highlights - ucb...highlights > 2001 results* • product sales and royalties – £303.1m (+21%)...

Highlights

> 2001 Results*

• Product sales and royalties – £303.1m (+21%)

• Pre-tax profit (pre restructuring costs and goodwill charges) – £47.8m (+90%)

• Earnings per share (pre restructuring costs and goodwill charges) – 14.4p (+78%)

• Year end cash and liquid resources – £90.4m

> Pipeline

• CDP 870

– Landmark world-wide development and marketing agreement with Pharmacia – March 2001

– Promising Phase II results in rheumatoid arthritis; presented at ACR meeting in San Francisco – November 2001

– Encouraging Phase II results in Crohn’s disease – February 2002

• HumicadeTM

– Completion of recruitment in two large Phase III studies, involving 670 patients

• Merck enters novel orally active PDE 4 inhibitor, from Merck-Celltech collaboration, into Phase II studies in asthma and COPD – December 2001

• Bristol-Myers Squibb enters Celltech’s selective metalloproteinase inhibitor into large Phase II/III study in non-small cell lung cancer, and Phase II in other cancers

> Discovery

• In-licensing of Abgenix SLAM technology

• Technology agreement with Neogenesis – July 2001

> Pharmaceutical business

• 2001 product sales – £241.7m (+10%)

• Acquisition of Thiemann, German sales and marketing organisation, for £31m

• US launch of Metadate® CD in May 2001; share of over 9% of once-daily methylphenidate market – February 2002

Celltech Annual Report 2001 1

* The operational profit and loss account, set out on page 19, has been used when discussingthe financial performance of the Group. In addition sales growth is discussed based on constant exchange rates.

A central element of Celltech’s strategy is value retention,operating at two levels. First, in collaborations with majorpharmaceutical companies Celltech seeks to keepsubstantial value through co-marketing rights, profit-sharingor enhanced royalties. This value-retentive approach isexemplified by the landmark collaboration with Pharmacia,for the development of CDP 870 in rheumatoid arthritis andCrohn’s disease, announced in March 2001. It is also a keyfeature of Celltech’s collaboration with Merck for thedevelopment of phosphodiesterase 4 inhibitors astreatments for chronic respiratory disorders.

The second value retention element arises from Celltech’sintention to use its pharmaceutical organisation as a platformupon which to build specialised marketing capabilities, inorder to commercialise certain key pipeline products. Severalof these represent substantial market opportunities, includingCDP 870 and Humicade™, together with innovative productsin earlier development as novel treatments for inflammatorydisorders and cancer. Celltech will retain a high fraction ofproduct value in all of these cases.

R&D PipelineCelltech’s pipeline is highly competitive, and includes severalproducts in mid- or late-phase clinical development thataddress very large market opportunities, and are beingdeveloped in collaboration with high quality partners.

Important advances have continued during 2001, and recent progress with key products has included the following:

Celltech’s business strategy, which is fuelled by its determination to become a globalbiotechnology leader, is based upon sustaining a long-term commitment to innovative R&D,supported by revenues from Celltech’s pharmaceutical business. In parallel, this strategyseeks to ensure that Celltech’s cash-generative profile is maintained, notwithstanding thesubstantial investment that is required to support a competitive pipeline.

• Very encouraging efficacy and safety findings in Phase IIstudies with CDP 870 in rheumatoid arthritis and inCrohn’s disease. This product is expected to enter Phase IIIstudies in both these indications during this year.

• Completion of recruitment in two Phase III studies withHumicade™, involving 670 patients. These studies areexpected to lead to the submission of a US BiologicsLicence Application for Humicade™ during 2002.

• Merck has entered a novel, orally-active once-dailyphosphodiesterase 4 inhibitor into Phase II studies in both asthma and chronic obstructive pulmonary disease.

• Bristol-Myers Squibb is undertaking a large Phase II/IIIstudy in non-small cell lung cancer with Celltech’sselective second generation metalloproteinase inhibitorBMS 275291, and is carrying out earlier clinical studies in other cancers.

Celltech continues to reinforce its leading edge drugdiscovery capabilities and early development pipeline. The past year has seen the entry of two innovativeantibody-based products into development, and agreementsproviding access to novel discovery technologies relating to both antibody-based products and small molecules. In addition, Celltech has entered an important R&Dcollaboration with Johnson & Johnson in the cancer field.

Pharmaceutical businessCelltech continues to invest in expanding and reinforcing itsUS and European pharmaceutical operations. These not onlyserve to finance the Company’s heavy investment in R&D,

Chairman’s and Chief Executive’s Statement

2 Celltech Annual Report 2001

Left to right:J B H Jackson: ChairmanDr P J Fellner: Group Chief Executive

but importantly serve as a valuable infrastructure uponwhich specialist sales forces can be added to market or co-market key products arising from Celltech’s pipeline.Important steps in the past year have included:

• The acquisition of Thiemann for £31m, which hasprovided Celltech with a high quality sales and marketingorganisation in Germany, the largest EU market. This is animportant step in building a pan-European pharmaceuticalorganisation.

• The launch of Metadate® CD in the US, a once-dailytreatment for attention deficit hyperactivity disorder.Metadate® CD has achieved steadily increasing sales since its launch, and provides an opportunity to reinforcethe growth of our US pharmaceuticals business.

• The filing of a US NDA for CodeprexTM

, a proprietary anti-tussive, with 12-hour action. This is expected to be launched towards the end of 2002, and will expandCelltech’s valuable anti-tussive franchise.

Financial performanceCelltech’s development was underpinned by its strongfinancial performance during 2001, with turnover increasingby 21% to £303.1m, pre-tax profit (before exceptionalitems) increasing by 90% to £47.8m, and earnings per shareby 78%. A significant element of the sharp rise in pre-taxprofit was the receipt of an initial milestone payment fromPharmacia. Importantly, even after excluding this otherincome, net operating profit rose by 34% to £25.4m,reflecting Celltech’s robust underlying financial performance.

There have been several senior management and Boardchanges since the last Interim Report. Dr. Ursula Ney,formerly Director of Development, left Celltech in December2001, to become Chief Executive of an early-stagebiotechnology company. Following this move, Dr. MelanieLee has been appointed as Director of R&D, with overallresponsibility for all Celltech’s discovery and developmentprogrammes. The Board thanks Dr. Ney for her valuable

contribution to the Company over a long period, and wishesher success in her new role.

Mr. Simon Cartmell, Chief Executive Officer of CelltechPharmaceuticals, will also be leaving Celltech. The Boardthanks Mr. Cartmell for his contribution to thepharmaceutical business and wishes him every successin the future.

He will be succeeded by Ms. Ingelise Saunders, whojoined Celltech in September 2001. She was previouslyChief Executive of Novo Nordisk in the UK, and Vice-President of Novo Nordisk, Europe, and has extensivepharmaceutical marketing and operational experience.

As announced at the time of the preliminary results in March, the Board has initiated a process to identify a successor to John Jackson as Chairman of the Board. A further statement will be made at the time of the AGM.

Celltech’s strong performance during 2001 has beenachieved through the dedication and enthusiasm of itsemployees, evident in all areas of the Company’s operations.Their commitment to the Company, and their support for its strategy continues to be a key element in the Company’ssuccess.

John JacksonChairman

Dr Peter FellnerChief Executive


Operational Review

Research & DevelopmentThe past year has seen substantial progress across all areas of Celltech’s Research andDevelopment operations. Continuing advances with the development pipeline have beenachieved by Celltech and its collaborative partners. Highlights include promising results forCDP 870 from large Phase II studies in both rheumatoid arthritis and Crohn’s disease, theprogression of Merck’s PDE 4 programme into Phase II clinical trials, and the completion ofpatient recruitment in the two Humicade™ pivotal Phase III studies. Further expansion of theproduct pipeline was achieved with the entry of two innovative antibody-based candidates,CDP 484 and CDP 791, into development. Celltech’s discovery technology platform has beensubstantially enhanced by collaborations with Abgenix and Neogenesis.

TerminologyThe following panels describe key scientific terms used in the Operational Review.


New Product DevelopmentCelltech is committed to maximising the return it receivesfrom its portfolio of innovative development candidates,whilst managing risk. This approach encompassesdeveloping products either in collaboration with high qualitypharmaceutical partners, or using its own substantial andexperienced in-house development team, which numbersover 100 staff. Since Celltech intends to market or co-market certain of its own key products in the US andEurope, where these are targeted at specialist audiences,the development organisation has been substantiallyreshaped over the last two years to ensure it is able tofully support late-stage development activities. Celltech will also continue to partner products which can be betterexploited in collaboration with a major pharmaceuticalcompany having substantial development expertise and salesand marketing resources.

Celltech remains focused on developing treatmentsfor inflammatory disorders, with a growing portfolio ofoncology products representing a strong additional area of therapeutic focus. By remaining focused in these twospecialist areas, Celltech is able to utilise its accumulatedskills and experience, benefiting current and futureprogrammes. Progress in the pipeline since the last report is detailed below.

Autoimmune diseaseThe immune system is a complicated network of cells andcell components that normally work to defend the body andeliminate infections caused by bacteria, viruses and otherpathogens. In autoimmune diseases, the immune systemmistakenly attacks the patients’ own cells and tissues. Acollection of immune cells at a target site is broadly referredto as inflammation. Different autoimmune diseases affectthe body in different ways. For example, an autoimmuneresponse is directed against the joints in rheumatoidarthritis, the gastrointestinal tract in Crohn’s disease andthe brain and central nervous system in multiple sclerosis.Celltech is targeting key mediators of inflammation in orderto alleviate the damage caused by autoimmune diseases.

Anti-cytokine therapy for inflammatory diseasesCelltech has a long-established interest in tumour necrosisfactor alpha (TNF�), a pro-inflammatory cytokine involved in a number of autoimmune diseases, including rheumatoidarthritis and Crohn’s disease. Since the first TNF� blockerwas launched in 1998, this novel drug class has rapidlybecome established as a major new treatment paradigm forimmune and inflammatory disorders. Total sales of anti-TNF�

products in 2001 were $1.5bn, predominantly arising fromthe treatment of rheumatoid arthritis and Crohn’s disease.

