the end of
the performance period, and from that date to the date of actual exercise the provision is being adjusted by reference to changes in market value.



The provision and corresponding charges to the profit and loss account will be affected by: the elapse of performance periods; the remaining number and option price of
shares under option; and, the market value of the shares.



The market price of
shares at the year end was £4.87. If that price and the relevant number of shares under option remained unchanged, the charge for a further year would be the same as that for the 2003 financial year given that the full provision has now been
accounted for. If the market value of the shares were to increase by 10% over that at the year end, the charge would increase by £23,000.



8 Taxation



|                                    |  | 2003 £000 |   |  | 2002 £000 |  | 2001£000
|----------------------------------- |  | ---------- | - |  | ---------- |  | ---------
|Research and development tax credit |  | 3,148      |   |  | 3,557      |  |         
|Overseas taxation                   |  | (575       | ) |  |           |  |         
|                                    |  |            |   |  |            |  |          
|                                    |  | 2,573      |   |  | 3,557      |  |         
|                                    |  |            |   |  |            |  |          



During the year ended 30 September
2003 the Group received a refund of £3,148,000 in respect of the surrender of tax losses created through research and development for the year ended 30 September 2002 (year ended 30 September 2002 claims of £920,000 and £2,637,000
for the years ended 30 September 2000 and 30 September 2001 respectively).



Overseas taxation is the tax withheld on the licence payments received from Chugai.



The tax assessed for the year differs from that resulting from applying the standard rate of corporation tax in the UK of 30% (2002: 30%). The differences are explained below:



|                                                                            |  | 2003 £000 |   |  | 2002 £000 |  
|--------------------------------------------------------------------------- |  | ---------- | - |  | ---------- | -
|Loss on ordinary activities before tax                                      |  | (41,764    | ) |  | (31,764    | )
|                                                                            |  |            |   |  |            |  
|Tax at 30% thereon                                                          |  | (12,530    | ) |  | (9,529     | )
|Effects of:                                                                 |  |            |   |  |            |  
|Increase in losses carried forward                                          |  | 14,212     |   |  | 11,400     |  
|Expenses not deductible for tax purposes                                    |  | (438       | ) |  | (1,041     | )
|Capital allowances in excess of depreciation                                |  | (1,186     | ) |  | (888       | )
|Utilisation of tax losses in respect of research and development tax credit |  | (3,148     | ) |  | (3,557     | )
|Movement in short term timing differences                                   |  | (58        | ) |  | 58         |  
|                                                                            |  |            |   |  |            |  
|                                                                            |  | (3,148     | ) |  | (3,557     | )
|                                                                            |  |            |   |  |            |  
|Overseas taxation                                                           |  | 575        |   |  |           |  
|                                                                            |  | (2,573     | ) |  | (3,557     | )
|                                                                            |  |            |   |  |            |  



|Annual Report 2003 |  | F-11 |  | Cambridge Antibody Technology Group plc
|------------------ |  | ---- |  | ---------------------------------------



---

Notes to the financial statementscontinued



8 Taxationcontinued



Analysis of deferred tax balances:



|                                    |  | 2003£000 |   |  | 2002£000 |  
|----------------------------------- |  | --------- | - |  | --------- | -
|Short term timing differences       |  |          |   |  | (58       | )
|Accelerated capital allowances      |  | 2,354     |   |  | 1,272     |  
|Tax losses available                |  | (30,154   | ) |  | (23,658   | )
|                                    |  |           |   |  |           |  
|Total unprovided deferred tax asset |  | (27,800   | ) |  | (22,444   | )
|                                    |  |           |   |  |           |  



At 30 September 2003 the Group had tax
losses of approximately £100 million (2002: £79 million, 2001: £60 million) available for relief against future taxable profits. Due to the availability of tax losses there is no provision for deferred taxation. A deferred tax
asset amounting to £31 million representing such losses has not been recognised. The deferred tax asset would become recoverable should the Group generate relevant taxable profits against which the tax losses would be offset.



9 Loss per share



Basic net loss per share is calculated by dividing net loss by the weighted average number of ordinary shares outstanding during the year.
The computation of diluted net loss per share reflects the potential dilution that could occur if dilutive securities and other contracts to issue ordinary shares were exercised or converted into ordinary shares or resulted in the issue of ordinary
shares that then shared in the net loss of the Group.



Potentially dilutive
issuable shares are included in the calculation of diluted loss per share if their issue would increase net loss per share or decrease net profit per share. Since the Group has reported losses, its basic and diluted loss per share are therefore
equal.



For the years ending 30 September 2003, 2002 and 2001 289,640, 867,316
and 1,077,800 potentially dilutive issuable shares attributable to the exercise of outstanding options were excluded from the calculation of diluted loss per share. No adjustments were made to reported net loss in the computation of net loss per
share.



Loss per ordinary share (basic and diluted) is based on the loss for
the financial year of £39,191,000 (2002: £28,207,000, 2001: £11,771,000) and a weighted average number of ordinary shares of 36,440,993 (2002: 35,828,446, 2001: 35,313,260).



10 Intangible fixed assets



|Group                                   |  | Licences£000 |  | Patents£000 |  | Total£000
|--------------------------------------- |  | ------------- |  | ------------ |  | ----------
|Cost:                                   |  |               |  |              |  |           
|At 1 October 2002 and 30 September 2003 |  | 4,740         |  | 5,265        |  | 10,005    
|                                        |  |               |  |              |  |           
|Amortisation:                           |  |               |  |              |  |           
|At 1 October 2002                       |  | 509           |  | 1,563        |  | 2,072     
|Charge for the year                     |  | 677           |  | 373          |  | 1,050     
|                                        |  |               |  |              |  |           
|At 30 September 2003                    |  | 1,186         |  | 1,936        |  | 3,122     
|                                        |  |               |  |              |  |           
|Net book value:                         |  |               |  |              |  |           
|At 30 September 2003                    |  | 3,554         |  | 3,329        |  | 6,883     
|                                        |  |               |  |              |  |           
|At 30 September 2002                    |  | 4,231         |  | 3,702        |  | 7,933     
|                                        |  |               |  |              |  |           



The Company has no intangible fixed
assets.



The weighted average useful life of the patents is 14 years. The
weighted average useful life of the licences is seven years. The overall weighted average life of all intangibles is 11 years.



Estimated amortisation expense relating to these intangible assets for each of the years ending 30 September 2004 to 2007 inclusive is £1,051,000.



|Cambridge Antibody Technology Group plc |  | F-12 |  | Annual Report 2003
|--------------------------------------- |  | ---- |  | ------------------



---

11 Tangible fixed assets



|Group                              |  | Freeholdland andbuildings£000 |  | Fixtures andfittings£000 |   |  | Laboratoryequipment£000 |   |  | Officeequipment£000 |   |  | Motorvehicles£000 |  | Total£000 |  
|---------------------------------- |  | ------------------------------ |  | ------------------------- | - |  | ------------------------ | - |  | -------------------- | - |  | ------------------ |  | ---------- | -
|Cost:                              |  |                                |  |                           |   |  |                          |   |  |                      |   |  |                    |  |            |  
|At 1 October 2002                  |  | 785                            |  | 9,051                     |   |  | 11,335                   |   |  | 1,326                |   |  | 20                 |  | 22,517     |  
|Additions                          |  |                               |  | 2,936                     |   |  | 1,164                    |   |  | 924                  |   |  |                   |  | 5,024      |  
|Disposals                          |  |                               |  | (392                      | ) |  | (59                      | ) |  | (191                 | ) |  |                   |  | (642       | )
|                                   |  |                                |  |                           |   |  |                          |   |  |                      |   |  |                    |  |            |  
|At 30 September 2003               |  | 785                            |  | 11,595                    |   |  | 12,440                   |   |  | 2,059                |   |  | 20                 |  | 26,899     |  
|                                   |  |                                |  |                           |   |  |                          |   |  |                      |   |  |                    |  |            |  
|Depreciation:                      |  |                                |  |                           |   |  |                          |   |  |                      |   |  |                    |  |            |  
|At 1 October 2002                  |  | 188                            |  | 2,778                     |   |  | 6,378                    |   |  | 733                  |   |  | 11                 |  | 10,088     |  
|Charge for the year                |  | 49                             |  | 750                       |   |  | 1,845                    |   |  | 339                  |   |  | 6                  |  | 2,989      |  
|Eliminated in respect of disposals |  |                               |  | (345                      | ) |  | (52                      | ) |  | (147                 | ) |  |                   |  | (544       | )
|                                   |  |                                |  |                           |   |  |                          |   |  |                      |   |  |                    |  |            |  
|At 30 September 2003               |  | 237                            |  | 3,183                     |   |  | 8,171                    |   |  | 925                  |   |  | 17                 |  | 12,533     |  
|                                   |  |                                |  |                           |   |  |                          |   |  |                      |   |  |                    |  |            |  
|Net book value:                    |  |                                |  |                           |   |  |                          |   |  |                      |   |  |                    |  |            |  
|At 30 September 2003               |  | 548                            |  | 8,412                     |   |  | 4,269                    |   |  | 1,134                |   |  | 3                  |  | 14,366     |  
|                                   |  |                                |  |                           |   |  |                          |   |  |                      |   |  |                    |  |            |  
|At 30 September 2002               |  | 597                            |  | 6,273                     |   |  | 4,957                    |   |  | 593                  |   |  | 9                  |  | 12,429     |  
|                                   |  |                                |  |                           |   |  |                          |   |  |                      |   |  |                    |  |            |  
|Leased assets included above:      |  |                                |  |                           |   |  |                          |   |  |                      |   |  |                    |  |            |  
|Net book value:                    |  |                                |  |                           |   |  |                          |   |  |                      |   |  |                    |  |            |  
|At 30 September 2003               |  |                               |  | 48                        |   |  | 583                      |   |  | 476                  |   |  |                   |  | 1,107      |  
|                                   |  |                                |  |                           |   |  |                          |   |  |                      |   |  |                    |  |            |  
|At 30 September 2002               |  |                               |  |                          |   |  |                         |   |  |                     |   |  |                   |  |           |  
|                                   |  |                                |  |                           |   |  |                          |   |  |                      |   |  |                    |  |            |  



The
Company has no tangible fixed assets.



12 Fixed asset investments



|                         |  | GroupOtherinvestments£000 |  | CompanySubsidiaryundertakings£000
|------------------------ |  | -------------------------- |  | ----------------------------------
|Cost and net book value: |  |                            |  |                                   
|At 1 October 2002        |  | 215                        |  | 101,456                           
|Additions                |  | 3,158                      |  |                                  
|                         |  |                            |  |                                   
|At 30 September 2003     |  | 3,373                      |  | 101,456                           
|                         |  |                            |  |                                   



CAT has received 588,160 newly issued
shares from MorphoSys under the terms of an agreement dated 23 December 2002, in consideration for which MorphoSys received a patent licence from CAT. The net value of these shares, that is, excluding the amount due to The Scripps Research Institute
and Stratagene, accounts for the addition to fixed asset investments during the year. The amounts due to The Scripps Research Institute and Stratagene have been included within current asset investments and are payable in three equal tranches over
the next two years.



The investment was valued by applying the share price of
the MorphoSys shares on the date that CAT became the beneficial owner of the shares, on 26 August 2003.