Celltech’s pipeline is highly competitive, and includes seven products in Phase II orPhase III clinical trials.

2new antibody-basedcandidates enteredinto development

The immune system is the body's defence against pathogens such asviruses or bacteria, and may assist in eliminating cancers. T cells controlthe type and magnitude of the immune response: too little T cellresponse may result in immunodeficiency or susceptibility to cancer;too much T cell response contributes to autoimmune diseases such asrheumatoid arthritis, inflammatory bowel disease or multiple sclerosis.Most current treatments for autoimmune diseases are also stronglysuppressive of normal immune function, limiting their overall use.

How is Celltech’s early stage research being used to ‘fine tune’the immune response for the treatment of autoimmune disease?

BacteriaViruses Cancer

Immunodeficiency AutoimmuneDisease

TOO LITTLERESPONSE

TOO MUCHRESPONSE

Health

T cell

Research at Celltech isfocused on developingmedicines to moreselectively regulate theT cell mediatedautoimmune response.

A good way to control T cells is by targeting the interactionbetween T cells and dendritic cells. Dendritic cells exist in alltissues of the body and search for pathogens. If they detectpathogens, they move to locations where they will come incontact with T cells and direct the T cells to respond. Thereare a number of important interactions between T cells anddendritic cells. When not controlled, these interactions maylead to disease.

Our target identification efforts are focussed on identifyingthe important proteins involved in dendritic cell: T cellinteractions, and our therapeutic antibody pipeline hasprojects aimed at finding better ways to 'fine-tune' theseinteractions to control autoimmune disease.

One example of ‘fine control’ of the immune response is mediated by arare but important subset of T cells, referred to as Regulatory T cells.This recently characterised cell type may represent the immunesystem’s own control mechanism.

Celltech scientists have identified a gene (Foxp3) that is a key controllerfor this subset of T cells. By determining how Regulatory T cells work,in part through the function of the Foxp3 gene, we hope to be able toidentify novel methods for regulating the quality and magnitude ofT cell responses.

Therapeutic medicines

Balanced Response

Immunodeficiency AutoimmuneDisease

Health

Dendriticcell

T cell

The T cell biology programme at Celltechfocuses on control of the T cell immuneresponse, with particular emphasis ondeveloping treatments for autoimmunedisease. We seek to specifically suppress thepainful destruction of normal tissues resultingfrom uncontrolled T cell responses inautoimmune disease, without compromisingthe immune system’s ability to respond toharmful pathogens.

This will be accomplished by identifying themolecules involved in regulating autoimmuneT cells and by specifically targeting thesemolecules with therapeutic medicines to bringthe immune response in to balance. Overall,the goal is to be able to understand andsubsequently fine-tune the immune responseto maximize therapeutic benefit.

TOO LITTLERESPONSE

BALANCEDRESPONSE

Uncontrolled responsesmay lead to disease

TOO MUCHRESPONSE

T cell

Dendriticcell

RegulatoryT cell

Operational Reviewcontinued

AntibodyA molecule (also called an immunoglobulin) produced by a B-cell inresponse to an antigen. The binding of antibody to antigen leads tothe blocking or destruction of the antigen.

AntigenA substance or molecule that is recognised by the immune system.The molecule can be from a foreign material such as a bacterium orvirus, or the molecule can be from one’s own body, called a self antigen.

Celltech’s portfolio is focused on treatments for immune and inflammatorydisorders and cancer.


72%of CDP 870 patientsdemonstrated an ACR 20 response(per protocol basis)

The overall anti-TNF� therapy market is expected to increaseto $4-5bn in the next few years, both through increasedpenetration of existing approved indications, and potentiallythe addition of new indications, such as psoriasis.

Celltech also continues to investigate the role of othercytokines in inflammatory diseases, with recent progressbeing made in the development of an antibody fragmenttargeting interleukin-1�.

CDP 870Celltech’s third generation PEGylated anti-TNF� fragment,CDP 870, is being developed as a treatment for bothrheumatoid arthritis (RA) and Crohn’s disease through a major collaboration with Pharmacia.

Very encouraging findings were reported from a Phase IIstudy with CDP 870 in RA at the American College ofRheumatology meeting in San Francisco in November 2001. This dose-ranging study in 203 patients, involvingsubcutaneous dosing once-monthly over three months,demonstrated dose-related benefit, as assessed by thenumber of patients attaining American College ofRheumatology (ACR) scores. In patients receiving a 400mgdose monthly, ACR20, 50 and 70 scores of 72%, 48% and32% (on a per protocol basis) respectively were achieved,showing the efficacy of the product to be fully competitivewith other TNF� therapies. No safety issues were identified.Pharmacia is leading the development of CDP 870 in RA,and is initiating Phase III studies in this indication.

Separately, in February 2002 Celltech reported goodefficacy and safety data from a large Phase II study withCDP 870 in Crohn’s disease. In this 292 patient study CDP870 was dosed once-monthly by subcutaneous injection forthree months, with response defined as being either a 100point reduction in the Crohn’s Disease Activity Index (CDAI)or clinical remission (CDAI score of 150 or less). The bestresponses were seen at the 400mg dose, with statisticallysignificant clinical responses noted as early as week two,and a maximal response rate of 54% versus 29% in theplacebo group. The potential of CDP 870 for diseasemanagement over an extended period was also assessed in this study, with the overall response across the entire 12 week treatment period being statistically significantly

greater for the 400mg group than placebo, when assessedby comparing the AUCs (areas under the curves). Again, nosafety issues were identified.

It is expected that the product will enter Phase III studies,which will be conducted by Celltech, later in 2002. A furtherPhase II study, evaluating the product when administeredintravenously, will be completed in the near future.

Celltech’s collaboration with Pharmacia provides forCelltech to have co-development and co-marketing rights in the US, EU and Japan. Celltech will earn a share of theprofits arising from product sales in RA and Crohn’s diseasefrom these countries, and will receive royalties on saleselsewhere. In addition, Celltech has also received an initialpayment of $50m, and will receive further milestonepayments of up to $230m dependent upon the attainmentof certain events.

CDP 870 is Celltech’s most advanced product employingits proprietary microbial expression technology. This noveltechnology is expected to lead to significant productionadvantages, and potentially in avoiding the capacityconstraints associated with the manufacture of antibodies or receptor fusion products in mammalian cell culturesystems. The PEGylation of these antibody fragmentsconfers a long half-life and increases solubility, which should allow infrequent dosing by small volumesubcutaneous injection.

Humicade™ (CDP 571)Celltech’s second generation humanised anti-TNF� antibodyis currently being evaluated in two large Phase III studies inCrohn’s disease. In one study, involving 273 patients whoare dependent upon high doses of steroids to control theirdisease, the ability of Humicade™ to enable the safewithdrawal of steroids is being assessed over 8 months.

A parallel Phase III study, conducted in 397 patients over7 months, aims to confirm earlier findings that Humicade™is safe and effective in treating active Crohn’s disease.

Recruitment in both of these studies is now completed,with results expected in mid-2002. Upon completion of the Phase III programme, over 1,000 patients will have been treated with Humicade™. A US Biologics LicenceApplication (BLA) submission is planned for late 2002.

How will SLAM technology help Celltech to bring products to themarket more quickly?

Celltech has established a leading position inantibody design and engineering. The SLAM(Selected Lymphocyte Antibody Method)technology, licensed from Abgenix, will enableus to identify very high affinity antibodieswith greater efficiency and reliability thantraditional hybridoma methods allow.

Relative Functional Activityof the Antibodies

100

80

60

40

20

01 2 3 4 5

Relative Strength of Bindingof the Antibodies

100

80

60

40

20

01 2 3 4 5

The antibody selection process begins with identification andvalidation of a disease target, a core Celltech capability. UsingSLAM technology we can rapidly screen antibodies againstthe target directly from B cells contained in peripheral blood.

Once the B cell is identified, werecover its DNA sequence andengineer an appropriate therapeuticentity – for example, an antibodyfragment. This whole process can beachieved in weeks, rather thanmonths for traditional hybridomamethods, bringing novel treatmentsto the market much more quickly.

SLAM plaque identifyingspecific B cell.

Range of antibody specificitiesidentified using SLAM

Target Antigen

Active site

Antibodies can often show high bindingaffinity, but little functional effect. The SLAMtechnology allows us to screen simultaneouslyfor both binding ability and functionalcharacteristics, enabling us to identify anindividual B cell producing the optimalantibody, for example antibody 3 in this case.

CDP 484This anti-interleukin-1� PEGylated fragment enteredpreclinical development in late 2001. Interleukin-1� is a cytokine involved in rheumatoid arthritis and otherinflammatory conditions. Blockade of interleukin-1� has the potential to be complementary to TNF� treatments. CDP 484 is expected to enter full clinical developmentaround the end of 2002.

AsthmaAsthma is a chronic inflammatory disease of the airways,affecting around 1 in 20 people, and has a particularly highincidence in children and the elderly. Celltech has severalprogrammes targeted at the treatment of respiratorydiseases such as asthma, in collaboration with majorpharmaceutical companies having expertise in this field.

PDE 4 inhibitorsPhosphodiesterase 4 (PDE 4) is a key mediator of theunderlying bronchial inflammation in asthma and certainother inflammatory diseases. Blockade of PDE 4 by a small molecule may therefore represent an importanttherapeutic advance in the treatment of these diseases.A number of companies have experienced difficulties inthe development of PDE 4 inhibitors due to side effects,particularly emesis, thought to be related to a lack ofselectivity.

Merck are evaluating a novel, potent once-daily PDE 4inhibitor in several Phase II clinical studies. This compound,which is expected to be free from emetic side effects at the therapeutic dose, is being assessed as a treatment forasthma, both as monotherapy and in combination withmontelukast, and additionally in chronic obstructivepulmonary disease (COPD). Under the terms of thecollaboration agreement, Celltech will receive progress-related milestone payments and royalties on worldwideproduct sales, and has an option to obtain a share of profits instead, by means of a contribution to Phase IIIdevelopment costs.

Celltech is also collaborating with Schering-Plough on the development of a PDE 4 inhibitor for asthma and COPD.This potent and highly selective PDE 4 inhibitor is currentlybeing assessed in Phase I studies.

SCH 55700This humanised anti-interleukin 5 antibody is beingdeveloped by Celltech’s partner, Schering-Plough, as a novel approach to asthma treatment. Interleukin-5 has an important role in recruitment of eosinophils into thelungs, a key component of the chronic inflammatorycascade in asthma. SCH 55700 is being assessed ina large international Phase II study in asthma.

CancerCelltech’s oncology programmes are focused in two areas:

• Cytotoxic drugs – this approach uses antibodies to directpotent cytotoxic drugs directly to tumours in a highlyselective way, thus reducing indiscriminate celldestruction. This will potentially enhance the efficacy, and also reduce the side effects frequently associatedwith chemotherapeutic agents.

• Cytostatic drugs – Celltech has a number of programmesaimed at slowing or stopping tumour growth,predominately through inhibition of angiogenesis, theprocess of formation of new blood vessels in tumours. By restricting the growth of blood vessels around andwithin tumours, it may be possible to slow or even halttumour growth and metastasis.

BMS 275291Bristol-Myers Squibb is undertaking the development of this second-generation selective metalloproteinase inhibitoras an anti-angiogenic approach for cancer. BMS 275291continues to be evaluated in a large Phase II/III study in non-small cell lung cancer, in combination with Taxol® andParaplatin®. Unlike other compounds in this class, BMS275291 has been shown to be well tolerated in patients at doses of up to 1200mg/day with no untoward sideeffects, particularly tendonitis, which has been observedwith other compounds of this class. The compound is alsobeing assessed in earlier phase clinical studies in othercancer types.

The collaboration with Bristol-Myers Squibb providesfor Celltech to receive substantial milestone payments,and significant royalties on worldwide sales.


B-cellA type of lymphocyte, which is an immune system cell. Among itsmany roles, the B-cell produces antibodies that bind antigens.

ChemokineSmall, ‘cytokine like’ molecules involved in the migration of immunesystem cells.

Celltech’s pipeline products address large market opportunities, such as the anti-TNF�

market, which is forecast to grow to over $4bn.


600research anddevelopment staff

How could treatment with an anti-interleukin-1β antibody help treatchronic inflammatory disorders?

TNFα

Pain Inflammation BoneErosion

IL-1β

Selection of optimal antibody to block IL-1β

IL-1 receptor IL-1 receptor IL-1 receptor

Noneutralisation

IL-1β Mediated events

Partialneutralisation Neutralisation

IL-1β IL-1β IL-1β

Chronic inflammation in diseases such as arthritisis caused by cytokines such as tumour necrosisfactor alpha (TNFα) and interleukin-1-beta(IL-1β). Antibodies, which bind and neutraliseinflammatory cytokines offer enormous potentialin treating inflammatory disorders. In particular,antibodies to IL-1β may help prevent thedestruction and deformity of the joints seen insome arthritis sufferers.

Our approach is to identify antibodies, which not only bind tothe target with a very high affinity, but also exhibit the correctfunctional characteristics, in this instance neutralisation ofIL-1β. Our studies show that an antibody fragment can be usedas the preferred therapeutic entity, rather than a wholeantibody. Antibody fragments can be manufactured in ourproprietary microbial production system, which is more rapidthan traditional antibody manufacturing methods.

This antibody fragment is joinedto PEG – an inert polymer – whichincreases the half-life withoutany reduction in activity. ThesePEGylated fragments may also havedosing advantages for patients:recent clinical studies with CDP 870,an anti-TNFα antibody fragmentin development for rheumatoidarthritis and Crohn’s disease,demonstrated prolonged efficacywhen administered once a monthby subcutaneous injection.

CDP 484

IL-1 receptor

IL-1β

PEG

Our research efforts have yieldedCDP 484, a PEGylated antibodyfragment against IL-1β which hasrecently entered preclinicaldevelopment for arthritis. By usingan antibody fragment which can beproduced in microbial systems, weare able to establish a large scale,low cost process which is suitablefor treatments where long termchronic usage in large numbers ofpatients is envisaged, supportingboth clinical development andcommercialisation.

CDP 860CDP 860 is a PEGylated humanised antibody fragment,which specifically binds to and blocks the � receptor forPlatelet Derived Growth Factor (PDGF). Recent publishedresearch suggests that inhibition of the PDGF �-receptormay enhance the uptake of chemotherapeutic agentsselectively into tumours, potentially enhancing the efficacyof these agents. Blockade of this receptor may also havea direct anti-proliferative effect in some tumour types.CDP 860 will be assessed in a Phase II study alongsidechemotherapy to determine whether it is able to increasethe uptake of the chemotherapeutic agent into a solidtumour. This study is planned to begin during 2002.

CDP 860 was recently evaluated in a pilot Phase II studyin 145 patients for its ability to reduce coronary restenosisfollowing coronary angioplasty and stenting. The results didnot justify its further development in this indication. Recentadvances with drug coated stents have been reported togreatly reduce the extent of restenosis. This has significantlyreduced the market opportunity for systematically deliveredanti-restenosis products, and has also increased the difficultyof successfully developing such agents.

CMC-544Celltech and Wyeth are collaborating on an antibody-cytotoxic conjugate programme, CMC-544, using linker and cytotoxic drug technology similar to that developed for the ground-breaking treatment Mylotarg™, which wasapproved by the US FDA in 2000 for the treatment of acute myeloid leukaemia. CMC-544 is currently undergoingpreclinical testing, and is expected to enter clinicaldevelopment for the treatment of Non-Hodgkin’s lymphomaduring 2002.

CDP 791CDP 791 is a very high affinity PEGylated humanisedantibody fragment directed against a growth factor receptor(GFR). It is believed that antibodies blocking receptors for certain growth factors will be potent inhibitors ofangiogenesis, with potential utility for treatment of a broadrange of solid tumours, when used in conjunction withexisting chemotherapeutic regimes. CDP 791 is expected to enter clinical development during the next year.

Other DiseasesAAVCFCystic fibrosis is the most common recessive inheriteddisease amongst Caucasians, occurring at the rate of one in every 2,500 births. A mutation in a single gene causesmucus to build up in the airways of the lungs, leading to an inflammatory cycle that results in damage to lung tissueand subsequent loss of lung function.

Celltech are collaborating with Targeted Genetics on the development of a gene replacement therapy that uses a natural human virus, known as adeno-associated virus(AAV), to deliver a normal version of the cystic fibrosis genespecifically to lung cells by aerosol. The product, AAVCF, is currently being tested in a randomised placebo controlledPhase II trial in cystic fibrosis sufferers, including childrendown to 12 years of age. The trial, which is designed todetermine if delivery of a functional copy of the gene leadsto improvement in lung function in these patients, isexpected to be completed during the second half of 2002.


CytokinesChemical substances that have varied effects on many cells of thebody. For example, some cytokines cause growth and activation ofimmune system cells.

CytotoxicityA process by which cells are destroyed, for example the natural destruction of antigensby antibodies. Cytotoxicity can also be effected by chemical substances, including thosetargeted specifically towards diseased tissue by conjugation to an antibody.

Celltech’s strategy is to develop certain of its own key products in-house, and to co-develop or out-license products where a partner brings vital expertise and resources.


7products in Phase II or III clinical trials

How is Celltech’s genetic research into bone biology leading to bettertreatments for osteoporosis sufferers?

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Reversal based on Sclerosteosis Knowledge

Sclerostin

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Bone GrowthFactor/Receptor

Bone Growth Factor: SclerostinInhibitory Complex

Bone formation

Genetic research is increasingly able to identifyspecific genetic mutations, which are responsiblefor certain diseases. The paradigm for Celltech’sosteoporosis programme began with a rareAfrikaner population who have extremely highbone density, known as sclerosteosis. Theseindividuals suffer excess bone formation duringtheir lifetime, resulting in bones that areextremely strong.

Using an approach, termed the ‘Genetic Disorder as a Drug Surrogate’, it was proposedthat understanding the mechanism for the strong bone formation observed in sclerosteosispatients would provide insights into building new bone for patients afflicted withosteoporosis whose bones are fragile. The goal was to discover the genetic defect whichresulted in excessive bone formation and apply this knowledge in a strategy to designtherapeutics which would help build new bone in osteoporosis sufferers.

In a painstaking process, the DNA of affectedfamilies was compared with that of non-sufferers. Using genomic techniques, the geneticdefect in sclerosteosis was mapped to a singlechromosome. Further analysis identified a singlemutation amongst 3 billion bases. This defect,which leads to premature termination of aprotein known as Sclerostin, triggers bonedeposition in patients. Thus, it was proposedthat controlling Sclerostin with a therapeuticentity could be a treatment for osteoporosis.

Celltech is working to developantibodies as potentialtreatments for osteoporosis.Work is ongoing to validate therole of Sclerostin in inhibitingbone deposition. It is hopedthat a high-affinity antibodythat binds Sclerostin tightly willstimulate bone deposition inosteoporosis patients.

Research ProgrammesCelltech has established a world-class discoveryorganisation, encompassing 450 scientific and support staffover three research centres. Celltech’s research is focused intwo key areas: immune and inflammatory disorders, andcancer. This therapeutic focus, combined with outstandingtechnology platforms, ensures Celltech is competitive in its chosen disease areas.

Celltech has a leading position in antibody technologies,in particular the design, expression and production ofantibody therapeutics, which is mainly based in its SloughResearch Centre. These skills have been extended to theSeattle Research Centre, where they have been combinedwith existing gene discovery skills to assist in the rapidvalidation of novel targets. Celltech’s strategy is to develop a strong biology platform investigating disease-relatedmechanisms of inflammatory cell damage and understandingtarget tissue and infiltrating cell interactions. In particular,substantial expertise is being assembled in T-cell biologywith the aim of identifying and validating new drug targetsfor immunomodulatory agents.