The market value of this investment at 30 September 2003 was £3,264,000.



|Annual Report 2003 |  | F-13 |  | Cambridge Antibody Technology Group plc
|------------------ |  | ---- |  | ---------------------------------------



---

Notes to the financial statementscontinued



12 Fixed asset investmentscontinued



The subsidiary undertakings of the Company, all of which are consolidated, are as follows:



|                                      |  | Country of incorporationand operation |  | Principal activity         |  | Percentage ofordinary shares held |  
|------------------------------------- |  | ------------------------------------- |  | -------------------------- |  | --------------------------------- | -
|Cambridge Antibody Technology Limited |  | England                               |  | Research and development   |  | 100                               | %
|CAT Group Employees Trustees Limited |  | England                               |  | Share scheme trust company |  | 100                               | %
|Optein Inc. (trading as Aptein Inc.)  |  | USA                                   |  | Research and development   |  | 100                               | %
|Tagred Limited                        |  | England                               |  | Dormant                    |  | 100                               | %



13 Debtors



|                                                                                             |  | Group2003£000 |  | Group2002£000 |  | Company2003£000 |  | Company2002£000
|-------------------------------------------------------------------------------------------- |  | -------------- |  | -------------- |  | ---------------- |  | ----------------
|                                                                                             |  |                | 
|                                                                                             |  |                | 
|Due within one year:                                                                         |  |                |  |                |  |                  |  |                 
|Trade debtors                                                                                |  | 971            |  | 12             |  |                 |  |                
|Due from subsidiary undertakings                                                             |  |               |  |               |  | 31,337           |  | 90              
|Other debtors                                                                                |  | 1,030          |  | 3,982          |  | 4                |  | 18              
|Prepayments and accrued income(i)                                                            |  | 2,525          |  | 2,562          |  | 840              |  | 1,519           
|                                                                                             |  |                |  |                |  |                  |  |                 
|                                                                                             |  | 4,526          |  | 6,556          |  | 32,181           |  | 1,627           
|                                                                                             |  |                |  |                |  |                  |  |                 
|(i)     Includes accrued interest of £840,000 (2002: £1,519,000).  14 Short term investments
|                                                                                             |  | Group2003£000 |  | Group2002£000 |  | Company2003£000 |  | Company2002£000
|                                                                                             |  |                | 
|                                                                                             |  |                | 
|Liquid resources:                                                                            |  |                |  |                |  |                  |  |                 
|Floating rate notes                                                                          |  | 25,989         |  | 24,998         |  | 25,989           |  | 24,998          
|Certificates of deposit                                                                      |  | 80,000         |  | 98,000         |  | 80,000           |  | 98,000          
|Term deposits                                                                                |  | 1,927          |  | 3,696          |  | 512              |  | 2,128           
|                                                                                             |  |                |  |                |  |                  |  |                 
|                                                                                             |  | 107,916        |  | 126,694        |  | 106,501          |  | 125,126         
|Listed investments                                                                           |  | 431            |  |               |  |                 |  |                
|                                                                                             |  |                |  |                |  |                  |  |                 
|                                                                                             |  | 108,347        |  | 126,694        |  | 106,501          |  | 125,126         
|                                                                                             |  |                |  |                |  |                  |  |                 
|Market value of listed investments                                                           |  | 445            |  |               |  |                 |  |                
|                                                                                             |  |                |  |                |  |                  |  |                 



The Group holds cash which is surplus
to current requirements, but which will be required to finance future operations, in sterling in interest bearing marketable securities as described in note 17.



|Cambridge Antibody Technology Group plc |  | F-14 |  | Annual Report 2003
|--------------------------------------- |  | ---- |  | ------------------



---

15 Creditors



|                                        |  | Group2003£000 |  | Group2002£000 |  | Company2003£000 |  | Company2002£000
|--------------------------------------- |  | -------------- |  | -------------- |  | ---------------- |  | ----------------
|Amounts falling due within one year:    |  |                |  |                |  |                  |  |                 
|Bank overdraft                          |  | 1,144          |  |               |  |                 |  |                
|Obligations under finance leases        |  | 347            |  |               |  |                 |  |                
|Trade creditors                         |  | 2,165          |  | 3,999          |  |                 |  |                
|Amounts owed to subsidiary undertakings |  |               |  |               |  |                 |  | 1,194           
|Taxation and social security            |  | 342            |  | 304            |  |                 |  |                
|Other creditors                         |  | 426            |  | 1,003          |  |                 |  |                
|Accruals(i)                             |  | 3,553          |  | 4,710          |  | 247              |  | 48              
|Deferred income                         |  | 4,680          |  | 2,547          |  |                 |  |                
|                                        |  |                |  |                |  |                  |  |                 
|                                        |  | 12,657         |  | 12,563         |  | 247              |  | 1,242           
|                                        |  |                |  |                |  |                  |  |                 



|(i) | Includes purchase commitments of £680,000 and accrued employee benefits of £1,091,000 (2002: purchase commitments £888,000).
|--- | ----------------------------------------------------------------------------------------------------------------------------



The bank overdraft comprised payments to suppliers and other third parties which were in the
course of presentation at the year end.



16 Creditors



|                                                              |  | Group2003£000 |  | Group2002£000
|------------------------------------------------------------- |  | -------------- |  | --------------
|Amounts falling due after more than one year:                 |  |                |  |               
|Obligations under finance leases                              |  | 821            |  |              
|Other creditors                                               |  | 287            |  |              
|Deferred income                                               |  | 17,044         |  | 8,580         
|                                                              |  |                |  |               
|                                                              |  | 18,152         |  | 8,580         
|                                                              |  |                |  |               
|Borrowings are repayable as follows                          |  |                |  |               
|Bank overdraft:                                               |  |                |  |               
|Due within one year or on demand                              |  | 1,144          |  |              
|                                                              |  |                |  |               
|Finance leases:                                               |  |                |  |               
|Due within one year                                           |  | 347            |  |              
|Due in more than one year but not more than two years         |  | 376            |  |              
|Due in more than two years but not more than five years       |  | 445            |  |              
|                                                              |  |                |  |               
|                                                              |  | 1,168          |  |              
|                                                              |  |                |  |               
|Total due within one year or on demand                        |  | 1,491          |  |              
|Total due in more than one year but not more than two years   |  | 376            |  |              
|Total due in more than two years but not more than five years |  | 445            |  |              
|                                                              |  |                |  |               
|                                                              |  | 2,312          |  |              
|                                                              |  |                |  |               



|Annual Report 2003 |  | F-15 |  | Cambridge Antibody Technology Group plc
|------------------ |  | ---- |  | ---------------------------------------



---

Notes to the financial statementscontinued



17 Financial instruments



The financial instruments of the Group comprise cash, liquid resources and debtors and creditors arising in the normal course of business. The Group does not trade in
financial instruments or derivatives.



The Groups liquid resources are
managed on a discretionary basis by a third party. The mandate under which the fund managers operate includes the following criteria:



| | Investments only in freely negotiable instruments or deposits with specified banks and building societies.
|- | ----------------------------------------------------------------------------------------------------------



| | For the whole fund, limits on the maximum exposure to counterparties with particular minimum credit ratings, which ratings have been set deliberately high.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| | For investments in particular classes of instrument, minimum credit ratings (which are tighter than for the fund as a whole) or an agreed counterparty list.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| | For the whole fund, a maturity profile which is tailored to the Groups expected cash requirements (as investments are generally held to maturity).
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------



| | No currency exposure or short positions.
|- | ----------------------------------------



These criteria are set by the Board and are reviewed when deemed necessary. The principal purpose of the Groups liquid resources is for future funding and hence
their safeguarding is considered to be a greater priority than the actual return made on the investments. The criteria for fund management reflect this. The Audit Committee review the return made on the Groups funds against benchmark market
returns quarterly. The majority of the Groups investments are short term investments and hence exposure to interest rate changes has been minimal. Realisation of losses from interest rate movements is unlikely as investments are generally held
to maturity. Declines in interest rates over time will, however, reduce the Groups interest income.



The results of the Group have not, to date, been materially impacted by exchange rate fluctuations. However, a significant proportion of current and future income is likely to be receivable in United States Dollars
which may give rise to transactional currency exposures due to fluctuations in the exchange rate between United States Dollars and Sterling, which is the Groups functional currency.



Where possible, the Group seeks to match United States Dollar income with United States Dollar expenditure. To date the Group has not hedged
any transactional currency exposure but will keep such exposures under review and where prudent and appropriate may enter into such transactions in future.



|Financial assets and liabilities |  | Fixed ratefinancial assets(i)£000 |  | Floating ratefinancial assets(ii)£000 |  | Fixed ratefinancialliabilities(i)£000 |   |  | Financialliabilitieson whichno interestis paid£000 |   |  | Total£000
|-------------------------------- |  | ---------------------------------- |  | -------------------------------------- |  | -------------------------------------- | - |  | --------------------------------------------------- | - |  | ----------
|At 30 September 2003             |  |                                    |  |                                        |  |                                        |   |  |                                                     |   |  |           
|Sterling assets/(liabilities)    |  | 23,000                             |  | 84,920                                 |  | (1,168                                 | ) |  | (1,030                                              | ) |  | 105,722   
|United States Dollar assets      |  |                                   |  | 936                                    |  |                                       |   |  |                                                    |   |  | 936       
|Other assets                     |  |                                   |  | 2                                      |  |                                       |   |  |                                                    |   |  | 2         
|                                 |  |                                    |  |                                        |  |                                        |   |  |                                                     |   |  |           
|Book value                       |  | 23,000                             |  | 85,858                                 |  | (1,168                                 | ) |  | (1,030                                              | ) |  | 106,660   
|                                 |  |                                    |  |                                        |  |                                        |   |  |                                                     |   |  |           
|Fair value                       |  | 22,958                             |  | 85,854                                 |  | (1,168                                 | ) |  | (1,030                                              | ) |  | 106,614   
|                                 |  |                                    |  |                                        |  |                                        |   |  |                                                     |   |  |           
|                                 |  |                                    |  |                                        | 
|Financial assets and liabilities |  | Fixed ratefinancial assets(i)£000 |  | Floating ratefinancial assets(ii)£000 |  | Fixed ratefinancialliabilities(i)£000 |   |  | Financialliabilitieson whichno interestis paid£000 |   |  | Total£000
|At 30 September 2002             |  |                                    |  |                                        |  |                                        |   |  |                                                     |   |  |           
|Sterling assets/(liabilities)    |  | 11,998                             |  | 114,699                                |  |                                       |   |  | (1,678                                              | ) |  | 125,019   
|United States Dollar assets      |  |                                   |  | 4,755                                  |  |                                       |   |  |                                                    |   |  | 4,755     
|Other assets                     |  |                                   |  | 1                                      |  |                                       |   |  |                                                    |   |  | 1         
|                                 |  |                                    |  |                                        |  |                                        |   |  |                                                     |   |  |           
|Book value                       |  | 11,998                             |  | 119,455                                |  |                                       |   |  | (1,678                                              | ) |  | 129,775   
|                                 |  |                                    |  |                                        |  |                                        |   |  |                                                     |   |  |           
|Fair value                       |  | 12,000                             |  | 119,563                                |  |                                       |   |  | (1,678                                              | ) |  | 129,885   
|                                 |  |                                    |  |                                        |  |                                        |   |  |                                                     |   |  |           



|(i) | Interest rates determined for more than one year.
|--- | -------------------------------------------------



|(ii) | Interest rates determined at least once a year.
|---- | -----------------------------------------------



|Cambridge Antibody Technology Group plc |  | F-16 |  | Annual Report 2003
|--------------------------------------- |  | ---- |  | ------------------



---

17 Financial instrumentscontinued



The weighted average return on the fixed rate financial assets was 3.6% (2002: 3.1%), which was fixed over a weighted average term of 1.2
years (2002: 1.3 years). The returns achieved on fixed and floating rate financial assets are determined by money market rates prevailing at the date a transaction is entered into.



The weighted average interest rate on the fixed rate financial liabilities was 14.8% (2002: nil) which was fixed over a weighted average
term of 3.8 years (2002: nil).



In this disclosure financial assets comprise
liquid resources and cash at bank and in hand. Short term debtors and creditors have been excluded. The financial liabilities on which no interest is paid comprise payments to third parties in the course of presentation. These are payable on demand.
The Directors do not consider the deferred income balances to be financial liabilities where monies received are non-refundable. Fair value of marketable securities is determined by reference to market value.



Currency exposuresAt the year end the Groups individual operations had the
following net monetary assets and liabilities in currencies other than their functional currency.



|                              |  | USD£000 |   |  | Sterling£000 |   |  | Other£000 |   |  | Total£000 |  
|----------------------------- |  | -------- | - |  | ------------- | - |  | ---------- | - |  | ---------- | -
|At 30 September 2003          |  |          |   |  |               |   |  |            |   |  |            |  
|Functional currency: Sterling |  | (467     | ) |  |              |   |  | 84         |   |  | (383       | )
|United States Dollar          |  |         |   |  | (4,253        | ) |  |           |   |  | (4,253     | )
|                              |  |          |   |  |               |   |  |            |   |  |            |  
|                              |  | (467     | ) |  | (4,253        | ) |  | 84         |   |  | (4,636     | )
|                              |  |          |   |  |               |   |  |            |   |  |            |  
|                              |  |          |   | 
|                              |  | USD£000 |   |  | Sterling£000 |   |  | Other£000 |   |  | Total£000 |  
|At 30 September 2002          |  |          |   |  |               |   |  |            |   |  |            |  
|Functional currency: Sterling |  | 801      |   |  |              |   |  | (87        | ) |  | 714        |  
|United States Dollar          |  |         |   |  | (90           | ) |  |           |   |  | (90        | )
|                              |  |          |   |  |               |   |  |            |   |  |            |  
|                              |  | 801      |   |  | (90           | ) |  | (87        | ) |  | 624        |  
|                              |  |          |   |  |               |   |  |            |   |  |            |  



Transactions in foreign currency
monetary assets and liabilities give rise to currency gains and losses in the profit and loss account.



18 Called-up share capital and share premium



|                                                          |  | 2003£000 |  | 2002£000
|--------------------------------------------------------- |  | --------- |  | ---------
|Authorised                                                |  |           |  |          
|50,000,000 (2002: 50,000,000) ordinary shares of 10p each |  | 5,000     |  | 5,000    
|                                                          |  |           |  |          



During the year the Directors
exercised their powers to allot ordinary shares as shown in the table below.



|                                                                                        |  | 10p ordinarysharesNumber |  | Issuedsharecapital£000 |  | Sharepremium£000
|--------------------------------------------------------------------------------------- |  | ------------------------ |  | ----------------------- |  | -----------------
|Allotted, called-up and fully paid                                                      |  |                          |  |                         |  |                  
|At 1 October 2002                                                                       |  | 36,214,349               |  | 3,621                   |  | 202,534          
|Issued to the Share Incentive Plan                                                      |  | 128,217                  |  | 13                      |  | 630              
|Exercise of options                                                                     |  | 188,447                  |  | 19                      |  | 503              
|In lieu of fees(i)                                                                      |  | 7,307                    |  | 1                       |  | 37               
|To Genzyme Corporation as part of a subscription agreement in September 2003 (ii) (iii) |  | 1,800,000                |  | 180                     |  | 9,179            
|                                                                                        |  |                          |  |                         |  |                  
|At 30 September 2003                                                                    |  | 38,338,320               |  | 3,834                   |  | 212,883          
|                                                                                        |  |                          |  |                         |  |                  



|(i) | All Non-Executive Directors elected to take 25% of their annual fees in shares.
|--- | -------------------------------------------------------------------------------



|(ii) | Net of expenses.
|---- | ----------------



|(iii) | Shares were issued at a price of £5.32 per share, being the average closing mid-market price on 18 September 2003.
|----- | ------------------------------------------------------------------------------------------------------------------



The Company operates and has operated a number of employee share schemes for employees of the
Group as described below.



Old Option Schemes Prior to March 1997, CAT
Limited operated the Old Option Schemes. Two of these were unapproved share option schemes and one was an Inland Revenue approved share option scheme. Options granted under the unapproved schemes included options to consultants and Non-executive
Directors. These schemes were closed prior to flotation. Options under these schemes were either exchanged for equivalent options over shares of the Company or the option holders entered into share exchange option agreements whereby shares allotted
in CAT Limited on exercise are immediately exchanged for shares in the Company.



Company Share Option Plan (CSOP) The CSOP was approved and came into operation in 1997 and consists of two parts. The CSOP part A is Inland Revenue approved and CSOP part B is unapproved. All employees of the Group, including
Executive Directors, are eligible for the grant of options under both parts of the CSOP. Options granted under part A are subject to limits set by the Inland Revenue and any balance is granted under part B.



The total of shares under option to each participant is subject to limits and the exercise of
options is subject to the attainment of objective performance criteria which are determined by the Remuneration Committee, except in a limited number of cases such as redundancy where options will automatically vest.



Under the CSOP rules, individuals may be granted options over shares with a value of up to
two times basic salary (excluding performance-related remuneration) in any financial year. One or more objective performance conditions is applied to all options granted under the scheme to determine whether they will become exercisable. These
performance conditions are determined by the Remuneration Committee.



For
option grants of up to 1.5 times basic salary, the Remuneration Committee has determined that options will become exercisable subject to the condition that the proportionate increase in the closing price of shares in the Company averaged over a
specified period must exceed the total return for the FTSE All Share Index. The specified period begins on the date of grant and ends between the third and fourth anniversaries of the date of grant. For options in excess of 1.5 times basic salary
the number of options which will become exercisable is determined on a linear scale based on the extent to which the Total Shareholder Return (TSR) for the Company exceeds the percentage increase in the TSR for the FTSE All Share Index over a three
year period, by an amount of between 0% and 33%. For example if CATs TSR in the relevant period exceeded the TSR for the FTSE All Share Index by 33% all options in excess of 1.5 times salary would become exercisable. Conversely, if the TSR in
the relevant period did not exceed the TSR for the FTSE All Share Index at all, then no options in excess of 1.5 times basis salary would become exercisable.



For all option grants, the figure which is used for CATs share price in determining whether options have become exercisable is the closing price of a share as
derived from the London Stock Exchange Daily Official List averaged over a period of 20 consecutive business days. This reduces the possibility of options becoming exercisable when there is a short term fluctuation in the share price.



Share Incentive Plan (SIP) The Company has established an Inland Revenue approved SIP
which complies with the Finance Act 2000. The SIP has four elements: free shares, partnership shares, matching shares and dividend shares. Free shares can be appropriated to employees with a maximum market value of £3,000 per employee per
year. The shares are offered on similar terms to all eligible employees and include a performance-related element. All of CATs employees and Executive Directors employed on 1 April in the relevant financial year are eligible for the award of
free shares. Partnership shares may be purchased by employees out of their pre-tax salary up to £1,500 (or 10% of salary if lower) per year. Where employees purchase partnership shares they can be awarded additional free shares on a matching
basis. Under the rules of the SIP the Directors are given discretion to determine the ratio of partnership shares to matching shares. The ratio is currently 1:1. Free shares and matching shares are forfeited if the participant leaves the Group
within 12 months of the date of grant other than in certain specified circumstances. No dividend shares have been awarded since the SIP came into operation, and since the Group does not intend to pay a dividend for a number of years it is unlikely
that they will be awarded for a number of years to come.



Executive
Incentive Plan (EIP) The operation of the EIP is supervised by the Remuneration Committee. Under the rules of the EIP awards can be granted in broadly two different ways:



(i) To deliver shares (Restricted Shares) to a participant after three years, subject to meeting a pre-specified performance target; and



(ii) As a co-investment scheme whereby an investment made by a participant, on
the London Stock Exchange (or such other market or exchange on which shares may be freely bought or sold), from personal funds (Invested Shares), for example through a reinvestment of part of performance-related remuneration, is matched with free
shares (Matching Shares). These matching Shares would be subject to continued employment for not less than three years and the meeting of a pre-specified performance target.



An award consists of the right to acquire shares in the Company for payment equal to a nominal sum. In respect of rights to subscribe for
shares this sum is the nominal value of the Companys shares (10p per share). Awards are neither transferable nor pensionable.



No awards may be granted over shares in any financial year whose value is greater than one times an employees annual rate of salary for Restricted Awards and 45% of
salary for Matching Shares.



The Remuneration Committee may decide that awards
granted to an individual should be phased throughout a financial year (for instance, by granting an award in two instalments). In such a case, that employees entitlement to participate in the EIP will be calculated by reference to share
values, and salary levels, at the date the first award is made; those calculations shall then apply to all subsequent awards made to the individual in the same financial year.



Where the EIP is operated in the same year as the CSOP the aggregate value of shares over which options and Restricted Awards can be made in
any one financial year to an individual is two times annual salary.



An award
will normally vest no earlier than the third anniversary of its grant to the extent that the applicable performance condition (see below) has been satisfied, the participant is still employed by the Group and, if operated as a co-investment scheme,
the Invested Shares have been retained. It will then remain capable of exercise for a period of three years. The conditions are not contained within the Plan rules, but will be set by the Remuneration Committee at each grant of awards under the
Plan. However, the Remuneration Committee has resolved that, initially, the conditions summarised below will apply to awards.



Restricted Awards For the initial Restricted Awards, the performance condition will be based on the Companys relative Total Shareholder Return (i.e. growth
in share price plus dividends re-invested). Performance will be measured over the three years starting 1 April or 1 October before each grant takes place. The Restricted Awards will vest in respect of 25% of the shares for performance equal to the
Total Shareholder Return on the FTSE All Share Index rising on a straight line basis to 100% vesting for 33% out performance over the three year period. If the performance condition is not satisfied after the first three years, the Restricted Award
will lapse; there will be no opportunity for retesting.



Alternative but
broadly no less demanding conditions may be set for below board level executives if the Remuneration Committee feels that these would be a more appropriate way of motivating selected executives (e.g. on the achievement of scientific milestones).



Matching Awards The performance condition will be based on the
Companys Total Shareholder Return as compared with selected UK listed biotechnology/pharmaceutical companies (but with current market values of at least £50 million) over a three, four or five year period. The current peer group is
Acambis, Alizyme Antisoma, AstraZeneca, Axis Shield, Celltech Group, Galen Holdings, GlaxoSmithKline, Goldshield Group, Phytopharm, Protherics, Shire Pharmaceuticals, Skye Pharma, Vernalis, Xenova. Matching Awards will be a multiple of the number of
Invested Shares which are acquired (up to 15% of an executives salary each year) based on performance as follows:



|Performance ranking after three years |  | Rates of Matching Awards to Invested Shares
|------------------------------------- |  | -------------------------------------------
|Upper Quartile                        |  | 2:1                                        
|Between Median and Upper Quartile     |  | Pro rata between 0.25:1 and 2:1            
|Median                                |  | 0.25:1                                     
|Below Median                          |  | zero                                       



If an executive wishes to keep his
shares as Invested Shares for a further year then the ratio could rise (but could not fall) by 25% for upper quartile performance over the four years reducing on a pro rata basis to an extra 6.25% for median performance. If an executive then wishes
to keep his vested shares as Invested Shares for a final year then the ratio could rise (but could not fall) by a further 20% for upper quartile performance over the full five years reducing on a pro rata basis to an extra 5% for median performance.
The maximum level of match would therefore be 3:1 for upper quartile performance over three, four and five years on an investment of up to 15% of an executives salary.



No awards were made during the 2003 financial year under the EIP.



|Annual Report 2003 |  | F-17 |  | Cambridge Antibody Technology Group plc
|------------------ |  | ---- |  | ---------------------------------------