Celltech also has substantial medicinal chemistrycapabilities, carried out at both its Cambridge and SloughResearch Centres, which support a strong new chemicalentity (NCE) portfolio. A gene family focus for smallmolecule projects enables Celltech to rapidly build expertise, particularly around compound libraries, assayformats and chemistry approaches. The licensing ofNeogenesis’ technology, announced in July 2001, isenhancing Celltech’s small molecule capabilities throughaccess to state of the art compound screening capabilities.

Celltech continues to pursue collaborations with majorpharmaceutical companies where these bring skills andresources that are not available in house. This approach isexemplified by the collaboration with Johnson & Johnson in early 2001 for the development of anti-angiogenicapproaches to cancer.

Celltech also continues to invest substantially in itstechnology base, both through in-house efforts andlicensing activities. A multi-disciplinary team is focused on ensuring Celltech has access to efficient technologies,demonstrated by recent licensing deals with Abgenix and Neogenesis.

Antibody-based programmesAntibody technology platformsCelltech has established a leading position in the design,engineering and expression of antibody therapeutics. Thisplatform, which supports a broad range of programmes,includes Celltech’s proprietary low-cost microbialmanufacturing technology, which is now employed in four of Celltech’s development projects. Celltech continuesto evaluate further ways of expanding this extremelyversatile platform.

A recent focus has been upon increasing the throughputand diversity of the antibody platform, historically limited byhybridoma methodology. The SLAM (Selected LymphocyteAntibody Method) technology, licensed from Abgenix during2001, has now been fully imported into Celltech. Initialexperiments carried out in-house have demonstrated thatSLAM is a very powerful technology generating a diverserange of high affinity antibodies, in particular againsttargets which have proven difficult to raise antibodiesagainst by conventional hybridoma technology. Thistechnology platform, coupled with Celltech’s fragmenttechnology, positions Celltech as a true leader in therapeuticantibody design.

Anti-interleukin-1� antibodiesAnti-interleukin-1� (IL-1�) is a well-validated cytokine target in inflammatory disease, particularly rheumatoidarthritis, with in vivo neutralisation of IL-1� demonstratingsuppression of the arthritic process and beneficial effects on joint erosion. Antibodies to IL-1� have the potential tocomplement anti-TNF� treatments in this disorder. The goalof this project was to produce a very high affinity PEGylatedantibody fragment, which has a competitive profilecompared with other IL-1� products in development or onthe market. This culminated in the adoption of CDP 484 asa development candidate in late 2001, as the fourth projectin Celltech’s pipeline to utilise its proprietary antibodyfragment platform. Celltech has a proprietary position inantibodies to IL-1� following its acquisition of Cistron inNovember 2000.


GPCRAn important family of targets for drugs, G-protein coupled receptors (GPCR’s)are cell surface receptors, which are involved in a wide variety of biologicalfunctions, such as chemokine receptors in inflammatory diseases.

Half-lifeA measure of the clearance of substances from the body. The half-life is the time takento clear half of the quantity of substance. A long half-life is generally desirable fortherapeutic agents since this facilitates less frequent dosing.

Celltech’s development pipeline includes four products using its proprietaryantibody fragment technology.


450staff in discovery

How will Neogenesis’ technology help Celltech to maintain a competitiveedge in small molecule research?

Celltech provides target proteins, which are screened using ALIS against theNeoMorph library. Each compound in the library has a unique molecular mass,allowing it to be quickly and easily identified. The compounds bound to the targetprotein are rapidly separated from the unbound members of the library. Thecompounds are then dissociated from the target and the structure is elucidatedusing the mass library information. Compounds identified in this way can then bescreened for functional effect, a further core Celltech strength.

Target

Celltech’s research encompasses a broad range of drugdiscovery capabilities, including medicinal chemistry,crystallography and structural based drug design, togetherwith a core strength in protein expression and purification andsmall, focused compound libraries. The collaboration withNeogenesis gives Celltech access to the NeoMorph library of 10million diverse compounds and the unique Automated LigandIdentification System (ALIS), a scalable UHTS system forscreening the entire library of compounds against a targetprotein in less than four weeks.

Small molecule research in large pharmaceuticalcompanies frequently relies on enormous librariesof chemical compounds, which are screenedrandomly against disease targets using ultra highthroughput screening (UHTS) machinery. Thesecapabilities have been built up over many yearsand at enormous expense. In order to remaincompetitive, smaller companies such as Celltechneed to find smarter ways of discovering leadchemical series.

600 700 800

Integration of Neogenesis’technology with Celltech’s expertisein rational drug design significantlyincreases the breadth of our targetportfolio expertise. In particular for“difficult” drug discovery targets,such as protein:protein interactions,or targets which lack detailedstructural or functionalunderstanding. Furthermore,Neogenesis’ technology identifiesligands to multiple binding sites.Since many targets act via multipleinteractions, this technology mayidentify entirely novel binding sitesfor therapeutic intervention.

NeoMorph library

Each compound has a unique molecular mass, so it is easily identified

F1F5

F2F4

F3

S1

S2

S3

S4

S5

Noveldrug design

Crystallography

ComputationalChemistry

Proteinproduction

Neogenesistechnology

Medicinalchemistry

Assaydevelopment

ALIS probes all direct and allosteric binding sites

Bone metabolism modulationCelltech identified a gene termed BEER (Bone EquilibriumExpression Regulator) several years ago. Extensive researchhas suggested that the product of this gene, a protein calledSclerostin, plays a pivotal role in regulating bone deposition,and hence represents a highly novel target for therapeuticintervention in the treatment of osteoporosis. Celltechintends to develop antibody fragments targeting Sclerostinas a novel therapeutic approach for the treatment ofosteoporosis.

Anti-OX40 receptor antibodiesThe OX-40 receptor is expressed on activated T-cells, withgreatly increased expression seen in autoimmune diseasesuch as rheumatoid arthritis (RA), inflammatory boweldisease (IBD), systemic lupus erythematosus and multiplesclerosis (MS). The OX40 receptor, which was licensed fromXenova, is a potential target for selective ablation ofactivated T-cells. The goal of the project is to develop anantibody fragment which down-regulates or kills activated T-cells, but leaves the remainder of the immune systemuntouched, thereby providing a more selectiveimmunosuppression approach than current approvedtreatments. Studies are ongoing to determine the optimumtherapeutic entity for entry into preclinical development.

Early stage antibody programmesCelltech has a number of additional antibody fragment-based programmes directed towards both inflammation andoncology targets. These programmes are expected to yieldtwo high-quality candidates for development each year. Thepipeline is underpinned by access to novel disease targets,with good progress having been made during the last yearwith both in-house target generation and in-licensing ofthird party targets.

Small molecule based programmesCelltech has established a strong capability in design andproduction of small molecule therapeutics, using a range oftechnologies, including computer-aided drug design (CADD),x-ray crystallography and high throughput screening.

The licensing of Neogenesis’ novel and innovative rapidscreening technology during 2001 provides Celltech withaccess to high through-put screening on a competitive scale to match the capabilities of large pharmaceuticalcompanies, and is a strong fit with existing capabilities suchas protein production. The throughput of the small moleculepipeline is expected to be lower than that of the antibodypipeline, due to the more demanding and resource-intensivenature of these programmes, however, it is expected that ahigh quality development candidate will be nominated tothe pipeline every 1-2 years.

The small molecule pipeline and discovery programmesreflect Celltech’s primary focus in immune and inflammatorydisorders, with an emerging effort in the progression ofcertain of Celltech’s existing focused compound libraries as treatments for cancer.

Integrin antagonists for inflammatory diseasesCelltech has been pursuing a substantial effort for severalyears aimed at identifying potent antagonists acting at �4integrin receptors. Encouraging results in both MS and IBDhave been published recently for an antibody targeting �4integrins, highlighting the commercial potential for smallmolecule orally active integrin antagonists.

Celltech has a strong preclinical �4 antagonistprogramme. These potent antagonists show good in vivoefficacy in inflammatory models, with low clearance andgood oral bioavailability. The programme is being preparedfor clinical development.


HybridomaThe process by which an antibody-producing B-cell is fused to a carcinomacell. This process ‘immortalises’ the B-cell, facilitating large-scale productionof a single type of antibody (known as a monoclonal antibody).

HumanisationA process by which an antibody generated from an immunised source, such as amouse, is genetically engineered to resemble a human antibody. This involves graftingthe binding region of the source antibody into a human acceptor framework.

Celltech has an extensive portfolio of small molecule research programmes,focused on key families of genes.


2major technologycollaborations during 2001

Kinase inhibitors for cancerCelltech’s collaborative partner, Johnson & Johnson,continues to work on the development of selective KDRkinase inhibitors as a novel anti-angiogenic approach for the treatment of cancer and also diabetic retinopathy.Johnson & Johnson are evaluating Celltech’s library ofpotent and selective KDR kinase inhibitors with the aim of accelerating a candidate into clinical development.

Celltech has a number of focused kinase libraries, which are being exploited against a variety of solid tumours.

Chemokine receptors for immune/inflammatorydisordersCelltech continues to have a strong interest in chemokinereceptor antagonists for immune and inflammatorydisorders. Chemokine receptors are a sub-category of G-protein coupled receptors (GPCR’s) the target forapproximately 60% of currently marketed drugs. Around2,000 GPCR’s have been identified in the human genome,including many orphan receptors, suggesting that a largenumber of novel signalling pathways have not yet beenidentified. The receptors may ultimately be suitable targetsfor small molecule antagonists or for antibody-basedtherapeutics.