---

Notes to the financial statementscontinued



18 Called-up share capital and share premiumcontinued



At 30 September 2003 options had been granted over ordinary shares of the Company as follows:



|                                                            |  | Exercise price |       | Earliest dateexercisable |                  | Latest dateexercisable |                  | Notes |  |       | Number
|----------------------------------------------------------- |  | -------------- | ----- | ------------------------ | ---------------- | ---------------------- | ---------------- | ----- |  | ----- | ------
|Old schemes                                                 |  | £              | 1.28  |                          | 28 April 1998    |                        | 27 April 2005    |       |  |       |       
|                                                            |  | US$            | 4.80  |                          | 19 April 2001    |                        | 19 April 2006    |       |  |       |       
|                                                            |  | £              | 3.00  |                          | 4 September 1999 |                        | 3 September 2006 |       |  |       |       
|                                                            |  |                |       |                          |                 
|CSOP                                                        |  | £              | 5.00  |                          | 24 March 2000    |                        | 23 March 2004    |       |  | (i)   |       
|                                                            |  | £              | 5.00  |                          | 24 March 2000    |                        | 23 March 2007    |       |  | (i)   |       
|                                                            |  | £              | 5.58  |                          | 2 June 2000      |                        | 1 June 2004      |       |  | (i)   |       
|                                                            |  | £              | 5.58  |                          | 2 June 2000      |                        | 1 June 2007      |       |  | (i)   |       
|                                                            |  | £              | 5.00  |                          | 19 December 2000 |                        | 18 December 2004 |       |  | (i)   |       
|                                                            |  | £              | 5.00  |                          | 19 December 2000 |                        | 18 December 2007 |       |  | (i)   |       
|                                                            |  | £              | 5.00  |                          | 25 June 2001     |                        | 24 June 2008     |       |  | (i)   |       
|                                                            |  | £              | 5.00  |                          | 27 November 2001 |                        | 26 November 2008 |       |  | (i)   |       
|                                                            |  | £              | 2.42  |                          | 27 November 2001 |                        | 26 November 2005 |       |  | (i)   |       
|                                                            |  | £              | 2.42  |                          | 27 November 2001 |                        | 26 November 2008 |       |  | (i)   |       
|                                                            |  | £              | 2.10  |                          | 28 May 2002      |                        | 27 May 2009      |       |  | (i)   |       
|                                                            |  | £              | 2.87  |                          | 3 December 2002  |                        | 2 December 2006  |       |  | (ii)  |       
|                                                            |  | £              | 2.87  |                          | 3 December 2002  |                        | 2 December 2009  |       |  | (ii)  |       
|                                                            |  | £              | 23.03 |                          | 26 May 2003      |                        | 25 May 2010      |       |  | (ii)  |       
|                                                            |  | £              | 30.54 |                          | 1 December 2003  |                        | 30 November 2007 |       |  | (ii)  |       
|                                                            |  | £              | 30.54 |                          | 1 December 2003  |                        | 30 November 2010 |       |  | (ii)  |       
|                                                            |  | £              | 25.66 |                          | 25 May 2004      |                        | 24 May 2008      |       |  | (ii)  |       
|                                                            |  | £              | 25.66 |                          | 25 May 2004      |                        | 24 May 2011      |       |  | (ii)  |       
|                                                            |  | £              | 21.62 |                          | 18 June 2004     |                        | 17 June 2011     |       |  | (ii)  |       
|                                                            |  | £              | 17.07 |                          | 30 November 2004 |                        | 29 November 2011 |       |  | (ii)  |       
|                                                            |  | £              | 17.04 |                          | 4 December 2004  |                        | 3 December 2011  |       |  | (ii)  |       
|                                                            |  | £              | 10.83 |                          | 24 May 2005      |                        | 23 May 2012      |       |  | (ii)  |       
|                                                            |  | £              | 10.83 |                          | 24 May 2005      |                        | 23 May 2012      |       |  | (iii) |       
|CSOP  granted in year and outstanding at 30 September 2003 |  | £              | 5.13  |                          | 22 November 2005 |                        | 21 November 2012 |       |  | (ii)  |       
|                                                            |  | £              | 5.13  |                          | 22 November 2005 |                        | 21 November 2012 |       |  | (iii) |       
|                                                            |  | £              | 4.60  |                          | 23 May 2006      |                        | 22 May 2013      |       |  | (ii)  |       
|                                                            |  | £              | 4.60  |                          | 23 May 2006      |                        | 22 May 2013      |       |  | (iii) |       
|                                                            |  |                |       |                          |                  |                        |                  |       |  |       |       
|Total                                                       |  |                |       |                          |                  |                        |                  |       |  |       |       
|                                                            |  |                |       |                          |                  |                        |                  |       |  |       |       



|(i) | These options were subject to the condition as stated in note (ii) below. This condition had been satisfied as at 30 September 2002.
|--- | ------------------------------------------------------------------------------------------------------------------------------------



|(ii) | These options are exercisable subject to the condition that the proportionate increase in the closing price of shares in the Company over a specified period must exceed the increase
in the Total Shareholder Return (TSR) for the FTSE All Share Index. The specified period begins on the date of grant and ends between the third and fourth anniversary of the date of grant. In certain circumstances, such as the death of an employee,
the rules of the CSOP permit the Directors to allow options which have been granted but which have not vested to be exercised provided the exercise takes place within the period prescribed in the CSOP rules in relation to these circumstances.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(iii) | The number of options which will become exercisable will be determined on a linear sliding scale on the third anniversary of the date of grant based on the extent to which the TSR
for the Company exceeds the percentage increase in the TSR for the FTSE All Share Index by an amount of between 0% and 33%.
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Cambridge Antibody Technology Group plc |  | F-18 |  | Annual Report 2003
|--------------------------------------- |  | ---- |  | ------------------



---

19 Profit and loss account and other reserve



|                                    |  | GroupProfitand loss£000 |   |  | GroupOtherreserve£000 |  | CompanyProfitand loss£000
|----------------------------------- |  | ------------------------ | - |  | ---------------------- |  | --------------------------
|At 1 October 2002                   |  | (83,846                  | ) |  | 13,456                 |  | 20,815                    
|Retained (loss)/profit for the year |  | (39,191                  | ) |  |                       |  | 2,363                     
|Foreign exchange translation        |  | 606                      |   |  |                       |  |                          
|                                    |  |                          |   |  |                        |  |                           
|At 30 September 2003                |  | (122,431                 | ) |  | 13,456                 |  | 23,178                    
|                                    |  |                          |   |  |                        |  |                           



The other reserve represents the share
premium account of CAT Limited and arises on consolidation from the application of merger accounting principles to the acquisition of that company.



20 Reconciliation of movements in Group shareholders funds



|                                                       |  | 2003 £000 |   |  | 2002 £000 |  
|------------------------------------------------------ |  | ---------- | - |  | ---------- | -
|Loss for the financial year                            |  | (39,191    | ) |  | (28,207    | )
|Other recognised gains and losses relating to the year |  | 606        |   |  | 325        |  
|                                                       |  |            |   |  |            |  
|                                                       |  | (38,585    | ) |  | (27,882    | )
|New shares issued                                      |  | 10,562     |   |  | 7,597      |  
|                                                       |  |            |   |  |            |  
|Net decrease in shareholders funds                    |  | (28,023    | ) |  | (20,285    | )
|Opening shareholders funds                            |  | 135,765    |   |  | 156,050    |  
|                                                       |  |            |   |  |            |  
|Closing shareholders funds                            |  | 107,742    |   |  | 135,765    |  
|                                                       |  |            |   |  |            |  



21 Reconciliation of operating loss
to operating cash flows



|                                               |  | 2003 £000 |   |  | 2002 £000 |   |  | 2001 £000 |  
|---------------------------------------------- |  | ---------- | - |  | ---------- | - |  | ---------- | -
|Operating loss                                 |  | (46,124    | ) |  | (38,150    | ) |  | (21,066    | )
|Depreciation charge                            |  | 2,989      |   |  | 2,617      |   |  | 2,146      |  
|Amortisation of intangible assets              |  | 1,050      |   |  | 882        |   |  | 373        |  
|Loss on disposal of fixed assets               |  | 94         |   |  |           |   |  | 1          |  
|Shares received from MorphoSys                 |  | (3,589     | ) |  |           |   |  |           |  
|Shares issued to buy out DRC royalty agreement |  |           |   |  | 6,149      |   |  |           |  
|Increase in debtors                            |  | (1,285     | ) |  | (158       | ) |  | (515       | )
|Increase/(decrease) in creditors               |  | 11,046     |   |  | 1,852      |   |  | (89        | )
|                                               |  |            |   |  |            |   |  |            |  
|Net cash outflow from operating activities     |  | (35,819    | ) |  | (26,808    | ) |  | (19,150    | )
|                                               |  |            |   |  |            |   |  |            |  



|Annual Report 2003 |  | F-19 |  | Cambridge Antibody Technology Group plc
|------------------ |  | ---- |  | ---------------------------------------



---

Notes to the financial statementscontinued



22 Analysis of cash flows



|                                                  |  | 2003 £000 |   |  | 2002 £000 |   |  | 2001 £000 |  
|------------------------------------------------- |  | ---------- | - |  | ---------- | - |  | ---------- | -
|Returns on investments and servicing of finance:  |  |            |   |  |            |   |  |            |  
|Interest received                                 |  | 5,095      |   |  | 7,558      |   |  | 8,322      |  
|Interest element of finance lease rentals         |  | (46        | ) |  |           |   |  |           |  
|                                                  |  |            |   |  |            |   |  |            |  
|Net cash inflow                                   |  | 5,049      |   |  | 7,558      |   |  | 8,322      |  
|                                                  |  |            |   |  |            |   |  |            |  
|Taxation:                                         |  |            |   |  |            |   |  |            |  
|Research and development tax credit received      |  | 5,785      |   |  | 920        |   |  |           |  
|Overseas tax paid                                 |  | (575       | ) |  |           |   |  |           |  
|                                                  |  |            |   |  |            |   |  |            |  
|Net cash inflow                                   |  | 5,210      |   |  | 920        |   |  |           |  
|                                                  |  |            |   |  |            |   |  |            |  
|Capital expenditure and financial investment:     |  |            |   |  |            |   |  |            |  
|Purchase of intangible fixed assets               |  | (2,673     | ) |  | (2,067     | ) |  |           |  
|Purchase of tangible fixed assets                 |  | (5,413     | ) |  | (7,894     | ) |  | (3,485     | )
|Proceeds from the sale of tangible fixed assets   |  | 4          |   |  |           |   |  | 4          |  
|                                                  |  |            |   |  |            |   |  |            |  
|Net cash outflow                                  |  | (8,082     | ) |  | (9,961     | ) |  | (3,481     | )
|                                                  |  |            |   |  |            |   |  |            |  
|Management of liquid resources:                   |  |            |   |  |            |   |  |            |  
|Decrease in term deposits                         |  | 1,769      |   |  | 9,749      |   |  | 10,762     |  
|Net sale/(purchase) of securities                 |  | 17,009     |   |  | 19,785     |   |  | (10,488    | )
|                                                  |  |            |   |  |            |   |  |            |  
|Net cash inflow                                   |  | 18,778     |   |  | 29,534     |   |  | 274        |  
|                                                  |  |            |   |  |            |   |  |            |  
|Financing:                                        |  |            |   |  |            |   |  |            |  
|Issue of ordinary share capital                   |  | 10,562     |   |  | 1,448      |   |  | 15,380     |  
|Proceeds from new finance lease commitments       |  | 1,389      |   |  |           |   |  |           |  
|Capital elements of finance lease rental payments |  | (221       | ) |  |           |   |  |           |  
|                                                  |  |            |   |  |            |   |  |            |  
|Net cash inflow                                   |  | 11,730     |   |  | 1,448      |   |  | 15,380     |  
|                                                  |  |            |   |  |            |   |  |            |  



Liquid resources comprise current
asset investments in negotiable securities and cash deposits.



|Cambridge Antibody Technology Group plc |  | F-20 |  | Annual Report 2003
|--------------------------------------- |  | ---- |  | ------------------



---

23 Analysis and reconciliation of net funds



|                         |  | 1 October2002£000 |  | Cash flow£000 |   |  | Exchangemovement£000 |   |  | 30 September2003 £000 |  
|------------------------ |  | ------------------ |  | -------------- | - |  | --------------------- | - |  | ---------------------- | -
|Cash at bank and in hand |  | 3,081              |  | (1,990         | ) |  | (35                   | ) |  | 1,056                  |  
|Overdrafts               |  |                   |  | (1,144         | ) |  |                      |   |  | (1,144                 | )
|                         |  |                    |  |                |   |  |                       |   |  |                        |  
|                         |  |                    |  | (3,134         | ) |  | (35                   | ) |  |                        |  
|Finance leases           |  |                   |  | (1,168         | ) |  |                      |   |  | (1,168                 | )
|Liquid resources         |  | 126,694            |  | (18,778        | ) |  |                      |   |  | 107,916                |  
|                         |  |                    |  |                |   |  |                       |   |  |                        |  
|Net funds                |  | 129,775            |  | (23,080        | ) |  | (35                   | ) |  | 106,660                |  
|                         |  |                    |  |                |   |  |                       |   |  |                        |  



|                                              |  | 2003 £000 |   |  | 2002 £000 |   |  | 2001 £000 |  
|--------------------------------------------- |  | ---------- | - |  | ---------- | - |  | ---------- | -
|(Decrease)/increase in cash in the year       |  | (3,134     | ) |  | 2,691      |   |  | 1,345      |  
|Decrease in liquid resources                  |  | (18,778    | ) |  | (29,534    | ) |  | (274       | )
|Cash inflows from increase in lease financing |  | (1,168     | ) |  |           |   |  |           |  
|                                              |  |            |   |  |            |   |  |            |  
|Change in net funds resulting from cash flows |  | (23,080    | ) |  | (26,843    | ) |  | 1,071      |  
|Exchange movement                             |  | (35        | ) |  | (32        | ) |  |           |  
|                                              |  |            |   |  |            |   |  |            |  
|Movement in net funds in year                 |  | (23,115    | ) |  | (26,875    | ) |  | 1,071      |  
|Net funds at 1 October 2002                   |  | 129,775    |   |  | 156,650    |   |  | 155,579    |  
|                                              |  |            |   |  |            |   |  |            |  
|Net funds at 30 September 2003                |  | 106,660    |   |  | 129,775    |   |  | 156,650    |  
|                                              |  |            |   |  |            |   |  |            |  



24 Financial commitments



Capital commitments of the Group were as follows:



|                                |  | Group2003£000 |  | Group2002£000
|------------------------------- |  | -------------- |  | --------------
|Contracted but not provided for |  | 56             |  | 515           
|                                |  |                |  |               



In the next year the Group has
operating lease commitments as follows, categorised by period to expiry.



|                             |  | Land andbuildings2003£000 |  | Other2003£000 |  | Land andbuildings2002£000 |  | Other2002£000
|---------------------------- |  | -------------------------- |  | ------------- |  | -------------------------- |  | --------------
|Expiry date:                 |  |                            |  |               |  |                            |  |               
| within one year            |  |                           |  | 1             |  |                           |  |              
| between two and five years |  |                           |  | 44            |  |                           |  | 48            
| after five years           |  | 1,832                      |  |              |  | 1,801                      |  |              
|                             |  |                            |  |               |  |                            |  |               



The Company had no capital or
operating lease commitments.



In addition to the commitments above, CAT has
agreed to bear fifty percent of programme costs through to early 2006 under an amended collaboration agreement with Genzyme. Due to the nature of this collaborative arrangement it does not give rise to specified cash outflows.



25 Pension arrangements



The Group operates a group personal pension plan which is a defined contribution plan. Group contributions payable for the year to 30
September 2003 were £988,000 (2002: £875,000; 2001: £641,000).



|Annual Report 2003 |  | F-21 |  | Cambridge Antibody Technology Group plc
|------------------ |  | ---- |  | ---------------------------------------



---

Notes to the financial statementscontinued



26 Post balance sheet event



In September 2003, it was announced that Genzyme was to make an equity investment in CAT of £22.9 million through a cash purchase of 4.3 million shares. The
purchase was effected in two tranches. The first tranche occurred in September 2003 and consisted of the purchase of 1.8 million shares. The second tranche occurred after the financial year end, in October 2003, and required the approval of CAT
shareholders. Shareholder approval was gained at the EGM held in October 2003, and a further 2.5 million shares were issued to Genzyme in October 2003 with a value of £13.3 million.



27 Litigation



In 1998 CAT bought a patent infringement action against MorphoSys relating to the European Winter II and McCafferty patents in Munich. MorphoSys brought various actions
against CAT in the US seeking a declaration that certain CAT patents were invalid or that MorphoSys was not infringing the patent. Under a settlement agreement dated 23 December 2002 between CAT Limited and MorphoSys the parties agreed to settle all
litigation and patent disputes between them.



In 2000, Crucell issued writs
against the Medical Research Council (MRC), The Scripps Research Institute (Scripps) and Stratagene in a Dutch national court, seeking a declaration that the Winter II patent was invalid or that Crucell did not infringe the claims of this patent. A
separate writ against MRC sought a similar declaration in respect of the McCafferty patent. Pursuant to its agreements with MRC, Scripps and Stratagene, CAT Limited was responsible for the defence of these proceedings. This litigation was settled
under a settlement agreement dated 19 December 2002 between CAT Limited and Crucell. As a result of this agreement, all litigation which had been ongoing between CAT Limited and Crucell was withdrawn.



CVC, a former shareholder of CAT Limited, has alleged in US Federal Court for the Southern
District of New York that CAT Limited was required, under the terms of a subscription agreement entered into in 1993, to issue anti-dilution shares to CVC, equivalent to 25,790 ordinary shares. The Group believes that CVCs claim is groundless.
However, the Group cannot assure investors as to the outcome of this litigation. If CVC was successful in such proceedings, the Group has been advised that it would also be required to issue ordinary shares to certain other shareholders who received
shares in 1993 in similar circumstances as CVC. The Group estimates that the total number of ordinary shares which would be required to be issued in these circumstances would be approximately 763,000. In connection with these proceedings, both
parties filed cross motions for summary judgement in 1999, which were denied in May 2000. Since then there has been no change in the status of proceedings. The Directors continue to believe that the proceedings have no merit.



CAT has been named, together with numerous other defendants who practice or rely on antibody
phage display, as a defendant in a complaint dated 14 August 2003 filed by Dr. George Pieczenik in the US Federal District Court for the Southern District of New York. The complaint, among other allegations, purports to assert claims of patent
infringement with respect to a patent issued on 12 August 2003 to Dr. Pieczenik with a request for a permanent injunction against the commercial use and licensing of unspecified patents and for damages for past infringement. The complaint also
purports to assert non-patent related claims. After an initial court conference the Plaintiff has amended his complaint adding certain other defendants. CAT intends to vigorously defend itself. CAT currently believes that the outcome of the
litigation will not materially impact the operation of its business.



CATs entitlement to royalties in relation to sales of HUMIRA is governed by an agreement dated 1 April 1995 between Cambridge Antibody Technology Limited and Knoll Aktiengesellschaft. The agreement allows for offset, in certain
circumstances, of royalties due to third parties against royalties due to CAT, subject to a minimum level. Abbott indicated to CAT in March 2003 its wish to initiate discussions regarding the applicability of these royalty offset provisions for
HUMIRA. CAT strongly believes that the offset provisions do not apply and is seeking an outcome consistent with that position. Following unsuccessful efforts to resolve the matter with Abbott CAT has commenced legal proceedings against Abbott
Biotechnology Limited and Abbott GmbH in the High Court in London.



|Cambridge Antibody Technology Group plc |  | F-22 |  | Annual Report 2003
|--------------------------------------- |  | ---- |  | ------------------



---

28 Reconciliation to US GAAP



Summary of significant differences between UK GAAP followed by the Group and US GAAPThe Groups consolidated financial
statements have been prepared in accordance with UK GAAP, which differs in certain significant respects from accounting principles generally accepted in the United States of America (US GAAP). The following is a summary of significant adjustments to
net loss and shareholders funds required when reconciling such amounts recorded in the financial statements to the corresponding amounts in accordance with US GAAP, considering the significant differences between UK GAAP and US GAAP. The
adjustments required to reconcile these financial statements from UK GAAP to US GAAP, presented throughout this note 28, have not been adjusted to take account of tax effects due to the availability of tax losses.



Reconciliation of net loss from UK GAAP to US GAAP



|                                                                    |  | Notes |   |  | 2003£000 |   |  | 2002£000 |   |  | 2001£000 |  
|------------------------------------------------------------------- |  | ----- | - |  | --------- | - |  | --------- | - |  | --------- | -
|Net loss as reported under UK GAAP                                  |  |       |   |  | (39,191   | ) |  | (28,207   | ) |  | (11,771   | )
|Adjustments for:                                                    |  |       |   |  |           |   |  |           |   |  |           |  
|Compensation costs under variable plan accounting for stock options |  | (a    | ) |  | (597      | ) |  | (3,703    | ) |  | (7,804    | )
|Acquisition of Aptein Inc.                                          |  | (b    | ) |  | (16       | ) |  | (16       | ) |  | (16       | )
|Revenue recognition                                                 |  | (c    | ) |  | 422       |   |  | 422       |   |  | 422       |  
|Accounting for National Insurance on share options                  |  | (d    | ) |  | 13        |   |  | (248      | ) |  | (194      | )
|Reclassification of share issue expenses                            |  | (e    | ) |  |          |   |  |          |   |  | (202      | )
|Profit on sale of Denzyme ApS                                       |  | (f    | ) |  |          |   |  | 229       |   |  |          |  
|Termination of DRC royalty agreement                                |  | (g    | ) |  |          |   |  | 723       |   |  |          |  
|Foreign exchange difference                                         |  | (h    | ) |  | (250      | ) |  | (491      | ) |  |          |  
|                                                                    |  |       |   |  |           |   |  |           |   |  |           |  
|Net loss as reported under US GAAP                                  |  |       |   |  | (39,619   | ) |  | (31,291   | ) |  | (19,565   | )
|                                                                    |  |       |   |  |           |   |  |           |   |  |           |  



Loss per share under US GAAPUnder US GAAP, the Group would compute loss per share under Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share. Under SFAS No. 128, basic net loss per ordinary share is computed by dividing net loss by the
weighted average number of ordinary shares outstanding during the period. The computation of diluted net loss per share reflects the potential dilution that could occur if dilutive securities and other contracts to issue ordinary shares were
exercised or converted into ordinary shares or resulted in the issue of ordinary shares that then shared in the net loss of the Group. Diluted net loss per ordinary share for CAT is the same as basic net loss per ordinary share as the effects of the
Companys potential dilutive securities (employee options) are antidilutive. Under UK GAAP, the basis of calculation is the same. However, since different net losses are produced under US GAAP and UK GAAP the net loss per share under US GAAP is
presented below:



|                                                              |  | 2003       |   |  | 2002       |   |  | 2001       |  
|------------------------------------------------------------- |  | ---------- | - |  | ---------- | - |  | ---------- | -
|Basic and diluted net loss per ordinary share (pence)         |  | 108.7      | p |  | 87.3       | p |  | 55.4       | p
|Shares used in computing net loss per ordinary share (number) |  | 36,440,993 |   |  | 35,828,446 |   |  | 35,313,260 |  
|Antidilutive securities, not included above (number)          |  | 289,640    |   |  | 867,316    |   |  | 1,077,800  |  



Antidilutive securities represent
stock options outstanding which have not been included in the calculation of loss per ordinary share as the impact of including such shares in the calculation of loss per share would be antidilutive.



Reconciliation of shareholders funds from UK GAAP to US GAAP



|                                                         |  | Notes |   |  | 2003£000 |   |  | 2002£000 |   |  | 2001£000 |  
|-------------------------------------------------------- |  | ----- | - |  | --------- | - |  | --------- | - |  | --------- | -
|Shareholders funds as reported under UK GAAP            |  |       |   |  | 107,742   |   |  | 135,765   |   |  | 156,050   |  
|Acquisition of Aptein Inc.                               |  | (b    | ) |  | 111       |   |  | 127       |   |  | 143       |  
|Revenue recognition                                      |  | (c    | ) |  | (1,953    | ) |  | (2,375    | ) |  | (2,797    | )
|Accounting for National Insurance on stock options       |  | (d    | ) |  | 94        |   |  | 81        |   |  | 329       |  
|Unrealised holding gain on available for sale securities |  | (i    | ) |  | 106       |   |  |          |   |  |          |  
|                                                         |  |       |   |  |           |   |  |           |   |  |           |  
|Shareholders funds as reported under US GAAP            |  |       |   |  | 106,100   |   |  | 133,598   |   |  | 153,725   |  
|                                                         |  |       |   |  |           |   |  |           |   |  |           |  



|Annual Report 2003 |  | F-23 |  | Cambridge Antibody Technology Group plc
|------------------ |  | ---- |  | ---------------------------------------