Metalloproteinase InhibitorsCelltech has extensive expertise and intellectual property in the field of metalloproteinase inhibitors. An earliercompound from this programme, BMS 275291, is beingevaluated by Bristol-Myers Squibb in a large Phase II/III studyin non-small cell lung cancer. Following the evaluation offurther compounds, including D1927 and D9120, in otherinflammatory and angiogenesis-related models, it has beendecided not to pursue further development work with thesecompounds in-house.

Celltech also has a collaboration with AstraZeneca for the development of aggrecanase inhibitors as potentialtreatments for osteoarthritis. AstraZeneca continue to makegood progress in the identification of lead compounds forentry into clinical development.

Other small molecule projectsCelltech has an extensive portfolio of small moleculeresearch programmes, including several at a late stage,targeting key mediators of immune and inflammatorydisorders, such as rheumatoid arthritis. These programmesinclude ‘difficult’ small molecule drug targets, such asprotein:protein interactions, in addition to several wellvalidated small molecule targets. The Neogenesis technologyis being used alongside Celltech’s existing small moleculecapabilities, in order to rapidly identify lead series ofcompounds.

Disease targetsAccess to novel disease targets is essential to maintaining a consistent flow of high quality pipeline products over an extended period of time. Celltech’s in-house targetgeneration activities at the Seattle Research Centre arebeing supplemented by the licensing of high quality,validated targets from academic institutions and industry. A number of targets have been evaluated during the pastyear, with several targets having been licensed fromacademic institutions.

ImmunomodulationThe process by which the immune system response is modified usingtherapeutic agents. For example, in cancer it may be desirable toincrease immune response to promote tumour destruction.

IntegrinA family of cell surface adhesion molecules that are believedto be pivotal in many immune and inflammatory events, suchas the Very Late Antigen (VLA) surface protein.

Celltech will continue to pursue target and technology collaborations, where these addsubstantial value to the business.



Celltech PharmaceuticalsCelltech Pharmaceuticals is the international sales, marketing and manufacturing arm of Celltech’sbusiness. Celltech aims to reinforce its marketing capabilities, in order to market or co-market certainof its pipeline products, particularly where directed towards specialist prescribing audiences. This willenable the Company to retain greater value in the mid-term from its innovative development portfolio.

KinaseWidely used abbreviation for phosphokinase, an enzyme playing a majorrole in intracellular signalling. An example is p38 kinase, which isinvolved in the increased production of various inflammatory cytokines.

MetalloproteinaseAn enzyme that degrades extracellular matrix, including collagenases andelastases. Metalloproteinase inhibitors are predicted to have benefits in anumber of disease processes, such as angiogenesis and metastasis.


A near-term focus for the pharmaceutical business is thecontinued generation of strong cashflows, which supportCelltech’s innovative research and development operations.In order to optimise this contribution, a number of measuresare being implemented to enhance the profitability of thebusiness. The longer-term goal is to transition thepharmaceutical business such that it is able to leveragemaximum value from Celltech’s pipeline products, bymarketing or co-marketing to specialist audiences in majorpharmaceutical markets. In particular, Celltech intends toestablish specialist gastrointestinal salesforces to support the launch of Humicade™ and CDP 870 in Crohn’s disease.In line with these goals, the following changes wereeffected during the last year:

• The acquisition of a German sales and marketing business,Thiemann, for £31m in September 2001. Germany is thelargest single European pharmaceutical market. The purchaseof Thiemann gives Celltech a solid infrastructure upon whichto roll out its future specialist-focused pipeline products.

• A limited restructuring was undertaken in the US operations,reflecting the strategic focus of the organisation lookingforward. The savings from this restructuring, describedmore fully in the financial review, will be reinvested inCelltech’s business.

• The disposal of non-core businesses, initiated during2000, was completed in the first half of 2001 with thedisposal of the Belgian fine chemicals business, the USrespiratory device contract manufacturer, Armstrong, and a portfolio of OTC products in France.

• The UK and French operations commenced promotion ofArthrotec® in the second half of 2001, for which co-promotion rights were obtained from Pharmacia aspart of the CDP 870 collaboration.

• The US salesforce was significantly expanded during 2001to support the launch of Metadate® CD.

Overall product sales by Celltech Pharmaceuticals increasedby 10% to £241.7m (2000: £220.0m at constant exchangerates, CER). Excluding the impact of the Thiemann acquisitionin September 2001, sales increased by 7% to £235.1m. The goal for the mature products portfolio is to achieve anelement of growth, which will be used to support Celltech’sinnovative pipeline. This growth will be achieved by focusingpromotion on core products, by the launch of line extensionsto existing franchises, such as Metadate® CD andCodeprex™, and the acquisition of products in therapeuticareas of strategic interest, such as gastrointestinal disorders.

US operationsProduct sales from US operations increased to £166.4m (2000:£145.1m at CER). This increase reflected strong performancesfrom Tussionex™ and Zaroxolyn®, as well as an initialcontribution from Metadate® CD, partly offset by the continuedand expected decline in sales of generic methylphenidate.Importantly, these results reflected an inflection point for USrevenues, which had been declining for several years as aresult of falling sales of generic methylphenidate. Theperformance of individual key US products were as follows:

Cough/cold franchiseTussionex™, Celltech’s patented long-acting prescription anti-tussive performed strongly during 2001, with prescriptionsgrowing by 12%, compared with an increase in the totalmarket of 7%. Sales grew by 42% at CER to £64.1m, thisincrease partly reflecting the pipeline destocking in the firsthalf of 2000.

A new codeine-based anti-tussive product, using Celltech’sPennkinetic release technology, Codeprex™ was submitted tothe FDA in May 2001. It is anticipated that the product willbe launched in time for the 2002/3 cough/cold season.

Delsym® is an OTC extended release pediatric anti-tussive.Its sales declined by 23% to £9.9m in 2001, reflecting highlevels of wholesaler stocks in 2000.

Celltech will use its own sales forces to market or co-market certain key products in theUS and Europe, particularly where directed towards specialist prescribing audiences.

increase in productsales at CER

10%

Attention deficit/hyperactivity disorder franchiseSales of generic methylphenidate declined overall during2001 by 22% to £20.4m. However, this decline stabilised in the second half of the year, where sales of £11.2m wereonly marginally below the level in 2000 of £11.7m at CER.

Metadate® CD was launched in the US in May 2001, andhas shown steady growth in prescriptions, achieving over9% of the once-daily methylphenidate market by February2002. It is anticipated that the switch of ADHD patients fromtwice or three times daily products to the newer once-dailyproducts will continue. Celltech is undertaking a number of Phase IV studies which are expected to emphasise thecompetitive profile of Metadate® CD.

Other productsZaroxolyn®, a diuretic for the treatment of congestive heartfailure, continued to display prescription growth in line withthe market of 5%. Sales of the product increased 28% to£30.3m, again reflecting in part the pipeline destockingwhich occurred in the first half of 2000.

The US organisation has been restructured during the yearto reduce overheads and free resources for investmentin sales and marketing activities, related both to existingproducts and future pipeline products. In particular, plans

are currently being progressed for the establishment of aspecialist gastrointestinal salesforce, initially for the marketingof Humicade™ and subsequently CDP 870 in Crohn’s disease.

European operationsEuropean sales increased slightly in 2001 to £75.3m (2000:£74.9m at CER). Excluding the impact of acquisitions anddisposals during the year sales declined by 2%, reflectingthe mature nature of the European product portfolio.

As part of the CDP 870 development and marketingagreement with Pharmacia, Celltech gained rights to promotethe Pharmacia product Arthrotec® in the UK and France, andTrankimazin in Spain. These co-promotion agreements willassist the growth of Celltech’s pharmaceutical revenues inthese markets.

Priorities for the European business remain optimisationof profitability and geographical coverage ahead of thelaunch of Celltech’s key pipeline products. The acquisition of Thiemann has given Celltech a presence in Germany, thelargest European market, complementing existing operationsin the UK, France, Spain, Belgium and Ireland. Thiemann is expected to generate stable revenues from its existingportfolio of products, with substantial growth expected in the future from products such as CDP 870.

Microbial expressionA process for manufacturing biological products, for example antibody fragments using an e.coli bacterialsystem. Microbial expression systems are generally simpler and cheaper to operate than mammalian cellsystems, which are typically used to manufacture larger proteins such as antibodies.

PEGylationA process by which a large molecule, polyethylene glycol (PEG), is boundto a biological product to increase the circulating half-life. PEGylationmay also have other advantages, such as an increase in solubility.

Celltech intends to further strengthen its US and European businesses, both by productacquisition and geographic expansion.


Sales of major products2001 2000* %

£m £m change

Tussionex 64.1 45.3 +42

Zaroxolyn 30.3 23.7 +28

Methylphenidate 20.4 26.3 –22

Metadate CD 8.6 – nm

Delsym 9.9 12.8 –23

Semprex-D 6.7 5.4 +24

Pediapred 6.0 6.3 –5

Ionamin 5.5 8.7 –37

Coracten 5.4 4.7 +15

Other 84.8 86.8 –2

Total product sales 241.7 220.0 +10

Effect of exchange differences – (8.4)

As reported 241.7 211.6 +14

* Pro-forma, at constant exchange rates.

Financial Review

PhosphodiesteraseA family of enzymes that have important roles in a variety of disease processes. For example,phosphodiesterase 4 (PDE 4) is important in the control of airway smooth muscle and inflammatorymediator release and also has a role in CNS and in regulation of gastric acid secretion.

Celltech retains substantial value from its pipeline products, through co-marketing,or profit-sharing arrangements, or significant royalties.


$50mup-front paymentfrom Pharmacia

Celltech continues to operate a strategy of seeking tomaximise the return the Company receives on its innovativeresearch, whilst taking measures to manage risk, particularlythrough collaborations with high-quality major pharmaceuticalcompanies. This philosophy has been exemplified by twoagreements entered into in the past year: the collaborationfor CDP 870 with Pharmacia, and the settlement of a long-running patent dispute with Genentech. Additionally,progress with two of Celltech’s key partnered products, BMS 275291 with Bristol-Myers Squibb and the PDE 4programme with Merck, has highlighted the potential valuewithin the Company’s broad pipeline.