---

Notes to the financial statementscontinued



28 Reconciliation to US GAAPcontinued



Reconciliation of movement in shareholders equity under US GAAP



|                                                         |  | Number ofshares |  | Sharecapital£000 |  | Sharepremiumaccount£000 |  | Otherreserve£000 |  | Accumulatedloss£000 |   |  | Totalshareholdersequity£000 |  
|-------------------------------------------------------- |  | --------------- |  | ----------------- |  | ------------------------ |  | ----------------- |  | -------------------- | - |  | ----------------------------- | -
|Balance, 30 September 2001                               |  | 35,455,865      |  | 3,546             |  | 209,140                  |  | 13,492            |  | (72,453              | ) |  | 153,725                       |  
|Shares issued                                            |  | 758,484         |  | 75                |  | 6,794                    |  | 5                 |  |                     |   |  | 6,874                         |  
|Compensation costs for stock options                     |  |                |  |                  |  | 3,703                    |  |                  |  |                     |   |  | 3,703                         |  
|Foreign exchange translation                             |  |                |  |                  |  |                         |  |                  |  | 587                  |   |  | 587                           |  
|Net loss for the year under US GAAP                      |  |                |  |                  |  |                         |  |                  |  | (31,291              | ) |  | (31,291                       | )
|                                                         |  |                 |  |                   |  |                          |  |                   |  |                      |   |  |                               |  
|Total comprehensive loss                                 |  |                 |  |                   |  |                          |  |                   |  | (30,704              | ) |  |                               |  
|                                                         |  |                 |  |                   |  |                          |  |                   |  |                      |   |  |                               |  
|Balance, 30 September 2002                               |  | 36,214,349      |  | 3,621             |  | 219,637                  |  | 13,497            |  | (103,157             | ) |  | 133,598                       |  
|Shares issued                                            |  | 2,123,971       |  | 213               |  | 10,349                   |  |                  |  |                     |   |  | 10,562                        |  
|Compensation costs for stock options                     |  |                |  |                  |  | 597                      |  |                  |  |                     |   |  | 597                           |  
|Foreign exchange translation                             |  |                |  |                  |  |                         |  |                  |  | 856                  |   |  | 856                           |  
|Unrealised holding gain on available for sale securities |  |                |  |                  |  |                         |  |                  |  | 106                  |   |  | 106                           |  
|Net loss for the year under US GAAP                      |  |                |  |                  |  |                         |  |                  |  | (39,619              | ) |  | (39,619                       | )
|                                                         |  |                 |  |                   |  |                          |  |                   |  |                      |   |  |                               |  
|Total comprehensive loss                                 |  |                 |  |                   |  |                          |  |                   |  | (38,657              | ) |  |                               |  
|                                                         |  |                 |  |                   |  |                          |  |                   |  |                      |   |  |                               |  
|Balance, 30 September 2003                               |  | 38,338,320      |  | 3,834             |  | 230,583                  |  | 13,497            |  | (141,814             | ) |  | 106,100                       |  
|                                                         |  |                 |  |                   |  |                          |  |                   |  |                      |   |  |                               |  



Total accumulated other comprehensive
loss at 30 September 2002 was £587,000 (foreign currency translations) and at 30 September 2003 was £962,000 (£856,000  foreign currency translations; £106,000 unrealised holding gain on available for sale securities).



(a) Compensation costs under variable plan accounting for stock optionsCAT has granted stock options to employees that will vest upon the attainment of certain targets. Under UK GAAP, there is no accounting for the cost of these grants after the initial grant date. Under US GAAP, Accounting Principles Board (APB)
Opinion 25, Accounting for Stock Issued to Employees, the Company is required to follow variable plan accounting for these grants. The nature of conditions attached to the stock options awards mean that management cannot make a
reasonable estimate of the number of shares that will be eventually issued because the Company cannot control the achievements of the conditions. As a consequence, the compensation expense for the stock awards is recorded when and only when the
options vest when the target is achieved, based on the difference between the exercise price and market value at that date. The targets were first achieved in the year ended 30 September 2000.



(b) Accounting for the acquisition of Aptein Inc.The Company acquired Aptein Inc.
(Aptein) in July 1998 for consideration payable partly on completion, the remainder being deferred, payable subject to the achievement of certain conditions. Aptein was acquired for its patent portfolio, which comprised its only material asset. The
value of purchase consideration therefore had a corresponding impact on the fair value ascribed to the patents, which are shown in the balance sheet as an intangible asset.



Under UK GAAP, in accordance with FRS 7 Fair Values in Acquisition Accounting, the fair value of the deferred consideration was
recognised immediately and the fair value of the contingent consideration which was payable by the issue of shares in the Company was reported as part of shareholders funds as shares to be issued. The difference between the initial
investment of the contingent consideration and the actual amount was recorded as an adjustment to the purchase price in June 1999, when paid. At this time a corresponding adjustment to the value of the intangible asset was also recognised.



Under US GAAP, APB Opinion 16, Accounting for Business
Combinations, contingent consideration is not recorded until such time as the contingency is resolved. Accordingly, prior to the actual payment of the contingent consideration the recorded value of the intangible asset under US GAAP was lower
than under UK GAAP, resulting in a lower amortisation charge. On payment of the contingent consideration, the amortisation charge under US GAAP increased above UK GAAP as a consequence of the higher unamortised cost.



|Cambridge Antibody Technology Group plc |  | F-24 |  | Annual Report 2003
|--------------------------------------- |  | ---- |  | ------------------



---

28 Reconciliation to US GAAPcontinued



(c) Revenue recognitionThe nature of the Groups principal revenue streams and the Groups accounting policy for revenue
recognition under UK GAAP are as detailed in note 1. For US GAAP purposes, the Company has adopted, for all periods, Staff Accounting Bulletin 101 (SAB101), Revenue Recognition in Financial Statements, which was issued by the Securities
and Exchange Commission (SEC) in December 1999.



The treatment of revenues
under US GAAP is equivalent to that under UK GAAP except as follows:



Under US
GAAP, where licensing arrangements are accompanied by an equity subscription agreement, the series of transactions have been accounted for as a multiple elements arrangement. Accordingly the aggregate consideration has been allocated to the two
elements of the arrangement as follows. The fair value of the equity subscription is calculated as being the aggregate number of shares issued at the average of the opening and closing share prices on the date of issue. Any deficit or premium
arising from the aggregate value of the share subscription over the fair value of the shares is recorded as an adjustment to licence revenues. No such reallocation is made under UK GAAP.



During the years ended 30 September 2003, 2002 and 2001 licence revenues under US GAAP were therefore £422,000 higher.



(d) Accounting for National Insurance on share optionsUnder UK GAAP the Company has
accounted for a potential liability to National Insurance on employee share options. The provision has been made systematically by reference to the market value of shares at the balance sheet dates over the period from the date of grant to the end
of the relevant performance period and from that date to the date of actual exercise the provision is being adjusted by reference to changes in market value. The provision at 30 September 2003 was £94,000 and the net charge for the year then
ended amounted to £13,000.



Under US GAAP, Emerging Issues Task Force
(EITF) Issue 00-16 Recognition and Measurement of Employer Payroll Taxes on Employee Stock-Based Compensation, no liability to National Insurance is recognised until such time as the share option is exercised since this is when the
liability crystallises.



(e) Share issue expenseUnder the agreement
with DRC the Group received an amount of £1.5 million in 1994 in exchange for rights to a percentage of the cash receivable in respect of certain revenues and certain equity issues where these equity issues form part of a commercial
collaboration. Under UK GAAP amounts paid to DRC as a result of an equity subscription are accounted for as a share issue expense since they are considered to be directly related to the share issue.



Under US GAAP these amounts are not considered to be a share issue cost since DRC is not
providing any services in connection with the equity issue. Accordingly, such amounts are charged to the profit and loss account for the year under US GAAP.



(f) Profit on sale of Denzyme ApSGoodwill of £229,000 arose on the purchase of Denzyme ApS in June 1996. In accordance with the UK accounting standard then
in force (Statement of Standard Accounting Practice 22) this goodwill was written off to reserves. Under US GAAP the goodwill was expensed in the income statement.



The Company sold Denzyme ApS, a wholly owned subsidiary, in November 2001. Under UK GAAP the calculated profit on disposal takes account of
the goodwill previously written off to reserves resulting in a profit on disposal of £2,000. Under US GAAP there is no requirement to write back the goodwill as it has already been charged to the profit and loss account. Therefore under US
GAAP the profit on disposal of Denzyme ApS is £231,000.



(g)
Termination of DRC royalty agreementUnder an agreement with DRC the Group received a payment of £1.5 million in 1994 in return for rights to a percentage of revenues (and certain other payments) received by the Group over a period
terminating in 2009. On 2 May 2002 the Group bought out this obligation to DRC for £6.1 million (C$14 million) with the issue of 463,818 CAT shares to DRC.



Under UK GAAP the share price applied to this transaction defined in the contract, was the volume weighted average closing CAT share price
over the ten days prior to 30 April 2002, being the date that the Group notified DRC that they intended to terminate the royalty agreement. This resulted in a credit to the share premium account of £6,102,000.



Under US GAAP the share price applied was the fair value of the closing CAT share price on
the 30 April 2002, resulting in a credit to the share premium account of £5,379,000.



(h) Foreign currency translationUnder UK GAAP, the results of overseas subsidiaries are translated at the closing exchange rate. Under US GAAP, the average exchange rate for the year is used.



|Annual Report 2003 |  | F-25 |  | Cambridge Antibody Technology Group plc
|------------------ |  | ---- |  | ---------------------------------------



---

Notes to the financial statementscontinued



28 Reconciliation to US GAAPcontinued



(i) Short term investmentsIn August 2003, CAT received 588,160 newly issued shares from MorphoSys under the terms of the agreement,
dated 23 December 2002. Under UK GAAP the value of the majority of these shares has been classified as a fixed asset investment, the remainder, being the amount due to The Scripps Research Institute and Stratagene, as a current asset investment, at
the value of the shares on the date they were received, less any provision for impairment.



Under US GAAP, SFAS 115, Accounting for Certain Investments in Debt and Equity Securities, investments are classified as trading, available for sale or held to maturity. Investments accounted for as
trading and available for sale are marked to market if there is a readily determinable market value. The unrealised gain or loss on the securities is recorded through income for trading securities and as a component of other comprehensive loss for
available for sale securities. Held to maturity securities are recorded at historical cost. Any other than temporary declines in market value are recorded in earnings.



(j) TaxationUnder UK GAAP, deferred tax is provided in full on timing differences which result in an obligation at the balance sheet
date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Net deferred tax assets are recognised to the extent that it is regarded as more likely than not
that they will be recovered.



Under US GAAP, deferred tax is recognised in full
in respect of temporary differences between the reported carrying amount of an asset or liability and its corresponding tax basis. Deferred tax assets are also recognised in full subject to a valuation allowance to reduce the amount of such assets
to that which is more likely than not to be realised.



As at 30 September 2003,
2002 and 2001, CAT has approximately £100 million, £79 million and £60 million respectively of cumulative tax losses. These losses represent a deferred tax asset for accounting purposes. In accordance with both UK GAAP and US GAAP,
no asset has been recognised in respect of these tax losses due to the uncertainty as to whether these losses can be offset against future profits.



No tax effect has been recognised in the reconciliation of net loss from UK GAAP to US GAAP in respect of the differences arising in respect of those items, as the timing
differences arising are offset in full by the unrecognised tax losses carried forward.



Consolidated statements of cash flowsThe consolidated statements of cash flows prepared under UK GAAP presents substantially the same information as that required under US GAAP by SFAS 95 Statement of Cash Flows. These
standards differ however with regard to classification of items within the statements and the definition of cash and cash equivalents.



Under UK GAAP, cash comprises cash in hand, deposits repayable on demand and bank overdrafts. Deposits are repayable on demand if they can be withdrawn at any time
without notice and without penalty or if a maturity or period of notice of not more than 24 hours or one working day has been agreed. Under US GAAP, cash equivalents are short term highly liquid investments, generally with original maturities of
three months or less, that are readily convertible to known amounts of cash and present insignificant risk of changes in value because of changes in interest rates.