The financial position of Celltech was strengthenedsubstantially during 2001 as a result of the collaborationwith Pharmacia for the worldwide development andmarketing of CDP 870. Of the $50m upfront paymentreceived from Pharmacia in 2001, $25m (£17.5m)represented a signature fee, which was recognised as otherincome in 2001.

The remaining $25m (£17.5m), Pharmacia’s contributionto the costs of developing CDP 870 in Crohn’s disease, isbeing offset against the relevant expenditure as incurred.During 2001 £8.4m was offset against Research andDevelopment expenses, with the remaining £9.1m beingheld as deferred income on the balance sheet. Theagreement with Pharmacia provides for additional paymentsof up to $230m, linked to milestones in the development ofCDP 870 and future sales performance, as well as asubstantial share of the profits arising from sales inrheumatoid arthritis and Crohn’s disease.

In December 2001, Celltech announced the settlement ofa long-running patent dispute with Genentech, relating tointerference proceedings between Celltech’s granted Bosspatent and Genentech’s Cabilly patent, both in the field of

antibody engineering. The royalty stream arising from thesale of antibody products covered by the Boss patent isimportant to Celltech, consequently, the Company soughtto mitigate the potential financial effect which would havearisen from a successful challenge of the Boss patent. Thesettlement with Genentech involves the payment ofcompensation to Celltech in terms of income from sales ofproducts which would otherwise have been covered underits Boss patent. Importantly, Celltech also has securedpreferential access for its development programmes to theCabilly patent, which covers the production of a broadrange of antibody or antibody fragment products, for its 17 year life.

The operating profit before other income showed a 34%increase to £25.4m (2000: £18.9m), notwithstanding a 24%increase in operating expenses due to continued investmentin innovative R&D and the expansion of the US salesforce.The operating profit after other income showed a markedincrease to £44.2m (2000: £23.5m), reflecting the signaturefee received from Pharmacia of $25m (£17.5m) in May 2001.

IntegrationDuring 2001, a further restructuring was undertaken,primarily within the US pharmaceutical business, therebycompleting the programme of integration following themergers with Chiroscience and Medeva. The latestrestructuring is expected to yield annualised savings of over£5m, and gives rise to a one-off exceptional charge of£7.8m. The total annualised savings achieved following themergers amount to approximately £30m. The savingsachieved through the restructuring have been and will bereinvested into Celltech’s research and developmentactivities, in the expansion of the sales and marketing groupin the US, and in the launch of new products.

The past year has been characterised by a substantial enhancement of Celltech’s risk/rewardprofile, along with the maintenance of a strong financial position. Additionally, in 2001 thesuccessful integration of both the Chiroscience and Medeva businesses was concluded withfurther savings being achieved in the US.

T cellA type of lymphocyte, the T cell helps to orchestratethe immune system and can issue ‘orders’ forother cells to make cytokines and chemokines.

Tumour necrosis factorTumor necrosis factor (TNF) is a cytokine with a wide range of pro-inflammatory actions.TNF is part of the body’s natural defence mechanism, however overproduction of TNF isimplicated in severe autoimmune diseases such as rheumatoid arthritis.


34%increase in operatingprofit before otherincome

Financial information for the comparative period in 2000is reported in the accompanying tables for the twelve month period from 1 January 2000, rather than fromthe date of completion of the acquisition of Medeva(26 January 2000).

Product sales and royalties from the ongoing businessamounted to £303.1m (2000: £260.7m, restated on acomparable basis at CER). Product sales increased by 10%over the previous year, with particularly strong growth,amounting to 16%, in the second half. A detailed discussionof the product sales performance is contained in the reviewof the pharmaceutical business.

Royalties showed a substantial increase, with 51% growthto £61.4m (2000: £40.7m at CER). The royalties from theBoss patent continued to grow strongly, reflecting thegrowth in the underlying antibody products. Substantialgrowth was also seen in other key royalty streams: Asacol®,a treatment for inflammatory bowel disorders sold byProcter & Gamble, and Pertactin (69kD), licensed toGlaxoSmithKline. Mylotarg™, which was launched by Wyethin May 2000, recorded total sales of $30.1m in the year,with recent sales running at an annualised rate of over $35m.

Operating expensesOverall operating expenses increased by 24% to £194.2(2000: £157.2m), reflecting the Company’s commitment toinvesting in innovative Research and Development, as wellas the expansion of the US salesforce and launch ofMetadate® CD in the US during 2001.

Research and Development expenditure increased by 16% to £90.7m (2000: £78.5m). This figure is net of£8.4m credited from Pharmacia’s up-front contribution of$25m (£17.5m) towards the costs of developing CDP 870 in Crohn’s disease. The remaining £9.1m not spent in 2001is held on the balance sheet as deferred income.

Sales and marketing expenditure increased substantiallyduring 2001 to £78.6m (2000: £52.0). This increase reflectsboth the expansion of the US salesforce from 180 at thestart of 2001 to around 400 by the year end, as well aspromotional activities around the launch of Metadate® CD.A number of efficiencies were identified in the USpharmaceutical business during 2001, which resulted in arestructuring in the second half of the year. This is expectedto yield annual savings of in excess of £5m, which will bereinvested in the business.

Operational profit and loss account for Celltech Group for year ended 31.12.012001* 2000*+ %

£m £m change

Sales 303.1 250.2 +21

Cost of sales 83.5 74.1 +13

Gross profit 219.6 176.1 +25

Research and development 90.7 78.5 +16

Sales, marketing and distribution 78.6 52.0 +51

Corporate and general administration 24.9 26.7 –7

Total expenses 194.2 157.2 +24

Operating profit before other operating income 25.4 18.9 +34

Other income 18.8 4.6 nm

Operating profit pre restructuring items and goodwill 44.2 23.5 +88

Interest 3.6 1.6 nm

Net profit pre restructuring items and goodwill 47.8 25.1 +90

Tax (8.1) (3.9) nm

Net profit after tax pre restructuring items and goodwill 39.7 21.2 +87

Earnings per share 14.4p 8.1p +78

* Stated before restructuring and goodwill charges. + Pro-forma as described on page 65.

Celltech’s substantial investment in innovative research and development issupported by revenues from its pharmaceutical business.

Corporate and general administration costs showed a 7%reduction in 2001 to £24.9m (2000: £26.7m), reflecting thefull year impact of the integration programmes implementedfollowing the Chiroscience and Medeva mergers.

Other incomeOther income represents milestone payments from Celltech’scollaborative partners. These payments are dependent uponthe structure of the Company’s collaborations with partnersand hence can fluctuate significantly year on year. Thefigure of £18.8m for 2001 arose predominately from thesignature fee paid by Pharmacia of $25m (£17.5m) for theCDP 870 collaboration, and compared to a figure of £4.6min 2000.

Interest incomeNet interest receivable was £3.6m (2000: £1.6m), reflectingsubstantially higher cash balances during the year. Interestincome in the second half of the year of £1.4m was lowerthan the first half (£2.2m) due to payments for the acquisitionof Thiemann, to Abgenix for the SLAM technology and the equity investment in Neogenesis. The interest figureincludes interest receivable on the £31 million PowderJectPharmaceuticals plc convertible loan notes issued to Celltechfollowing the disposal of the vaccines business.

TaxationThe taxation charge for the year of £8.1m represents a 17% effective rate on net profit before goodwillamortisation and restructuring items. Due to theavailability of operating losses carried forward, it isexpected that a tax rate of not more than 20% should be sustained for the next three years, based upon thecurrent fiscal environment in the US and UK.

Earnings per shareEarnings per share for the year amounts to 14.4p pershare before restructuring items and goodwill (2000:8.1p), and a loss per share of 20.3p after (2000: loss pershare of 161.6p). Earnings per share excluding otherincome, the timing of which is dependent upon theprogress of Celltech’s collaborations, amounted to 8.7p(pro-forma 2000: 6.6p). In line with normal practiceamongst international biotechnology companies, nodividend will be proposed for the year.

GoodwillAmortisation of goodwill arises from the acquisition ofthree businesses: Medeva, Cistron and Thiemann. In thesetransactions, the difference between the underlying fairvalue of the businesses and the acquisition price gives rise

Financial Reviewcontinued


£31macquisition ofThiemann inGermany

Turnover2001 2000* %

£m £m change

Total product sales 241.7 220.0 +10

Boss patent 37.1 22.4 +66

Asacol 10.2 8.1 +26

69kD/Pertactin 8.8 6.3 +40

Mylotarg 4.2 2.5 +68

Other 1.1 1.4 –21

Total royalties 61.4 40.7 +51

Total sales 303.1 260.7 +16

Effect of exchange differences – (10.5)

As reported 303.1 250.2 +21

* Pro-forma, at constant exchange rates

to goodwill, which is held in the balance sheet and is beingamortised over its useful economic life. Of the charge forthe year of £92.6m, £90.7m relates to goodwill on theacquisition of Medeva. The remainder of the charge relatesto Cistron (£0.7m) and three months amortisation forThiemann (£1.2m).

Balance sheet and cashflowCelltech’s financial position has been considerablystrengthened during the year, with year end cash and cashequivalents of £90.4m (2000: £76.6m), and net cash afterborrowings of £55.9m (2000: £43m). The net increase incash and liquid resources for the year of £13.8m was afterexpenditure on the acquisition of Thiemann (£31.2m),payment to Abgenix for access to the SLAM technology(£11.8m) and an equity investment in Neogenesis (£7.0m).The Group has in issue a $50m, 6.51% 5 year loan noteand maintains a £80m, 3 year revolving credit facility toretain flexibility in its future funding requirements.

Celltech also holds £31m in convertible loan stock fromPowderJect, yielding 7% to maturity.

The anticipated cash generation from the pharmaceuticalbusiness is key to the Group’s future strategy. Celltech’sresearch and development is funded either by revenuesgenerated from product sales and royalties, or throughcollaborations with large pharmaceutical partners, whotypically will fund development costs. Celltech does notenter into off balance sheet financing arrangements. TheGroup does not anticipate having to raise funds for normaloperational purposes, including potential funding of theoption to co-invest in Merck’s PDE 4 programme.

Capital expenditure during the year was £16.1m, whichincludes approximately £1.3m relating to the move to newcorporate headquarters at 208 Bath Road. Expenditure in2002 is expected to be at a similar level, reflecting ongoingrefurbishment of the Slough research facility and continuedinfrastructure improvements.

Discovery acquisitionDuring the past year, Celltech has continued to focus onaccessing attractive drug discovery targets and noveltechnologies. During 2001, Celltech announced that ithad licensed Abgenix’s SLAM technology for $17m(£11.8m). This consideration was originally envisaged tobe satisfied by the issue of Celltech shares, however inlight of the strong financial position it was decided thatthe payment should be made in cash to avoid dilutingshareholder value. In July 2001, Celltech entered into acollaboration with Neogenesis, involving a $10m (£7m)equity investment by Celltech. In addition, several noveltargets have been licensed from academic institutionsduring the past year.

The Company will continue to pursue both small,focused acquisitions, and collaborations, where these addsignificant value to discovery and development operations.


£90mcash and liquidresources at the year end

J B H Jackson *ˆ #

(72) ChairmanHas been the Chairman of Celltech since 1982. He is alsoChairman of Wyndeham Press Group plc, Xenova Groupplc and Oxford Technology VCTs plc. He is DeputyChairman of BHP Billiton plc and BHP Billiton Limited anda Director of Brown and Jackson plc, WPP Group plc anda number of other companies.

Dr P J Fellner #

(58) Group Chief ExecutiveJoined Celltech in 1990 from Roche UK, where he wasChief Executive. He was previously Director of the RocheUK Research Centre and before that Director of Researchat Searle UK Research Laboratories.

P V Allen ACA(46) Finance DirectorJoined Celltech in 1992. A Chartered Accountant hejoined Celltech from Associated British Ports Holdings plcwhere he was Group Financial Controller. Prior to that hewas Group Controller at L’Oreal (UK).

Dr M G Lee(43) Research and Development DirectorJoined Celltech as Director of Research in 1998 fromGlaxoWellcome (now GSK) where she had worked for10 years, latterly at their Stevenage Medicines ResearchCentre. Dr Lee became the R&D Director for Celltech inDecember 2001. She is also an independent Director ofImperial Cancer Research Technology Ltd.

Dr U M Ney(50) Director of DevelopmentJoined Celltech in 1988 after positions at Roche andSandoz where she was involved in respiratory and anti-inflammatory research. She resigned from the Board on31 December 2001.(Not pictured)

S C Cartmell MSc(42) Chief Executive Officer of CelltechPharmaceuticalsJoined Celltech on 12th September 2000. Previously hewas with GlaxoWellcome (now GSK), from 1981 to 1998,in a series of marketing, commercial and developmentroles. From 1998 to 2000 he served as Chief OperatingOfficer at Vernalis plc. He will be leaving Celltech duringthe second quarter of 2002.(Not pictured)

Board of Directors


Left to right:J B H Jackson: ChairmanDr P J Fellner: Group Chief Executive

Scientific Advisory Council:Sir Tom Blundell: ChairmanProfessor Rod FlowerProfessor Robert SouhamiDr Peter RigbyDr Roger F NewtonProfessor Stephen HolgateDr David Galas

P V Allen: Finance DirectorDr M G Lee: Research and Development Director


Sir Tom Blundell FRS, KB, FMedSci *(59) William Dunn Professor and Head of the Department ofBiochemistry at the University of Cambridge, a Director of Babraham Institute, Cambridge and Chairman of theRoyal Commission on Environmental Pollution. He isChairman of Celltech’s Science Council.

Prof C R W Edwards FRCP, FRCPEd, MD, FRSE,FMedSci, Hon Dsc *º(60)Vice Chancellor of University of Newcastle upon Tyne.He was formerly Principal of Imperial College School of Medicine, London.

M G Newmarch *º(63) Chairman of Weston Medical Group plc and Transacsysplc. He was formerly Chief Executive of PrudentialCorporation plc and is a former Director of theAssociation of British Insurers. He is Chairman ofCelltech’s Audit Committee.

H R Collum *ˆ #

(61)Chairman of British Nuclear Fuels plc and is a Director ofSafeway plc, South African Breweries plc, Invensys plc,and Whitehead Mann Group plc. He is Chairman ofCelltech’s Remuneration Committee.

Dr M E Jaffe *ˆ(65)Joined the Celltech Group Board in August 1999. He isbased in the USA and has held senior positions withinMerck & Co Inc and was formerly President of the R WJohnson Pharmaceutical Research Institute. He is aDirector of Vernalis Group plc.

Dr P Read CBE, FRCP, FFPM *º(63) Joined the Celltech Group Board in March 2000. He is a former Chairman of the Hoechst Group of Companiesin the UK and a Past President of the Association of theBritish Pharmaceutical Industry. Current appointmentsinclude Non-Executive Director of Vernalis plc and boardmember of the South East of England DevelopmentAgency (SEEDA) and Chairman of Synaptica Limited.

J W Baker *#

(64) Joined the Celltech Group Board from Medeva. He wasChairman of Medeva PLC from 1995 to 1999. He is aNon-Executive Director of Royal and Sun AllianceInsurance plc, the Maersk Company, EIC (Switzerland) andthe Business Advisory Committee of the AP Møller Group(Denmark). A former Chairman of National Power PLC, he is also Chairman of Motac Neuroscience Limited.

* Non-Executive

^ Member of the Remuneration Committee

º Member of the Audit Committee

# Member of the Nomination Committee

Top row, left to right:Sir Tom BlundellProf C R W EdwardsM G Newmarch

Bottom row, left to right:H R CollumDr M E Jaffe

Dr P ReadJ W Baker


Directors’ Report

The Directors submit their report and consolidated accounts for the year ended 31 December 2001.

Review of business operations and future developmentsThe principal activity of the Group undertaken during the year was the ongoing research and development of novel therapeuticproducts for human use and the manufacture and sale of prescription pharmaceutical products.

Key events during the past year are referred to in the Chairman’s and Chief Executive’s Statement and the Operational Review. These events include the following:

On 22 January 2001 Celltech announced a worldwide collaboration with Johnson & Johnson spanning the discovery, development andcommercialisation of a novel class of orally active compounds for the treatment of cancer.

On 6 February 2001 Celltech announced an agreement with Abgenix, Inc which provided Celltech with extensive rights to useAbgenix’s proprietary SLAM (Selected Lymphocyte Antibody Method) technology for rapid selection in vitro of high affinity antibodiesincluding the direct selection of fully human antibodies.

On 5 March 2001 Celltech announced an agreement with Pharmacia Corporation for the co-development and co-promotion ofCelltech’s proprietary compound CDP 870.

On 3 April 2001 Celltech announced FDA approval of Metadate® CD, a new once-daily treatment for Attention Deficit HyperactivityDisorder.

On 12 July 2001 Celltech announced a research collaboration with NeoGenesis Inc, a privately held biotechnology company based inCambridge, MA, within which Neogenesis will use its proprietary chemical genomics technology to identify and optimise new chemicalcompounds as novel drug discovery leads against multiple disease targets within Celltech’s core therapeutic areas.

On 25 July 2001 Celltech outlined preliminary results from a Phase II trial of CDP 870 in Rheumatoid Arthritis, in which a dose relatedbenefit was observed, as assessed by the number of patients attaining American College of Rheumatology (ACR) scores.

On 12 September 2001 Celltech announced its acquisition of Thiemann SA, the parent company of a German pharmaceutical salesand marketing organisation.

On 18 December 2001 Celltech announced that, following a mediation process ordered by the US District Court of The NorthernDistrict of California, it had resolved with Genentech the long running US Patent Office interference involving Celltech’s ‘Boss’ patentand Genentech’s ‘Cabilly’ patent application, both of which relate to antibody manufacturing technology.

Results and dividendsTurnover for the year amounted to £303.1m. The Directors do not recommend the payment of a dividend.

DirectorsMembership of the Board at 31 December 2001 is shown on pages 22 and 23. Details of the Directors who held office during the yearended 31 December 2001, together with details of their remuneration and their interests in the share capital of the Company aregiven in the Remuneration Report found on page 28. Ursula Ney resigned from the Board on 31 December 2001. Simon Cartmell, CEOof Celltech Pharmaceuticals, will be leaving Celltech during the second quarter of 2002. The Board has initiated a process to identify asuccessor to John Jackson as Chairman of the Board. A further statement will be made at the time of the Annual General Meeting(AGM). There have been no changes to Directors’ interests from 31 December 2001 to the date of this document.

None of the Directors has any interest in any contract of significance.

Employees’ remuneration In addition to the payment of competitive salaries, Celltech also operates two discretionary bonus schemes. The first scheme is offeredto all staff and Executive Directors. Performance related payments may be made annually based on predetermined individual or teamperformance objectives. Bonus award entitlements range between 7.5% to 40% (50% in the case of Dr Fellner) of salary dependingon grade. The second scheme is a Deferred Bonus Plan, which was implemented for the first time last year. Under the Deferred BonusPlan, awards may be made to selected Executive Directors and senior managers over shares up to 100 per cent of a participant’sannual bonus. The shares subject to awards are held in the Celltech Group plc Employee Share Trust and are capable of release overa period of two years from the date of grant of an award.


All bonuses are provided for at the end of the financial year to which they relate. Further details of Directors’ remuneration for theyear are given in the Remuneration Report.

In addition, employees are given the opportunity to participate in the Company’s Share Option Schemes. The allocation of shareoptions takes into account a review of the future potential contribution of individual employees.

Employee involvementDuring the year, Celltech continued its policy of providing employees with information about the Company and this has been donethrough regular presentations by Directors and the publication of an in-house magazine. In addition, regular meetings are heldbetween management and employees to allow a free flow of information and ideas.