Under UK GAAP, cash flows are presented separately for operating activities, returns on investments and servicing of finance, taxation,
capital expenditure and financial investment, management of liquid resources and financing activities. US GAAP requires only three categories of cash flow activity to be reported: operating, investing and financing. Cash flows from taxation and
returns on investments and servicing of finance under UK GAAP would, with the exception of dividends paid, be shown under operating activities under US GAAP. The payment of dividends and the payment to acquire own shares (treasury stock) would be
included as a financing activity under US GAAP. Management of liquid resources under UK GAAP would be included as cash and cash equivalents. Under US GAAP management of liquid resources would be included as an investing activity to the extent that
such amounts have an original maturity of more than three months and are convertible into known amounts of cash. Under UK GAAP, a finance lease entered into in connection with a sales leaseback is reflected in financing activities. Under US GAAP,
the sale is reflected in investing activities whereas the leaseback is not reflected as it is a non-cash activity. Summary statements of cash flow presented under US GAAP using UK GAAP measurement principles are given below:



|                                                              |  | 2003£000 |   |  | 2002£000 |   |  | 2001£000 |  
|------------------------------------------------------------- |  | --------- | - |  | --------- | - |  | --------- | -
|Net cash used in operating activities                         |  | (24,416   | ) |  | (18,330   | ) |  | (10,828   | )
|Net cash provided by/(used in) investing activities           |  | 19,576    |   |  | (5,106    | ) |  | (21,735   | )
|Net cash provided by financing activities                     |  | 10,341    |   |  | 1,448     |   |  | 15,380    |  
|Effects of exchange rate changes on cash and cash equivalents |  | (35       | ) |  | (32       | ) |  |          |  
|                                                              |  |           |   |  |           |   |  |           |  
|Increase/(decrease) in cash and cash equivalents              |  | 5,466     |   |  | (22,020   | ) |  | (17,183   | )
|Beginning cash and cash equivalents                           |  | 68,579    |   |  | 90,599    |   |  | 107,782   |  
|                                                              |  |           |   |  |           |   |  |           |  
|Ending cash and cash equivalents                              |  | 74,045    |   |  | 68,579    |   |  | 90,599    |  
|                                                              |  |           |   |  |           |   |  |           |  



|Cambridge Antibody Technology Group plc |  | F-26 |  | Annual Report 2003
|--------------------------------------- |  | ---- |  | ------------------



---

28 Reconciliation to US GAAPcontinued



A reconciliation between the consolidated cash flow statement prepared in accordance with UK GAAP and US GAAP using UK GAAP measurement
principles is presented below for the years ended 30 September:



|                                                              |  | 2003£000 |   |  | 2002£000 |   |  | 2001£000 |  
|------------------------------------------------------------- |  | --------- | - |  | --------- | - |  | --------- | -
|Operating activities:                                         |  |           |   |  |           |   |  |           |  
|Net cash used in operating activities under UK GAAP           |  | (35,819   | ) |  | (26,808   | ) |  | (19,150   | )
|Returns on investments and servicing of finance               |  | 5,049     |   |  | 7,558     |   |  | 8,322     |  
|Taxation                                                      |  | 5,210     |   |  | 920       |   |  |          |  
|Increase in bank overdrafts                                   |  | 1,144     |   |  |          |   |  |          |  
|                                                              |  |           |   |  |           |   |  |           |  
|Net cash used in operating activities under US GAAP           |  | (24,416   | ) |  | (18,330   | ) |  | (10,828   | )
|                                                              |  |           |   |  |           |   |  |           |  
|Investing activities:                                         |  |           |   |  |           |   |  |           |  
|Capital expenditure and financial investment under UK GAAP    |  | (8,082    | ) |  | (9,961    | ) |  | (3,481    | )
|Sale of tangible fixed assets                                 |  | 1,389     |   |  |          |   |  |          |  
|Management of liquid resources under UK GAAP                  |  | 18,778    |   |  | 29,534    |   |  | 274       |  
|Cash equivalents with a maturity of less than three months    |  | 7,491     |   |  | (24,679   | ) |  | (18,528   | )
|                                                              |  |           |   |  |           |   |  |           |  
|Net cash used in investing activities                         |  | 19,576    |   |  | (5,106    | ) |  | (21,735   | )
|                                                              |  |           |   |  |           |   |  |           |  
|Financing activities:                                         |  |           |   |  |           |   |  |           |  
|Financing activities under UK GAAP                            |  | 11,730    |   |  | 1,448     |   |  | 15,380    |  
|Proceeds from new finance lease commitments                   |  | (1,389    | ) |  |          |   |  |          |  
|                                                              |  |           |   |  |           |   |  |           |  
|Net cash provided by financing activities under US GAAP       |  | 10,341    |   |  | 1,448     |   |  | 15,380    |  
|                                                              |  |           |   |  |           |   |  |           |  
|Movement in cash:                                             |  |           |   |  |           |   |  |           |  
|(Decrease)/increase in cash under UK GAAP                     |  | (3,134    | ) |  | 2,691     |   |  | 1,345     |  
|Cash equivalents with a maturity of less than three months    |  | 7,491     |   |  | (24,679   | ) |  | (18,528   | )
|Effects of exchange rate changes on cash and cash equivalents |  | (35       | ) |  | (32       | ) |  |          |  
|Increase in bank overdrafts                                   |  | 1,144     |   |  |          |   |  |          |  
|                                                              |  |           |   |  |           |   |  |           |  
|                                                              |  | 5,466     |   |  | (22,020   | ) |  | (17,183   | )
|                                                              |  |           |   |  |           |   |  |           |  



Accounting for share-based
compensationAs permitted under SFAS 123, Accounting for Stock-Based Compensation, in accounting for options granted under its share option schemes the Group has adopted the disclosure provisions of SFAS 123, but opted to remain
under the expense recognition provisions of APB Opinion 25, Accounting for Stock Issued to Employees. Accordingly, for the years ended 30 September 2003, 2002 and 2001, compensation expenses of £597,000, £3,703,000 and
£7,804,000 were recognised for options granted under these schemes. Had compensation expense for options granted under these schemes been determined based on fair value at the grant dates in accordance with SFAS 123, the Companys charge
to income for the years ended 30 September 2003, 2002 and 2001 would have been £2,326,000, £1,523,000 and £1,064,000 respectively. In calculating these amounts, the fair value of the options has been amortised over their respective
vesting periods. Net loss and loss per share under US GAAP would therefore have been reduced to the pro forma amounts shown below:



|                                                                                                                                             |  | 2003£000 |   |  | 2002£000 |   |  | 2001£000 |  
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- | - |  | --------- | - |  | --------- | -
|Net loss, as reported                                                                                                                        |  | (39,619   | ) |  | (31,291   | ) |  | (19,565   | )
|Add: Stock-based employee compensation expense included in reported net loss                                                                 |  | 597       |   |  | 3,703     |   |  | 7,804     |  
|Deduct: Total stock-based employee compensation expense determined under fair value based methods for all awards, net of related
tax effects |  | (2,326    | ) |  | (1,523    | ) |  | (1,064    | )
|                                                                                                                                             |  |           |   |  |           |   |  |           |  
|Pro forma net loss                                                                                                                           |  | (41,348   | ) |  | (29,111   | ) |  | (12,825   | )
|                                                                                                                                             |  |           |   |  |           |   |  |           |  
|Loss per share                                                                                                                               |  |           |   |  |           |   |  |           |  
|Basic  as reported                                                                                                                          |  | 108.7     | p |  | 87.3      | p |  | 55.4      | p
|Basic  pro forma                                                                                                                            |  | 113.5     | p |  | 81.3      | p |  | 36.3      | p
|                                                                                                                                             |  |           |   |  |           |   |  |           |  



|Annual Report 2003 |  | F-27 |  | Cambridge Antibody Technology Group plc
|------------------ |  | ---- |  | ---------------------------------------



---

Notes to the financial statementscontinued



28 Reconciliation to US GAAPcontinued



The weighted average fair value of options was estimated using the Black-Scholes stock option pricing model using the following weighted
average assumptions:



|Year ending       |  | Dividendyield |   |  | Annualstandarddeviation(volatility) |   |  | Risk-freeinterest rate |   |  | Expected lifeYears
|----------------- |  | ------------- | - |  | ----------------------------------- | - |  | ---------------------- | - |  | ------------------
|30 September 2003 |  | 0             | % |  | 65                                  | % |  | 4.2                    | % |  | 5.5               
|30 September 2002 |  | 0             | % |  | 65                                  | % |  | 4.9                    | % |  | 5.5               
|30 September 2001 |  | 0             | % |  | 75                                  | % |  | 5.3                    | % |  | 5.5               



For the purposes of the following
tabulations, Weighted Average Exercise Price is abbreviated to WAEP, Weighted Average Fair Value to WAFV and Weighted Average Remaining Contractual Life to WARCL.



The movement in options outstanding during the three years ended 30 September 2003, 2002 and
2001, is summarised in the following table:



|                            |  | 2003      |   | 2002 |       | 2001
|--------------------------- |  | --------- | - | ---- | ----- | ----
|                            |  | Number    |   |      | WAEP£ |     
|Outstanding at 1 October    |  | 1,501,807 |   |      | 6.97  |     
|Granted during the year     |  | 522,762   |   |      | 4.88  |     
|Exercised during the year   |  | (188,447  | ) |      | 2.77  |     
|Forfeited during the year   |  | (35,360   | ) |      | 8.43  |     
|Expired during the year     |  | (74,155   | ) |      | 2.87  |     
|                            |  |           |   |      |       |     
|Outstanding at 30 September |  | 1,726,607 |   |      | 6.94  |     
|                            |  |           |   |      |       |     
|Exercisable at 30 September |  | 862,977   |   |      | 3.42  |     
|                            |  |           |   |      |       |     



The following table summarises the
value of options granted during the years ending 30 September 2003, 2002 and 2001.



|                                        |  | 2003  |  | 2002  |  | 2001 
|--------------------------------------- |  | ----- |  | ----- |  | -----
|Exercise price relative to market price |  | WAFV£ |  | WAEP£ |  | WAFV£
|Equals                                  |  |      |  |      |  |     
|Exceeds                                 |  |      |  |      |  | 10.28
|Is less than                            |  | 3.10  |  | 4.88  |  | 7.42 
|                                        |  |       |  |       |  |      
|Total                                   |  | 3.10  |  | 4.88  |  | 9.32 
|                                        |  |       |  |       |  |      



The following tables summarise
information about the stock options outstanding at 30 September 2003, 2002 and 2001.



|                          |  | Outstanding as at 30 September 2003 |  | Exercisable as at30 September 2003
|------------------------- |  | ----------------------------------- |  | ----------------------------------
|Range of exercise prices£ |  | Number                              |  | WAEP£                             
|0  0.99                  |  |                                    |  |                                  
|1  2.99                  |  | 547,160                             |  | 2.66                              
|3  4.99                  |  | 322,063                             |  | 4.25                              
|5  9.99                  |  | 502,317                             |  | 5.08                              
|10  19.99                |  | 264,326                             |  | 14.88                             
|20  31                   |  | 90,741                              |  | 29.45                             
|                          |  |                                     |  |                                   
|Total                     |  | 1,726,607                           |  | 6.94                              
|                          |  |                                     |  |                                   



|Cambridge Antibody Technology Group plc |  | F-28 |  | Annual Report 2003
|--------------------------------------- |  | ---- |  | ------------------



---

28 Reconciliation to US GAAPcontinued



|                          |  | Outstanding as at 30 September 2002 |  | Exercisable as at30 September 2002
|------------------------- |  | ----------------------------------- |  | ----------------------------------
|Range of exercise prices£ |  | Number                              |  | WAEP£                             
|0  0.99                  |  |                                    |  |                                  
|1  2.99                  |  | 699,450                             |  | 2.66                              
|3  4.99                  |  | 189,179                             |  | 3.06                              
|5  9.99                  |  | 249,760                             |  | 5.02                              
|10  19.99                |  | 269,883                             |  | 14.88                             
|20  31                   |  | 93,535                              |  | 29.46                             
|                          |  |                                     |  |                                   
|Total                     |  | 1,501,807                           |  | 6.97                              
|                          |  |                                     |  |                                   
|                          |  |                                    
|                          |  | Outstanding as at 30 September 2001 |  | Exercisable as at30 September 2001
|Range of exercise prices£ |  | Number                              |  | WAEP£                             
|0  0.99                  |  |                                    |  |                                  
|1  2.99                  |  | 766,149                             |  | 2.63                              
|3  4.99                  |  | 374,924                             |  | 3.03                              
|5  10                    |  | 277,760                             |  | 5.02                              
|21  31                   |  | 99,145                              |  | 29.49                             
|                          |  |                                     |  |                                   
|Total                     |  | 1,517,978                           |  | 4.92                              
|                          |  |                                     |  |                                   



Deferred taxA reconciliation
of the provision for income taxes with the amount computed by applying the statutory income tax rate (30%) to loss before taxation, using UK GAAP measurement principles, is as follows:



|                                                         |  | 2003£000 |   |  | 2002£000 |   |  | 2001£000 |  
|-------------------------------------------------------- |  | --------- | - |  | --------- | - |  | --------- | -
|Income tax expense computed at statutory income tax rate |  | (12,530   | ) |  | (9,529    | ) |  | (3,531    | )
|Permanent differences                                    |  | (438      | ) |  | (1,041    | ) |  | (1,205    | )
|Research and development tax credit claimed              |  | (3,148    | ) |  | (3,557    | ) |  |          |  
|Prior year adjustment to UK losses brought forward       |  | 6,056     |   |  |          |   |  |          |  
|Prior year adjustment to US losses brought forward       |  | 1,556     |   |  |          |   |  |          |  
|Change in valuation allowance                            |  | 5,356     |   |  | 10,570    |   |  | 4,736     |  
|                                                         |  |           |   |  |           |   |  |           |  
|Credit for income taxes                                  |  | (3,148    | ) |  | (3,557    | ) |  |          |  
|                                                         |  |           |   |  |           |   |  |           |  



Under UK GAAP, withholding taxes are
included within the corporation tax charge for the year. Under USGAAP, the withholding tax is reclassified and presented as a component of general and administrative expenses.



|Annual Report 2003 |  | F-29 |  | Cambridge Antibody Technology Group plc
|------------------ |  | ---- |  | ---------------------------------------



---

Notes to the financial statementscontinued



28 Reconciliation to US GAAPcontinued



Net deferred taxes are analysed as follows:



|                                                    |  | 2003£000 |   |  | 2002£000 |   |  | 2001£000 |  
|--------------------------------------------------- |  | --------- | - |  | --------- | - |  | --------- | -
|Deferred tax assets:                                |  |           |   |  |           |   |  |           |  
|Losses carried forward                              |  | 30,154    |   |  | 23,658    |   |  | 18,126    |  
|Excess of tax value over book value of fixed assets |  |          |   |  |          |   |  | 335       |  
|Other short term timing differences                 |  |          |   |  | 58        |   |  |          |  
|                                                    |  |           |   |  |           |   |  |           |  
|                                                    |  | 30,154    |   |  | 23,716    |   |  | 18,461    |  
|Valuation allowance                                 |  | (27,800   | ) |  | (22,444   | ) |  | (18,461   | )
|                                                    |  |           |   |  |           |   |  |           |  
|Net deferred tax asset                              |  | 2,354     |   |  | 1,272     |   |  |          |  
|Deferred tax liabilities:                           |  |           |   |  |           |   |  |           |  
|Excess of book value over tax value of fixed assets |  | (2,354    | ) |  | (1,272    | ) |  |          |  
|                                                    |  |           |   |  |           |   |  |           |  
|Net deferred taxes                                  |  |          |   |  |          |   |  |          |  
|                                                    |  |           |   |  |           |   |  |           |  



As discussed in Note 8, the Group
recorded a research and development tax credit in the current year. This credit resulted in a surrender of certain losses for which a valuation allowance was recorded in the prior year. The change in valuation allowance above includes the
establishment of the valuation allowance for the current year and the decrease in the valuation allowance resulting from the surrender of prior year losses.



As at 30 September 2003 the Group had approximately £100 million of tax losses available to carry forward indefinitely against future trading profits.



Aptein, the Groups only overseas subsidiary, has no distributable earnings and
therefore no provision has been made for the deferred tax liability in respect of earnings to be distributed from Aptein to the United Kingdom.



There are no deferred taxes recorded in the current year as there are net operating losses that fully offset the deferred tax liability.



Recently issued accounting pronouncementsOn 1 October 2002, CAT adopted Financial
Accounting Standards Board (FASB) Statement No. 142, Goodwill and Other Intangible Assets (SFAS 142). The statement directs that goodwill and intangible assets that have indefinite lives will not be amortised but rather will be tested at
least annually for impairment. Intangible assets that have finite lives will continue to be amortised over their useful lives, but without the constraint of an arbitrary ceiling. The adoption of this statement did not have any impact on CATs
consolidated financial position or results of operations.



On 1 October 2002,
CAT adopted FASB Statement No. 143, Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and the associated
retirement costs. The adoption of this statement did not have an impact on CATs consolidated financial position or results of operations.



On 1 October 2002, CAT adopted FASB Statement No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical
Corrections (SFAS 145). SFAS 145 requires that gains and losses from the extinguishment of debt will no longer be classified as extraordinary unless they meet the criteria for extraordinary treatment as set out in Accounting Principles Board
Opinion No. 30. The adoption of this statement did not have an impact on CATs consolidated financial position or results of operations.



On 1 January 2003, CAT adopted FASB Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which requires companies to recognise
a liability for costs associated with exit or disposal activities when they are incurred, rather than at the date of commitment to an exit plan or disposal plan. The adoption of this statement did not have any impact on CATs consolidated
financial position or results of operations.



In December 2002, the FASB issued
SFAS 148, Accounting for Stock-Based Compensation  Transition and Disclosure  an amendment to FASB Statement No. 123 (SFAS 148). SFAS 148 provides alternative transaction methods for companies that make a voluntary change to
the fair-valued based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require disclosures in both annual and interim financial statements about the method of
accounting for stock-based compensation and the effect of the method used on reported results. CAT has adopted the disclosure provisions of SFAS 148 and decided to continue to account for stock options under APB 25 and, as a result, adoption of this
standard did not have any impact on its consolidated financial position or results of operations.



|Cambridge Antibody Technology Group plc |  | F-30 |  | Annual Report 2003
|--------------------------------------- |  | ---- |  | ------------------



---

28 Reconciliation to US GAAPcontinued



In April 2003 the FASB issued Statement No. 149, Amendment of SFAS No. 133 on Derivative Instruments and Hedging Activities
(SFAS 149). The Statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS 133. In particular, it (1) clarifies under what
circumstances a contract with an initial net investment meets the characteristic of a derivative as discussed in SFAS 133, (2) clarifies when a derivative contains a financing component, (3) amends the definition of an underlying to conform it to
the language used in FIN 45 and (4) amends certain other existing pronouncements. The adoption of this Statement did not have any impact on CATs results of operations and financial position.



In May 2003 the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity (SFAS 150). SFAS 150 modifies the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. The Statement requires that those
instruments be classified as liabilities in statements of financial position. SFAS 150 became effective for financial instruments entered into or modified after 31 May 2003, and otherwise became effective at the beginning of the first interim period
beginning after 15 June 2003. The adoption of SFAS 150 did not have any impact on the results of operations and financial position of CAT.



In November 2002, the Emerging Issues Task Force reached a final consensus related to Revenue Arrangement with Multiple Deliverables (EITF 00-21). The consensus requires
that revenue arrangements with multiple deliverables should be divided into separate units of accounting if (a) a delivered item has value to the customer on stand alone basis, (b) there is objective and reliable evidence of the fair value of the
undelivered item and (c) if the arrangement includes a general right of return, delivery or performance of the undelivered items is considered probable and substantially in the control of the vendor. Arrangement consideration should be allocated
among the separate units of accounting based on their relative fair value and appropriate revenue recognition criteria would be applied to each separate unit of accounting. CAT has not yet determined what effect, if any, EITF 00-21 would have on
revenue and net income determined in accordance with US GAAP. The Task Force agreed the effective date for the consensus will be for all revenue arrangements entered into in fiscal periods beginning after 15 June 2003, with early adoption permitted.
CAT is still evaluating the impact of this EITF on its financial statements. This EITF will be effective for the Company for revenue arrangements entered into after 1 October 2003.



In November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others (FIN 45). This interpretation requires certain disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it
has issued. It also requires a guarantor to recognise, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements of FIN 45 are effective for interim and annual
periods after 15 December 2002 and therefore, CAT has adopted these requirements. The initial recognition and initial measurement requirements of FIN 45 are effective prospectively for guarantees issued or modified after 31 December 2002. The
adoption of this Statement did not have an impact on CATs financial statements.



In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities  and Interpretation of ARB No. 51, (FIN 46). FIN 46 requires an enterprise to consolidate a variable interest entity
(previously known as a special purpose entity) if that enterprise has a variable interest that will absorb a majority of the entitys expected losses, receive a majority of the entitys expected residual returns, or both. This
interpretation applies immediately to variable interest entities created or obtained after 31 January 2003. For those variable interest entities created or obtained prior to that date, the interpretation required adoption in the third quarter of
2003. On 9 October 2003, the FASB issued FSP FIN 46-6, Effective Date of FASB Interpretation No. 46, Consolidation of Variable Interest Entities. This FSP provides a deferral for interests held by public entities in a variable interest
entity or potential variable interest entity until the end of the first interim or annual period ending after 15 December 2003, if certain conditions apply. However, early application of FIN 46 is encouraged. CAT does not expect that the adoption of
FIN 46 will have any impact on its consolidated financial position or results of operations.



|Annual Report 2003 |  | F-31 |  | Cambridge Antibody Technology Group plc
|------------------ |  | ---- |  | ---------------------------------------



---

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it
has duly caused and authorized the undersigned to sign this registration statement on its behalf.



CAMBRIDGE ANTIBODY TECHNOLOGY GROUP PLCBy:

/s/    John AstonName:

John AstonTitle:

Chief Financial OfficerDate:

December 4, 2003






S-1



---

INDEX TO EXHIBITS



|Exhibit |  | Description                                                                                                                                                          
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        | 
|1.1     |  | Memorandum of Association*                                                                                                                                           
|        | 
|1.2     |  | New Articles of Association                                                                                                                                          
|        | 
|2.1     |  | Specimen of ordinary share certificate**                                                                                                                             
|        | 
|2.2     |  | Form of Deposit Agreement**                                                                                                                                          
|        | 
|2.3     |  | Form of ADR**                                                                                                                                                        
|        | 
|+4.1    |  | License Agreement, dated as of January 7, 1997, between CAT and the Medical Research Council**                                                                       
|        | 
|4.2     |  | Not used.                                                                                                                                                            
|        | 
|4.3     |  | Lease Agreement, relating to the lease of a building in South Cambridgeshire, England**                                                                              
|        | 
|4.4     |  | Lease Agreement, relating to facilities to be constructed in the future**                                                                                            
|        | 
|+4.5    |  | Development and License agreement, dated April 1, 1995 by and between Cambridge Antibody Technology Limited and Knoll AG**                                           
|        | 
|+4.6    |  | Development and License Agreement, dated February 28, 1999, between Knoll AG and Cambridge Antibody Technology Limited**                                             
|        | 
|+4.7    |  | Amended and Restated License and Collaboration Agreement, dated as of September 19, 2003, between Cambridge Antibody Technology Limited and Genzyme Corporation      
|        | 
|+4.8    |  | Collaboration Agreement, dated August 9, 1999, between Human Genome Sciences, Inc. and Cambridge Antibody Technology Limited**                                       
|        | 
|+4.9    |  | Antibody License Agreement, dated February 29, 2000, between Human Genome Sciences, Inc. and Cambridge Antibody Technology Limited**                                 
|        | 
|+4.10   |  | Research Collaboration and Service Agreement, dated March 29, 1999, by and among Genetics Institute, Inc. and Cambridge Antibody Technology Limited**                
|        | 
|4.11    |  | Not used.                                                                                                                                                            
|        | 
|4.12    |  | Not used.                                                                                                                                                            
|        | 
|4.13    |  | Form of Non-executive Director Service Agreement**                                                                                                                   
|        | 
|+4.14   |  | Research, Development and Commercialization Agreement, dated January 24, 2001, between Elan Pharma International Limited and Cambridge Antibody Technology
Limited***



E-1



---

|      | 
|----- | 
|+4.15 | 
|      | 
|+4.16 | 
|      | 
|4.17  | 
|      | 
|4.18  | 
|      | 
|4.19  | 
|      | 
|8.1   | 
|      | 
|11.1  | 
|      | 
|12.1  | 
|      | 
|12.2  | 
|      | 
|13.1  | 
|      | 
|13.2  | 
|      | 
|14.1  | 
|      | 
|14.2  | 
|      | 
|14.3  | 

---

|* | Filed with the Companys Annual Report on Form 20-F/A for the 2002 Financial Year on October 14, 2003 under the same exhibit number.
|- | ------------------------------------------------------------------------------------------------------------------------------------

|** | Filed with the Companys Registration Statement on Form 20-F/A, dated June 5, 2001 under the same exhibit number.
|-- | -----------------------------------------------------------------------------------------------------------------

|*** | Filed with the Companys Annual Report on Form 20-F/A for the 2001 Financial Year on October 14, 2003 under the same exhibit number.
|--- | ------------------------------------------------------------------------------------------------------------------------------------

|+ | Confidential treatment requested for portions of this exhibit.
|- | --------------------------------------------------------------



E-2