Payment of creditorsIt is Celltech’s policy with respect to the payment of its suppliers either to use standard terms or to arrange terms of payment whenagreeing the terms of each transaction. Where standard terms are not used, suppliers are made aware of the terms of payment andCelltech abides by those terms of payment.

The average number of days purchases for the Group for which payment was outstanding during the year was 36 days.

The Company has no trade creditors.

Political and charitable donationsDuring the year Celltech made contributions amounting to £7,000 to charitable organisations in the UK. There were no politicaldonations.

Disabled employeesCelltech gives every consideration to applications for employment from disabled persons where the requirements of the job may beadequately covered by a disabled person.

With regard to existing employees and those who may become disabled, Celltech’s policy is to examine ways and means to providecontinuing employment under its existing terms and conditions and to provide training and career development, including promotion,wherever appropriate.

Health, safety and environment (HS&E)Management of HS&EHealth, safety and environment management has a high priority within the Celltech Group. All Board members recognise theirresponsibilities and accountabilities for HS&E, and there are two directors with special responsibility, heading the Celltech R&D andCelltech Pharmaceuticals divisions. A programme is in place for formal reporting to the Board on HS&E matters three times per year.

A Steering Group is charged with the development of overall strategy and an advisory framework within which each site manages its own HS&E issues. This Steering Group consists of the two directors with special responsibility for HS&E, together with the GroupDirector, HS&E and directors representing the main functions of the Group, that is Human Resources, Facilities and Group Services,Quality and Supply.

HS&E functional resources exist at both Group and site level. They provide directors, managers and supervisors with a source ofexpertise, assistance and guidance in the implementation, maintenance or development and assessment of HS&E systems andpractices. At Group level, the Group Director, HS&E provides a leadership role to the function. At sites where the level of risknecessitates an HS&E professional, these are employed to provide professional support and advice for the site. These managers reportto site senior management with professional accountability to the Group Director, HS&E. At sites where the risk is lower, suitableemployees have been appointed as HS&E co-ordinators. They fulfil this role within their usual employment whilst acting as a pointof reference for management, and are trained, mentored and supported by the professionally qualified practitioners in the Group.Both managers and co-ordinators liaise closely with Occupational Health professionals for the prompt identification of work-relatedmedical conditions and for the provision of advice and healthcare to staff.

There are well-established arrangements for consulting employees and involving safety representatives. These operate through staffcouncils and representative committees.


Director’s Reportcontinued

HS&E policiesFollowing the merger of Chiroscience and Medeva with Celltech, new Group Health and Safety and Group Environmental Protectionpolicies have been prepared. These policies have been developed as a statement of Celltech’s commitment to HS&E and form the basisof the system for managing HS&E matters. The policies have been approved by the Board. They have been circulated to all employeesand are networked throughout the Group. In order to effect the implementation of the policies, each site has developed its ownpolicies and procedures, which are in accord with the Group policies. Compliance is assessed through Group audits for HS&E.

These policies are listed below:

Health & safety policyThe Group recognises that HS&E is an integral part of its business performance. Celltech is committed to achieving the highest level ofhealth and safety performance, with compliance with legal requirements as the minimum, and to continual cost-effective improvementin performance. It will seek to achieve this by:

• Providing adequate and appropriate resources to implement the policy;• Setting and publishing health and safety objectives and targets;• Placing the management of health and safety as a prime responsibility of line management, from most senior executive to first-line

supervisory level;• Ensuring the understanding, implementation and maintenance of the policy at all levels in the organisation;• Ensuring employee involvement in, and consultation with, the policy to gain commitment to its implementation, and with developing

health and safety standards and the monitoring and review of practices;• Ensuring that all employees at all levels receive appropriate training and are competent to carry out their duties and responsibilities;• Encouraging all employees to exercise personal responsibility and to co-operate in seeking to prevent harm to themselves or others;• Implementing periodic reviews of policy and procedures for health and safety management, auditing the systems and presenting

action plans for improvement.

Environmental protection policy The Group is committed to conducting its activities in an environmentally responsible manner. Celltech is committed to:

• Seeking to maintain continuous improvement in environmental performance by identifying and monitoring the impact of its activitieson the environment and reducing such impact to a practicable minimum;

• Preventing pollution caused by its activities;• Setting clear targets for reducing emissions, waste and the use of energy;• Complying with all applicable laws and regulations and using best available practices appropriate to the local situation in anticipation

of future requirements;• Taking account of environmental considerations when making business decisions;• Providing appropriate training for all employees and requiring them to exercise personal responsibility and co-operation in preventing

harm to the environment;• Encouraging employee participation in developing standards, achieving targets and the monitoring and review of practices;• Monitoring and reporting environmental performance.

The Board has also approved a Group Health, Safety and Environment Strategy document. This document has been circulated to allemployees and is networked throughout the Group. The strategy document describes the Celltech HS&E management system, which is designed to demonstrate that:

• Risk is being managed;• The Company is on a path of continuous improvement;• Progress is being measured against plans and targets;• People are learning from their experiences.

Further details can be found in the Group’s first formal annual HS&E review which can be found on the Company’s website. This covers the period since the mergers of Celltech, Chiroscience and Medeva to the end of June 2001.

Significant shareholdingsAs at 11 March 2002 Celltech had received notification for the following institutions of interests in 3% or more of the issued Ordinaryshare capital of the Company.

Barclays Bank PLC 8,310,833 3.02%CGNU PLC 9,997,770 3.63%


Share priceThe mid-market share price as derived from the London Stock Exchange Daily Official List was 874p on 31 December 2001. The mid-market share price ranged from 545p to 1437p during the year to 31 December 2001 (2000 financial year 531.5p to 1843p). The average share price for the year was 1070p.

AuditorKPMG Audit Plc have expressed their willingness to continue in office as Auditor, and a resolution proposing their reappointment and authorising the Directors to determine their remuneration will be submitted at the Annual General Meeting.

Annual General MeetingThe Annual General Meeting of the Company will be held at 11.30 a.m. on Thursday 23 May 2002 at Merchant Taylors’ Hall, 30 Threadneedle Street, London. Details of the business to be transacted at the Annual General Meeting can be found in the separate Circular to Shareholders accompanying this document.

By order of the Board

J A D SlaterSecretary11 March 2002


Remuneration Report

The Remuneration Committee consists entirely of Non-Executive Directors and its members are Mr Collum (Chairman), Mr Jackson andDr Jaffe.

The Committee meets not less than twice a year and seeks independent advice, where appropriate, for the purpose of determining allaspects of the remuneration of the Executive Directors and other senior managers, including the award of share options, the terms oftheir service agreements, and recommending to the Board the fees paid to the Chairman. The members of the Committee do notparticipate in determining or recommending their own fees. The fees of the Non-Executive Directors are determined by the Board on the joint recommendation of the Chairman and the Chief Executive.

Policy on remuneration of Executive DirectorsThe Committee aims to ensure that the remuneration packages offered are competitive and designed to attract, retain and motivateExecutive Directors and senior managers of the highest calibre. In doing so, the Committee takes account of information from internaland independent sources on the remuneration for similar jobs in companies in the pharmaceutical sector.

Components of the remuneration packageThe main components of the Executive Directors’ and senior managers’ remuneration are:

Competitive base salaryBasic salaries are reviewed annually taking into account recommendations on individual performance and salary levels in comparablecompanies.

Annual performance incentiveCelltech operates a discretionary bonus scheme whereby individual performance objectives for Executive Directors and senior managersare established at the beginning of the financial year. Performance related payments may be paid annually, dependent uponachievement measured against objectives, and are limited to a maximum of 40% of basic salary (50% in the case of Dr Fellner).

Longer term performance incentivesExecutive Directors and senior managers are also rewarded for improvement in the performance of the Group by the grant of shareoptions on a discretionary basis. The allocation of discretionary share options will take into account the future potential contribution of individuals. Options will be granted in accordance with the rules of the Celltech Group plc 2001 Discretionary Share Option Schemeadopted by shareholders at the last AGM. Options will be subject to a performance requirement determined by the RemunerationCommittee. Options granted under the Scheme will only become exercisable if Celltech’s share price has exceeded the median growthin share price of a comparator group over a period of three to five years from the date of grant of the options. The comparator groupselected is a total of approximately seventy to eighty companies, comprising larger members of the FT-SE Mid 250 index and smallermembers of the FT-SE 100 index.

Celltech also operates a Deferred Bonus Plan under which awards may be made to selected Executive Directors and senior managersover shares up to 100 per cent of a participant’s annual bonus. The shares subject to awards will be held in the Celltech Group plcEmployee Share Trust and will be capable of release over a period of two years from the date of grant of an award.

Full details of Executive Directors’ interests in Ordinary Shares of the Company together with options granted and exercised in 2001 are setout on pages 30 and 31.

Pensions benefitsExecutive Directors who were Directors of Celltech prior to the merger with Medeva (except for Dr Fellner) participate in the ExecutiveDirector tier of the Celltech Pension and Life Assurance Scheme (‘CPLA’). The CPLA is a funded, Inland Revenue approved, final salaryoccupational pension scheme providing a pension of up to two-thirds of final pensionable salary by Normal Retirement Age (‘NRA’).The NRA in the Executive Director tier of the Scheme is 60. Dr Fellner is a member of a contributory money purchase scheme fundedwith the objective to provide a pension of up to two-thirds of final pensionable salary by a normal retirement age of 60.

John Ferguson, who was a Director of Medeva prior to the merger, is a member of the Medeva Senior Executive Pension Plan (‘MSEP’).The MSEP is a funded, Inland Revenue approved, final salary, occupational pension scheme providing a pension of up to two-thirdsfinal pensionable salary by a normal retirement age of 60. The schemes also provide for lump sum payments on death in service.


The potential benefits arising from CPLA and the MSEP for the Executive Directors in 2001 were as follows:

Increase in transferIncrease in Accrued value of pension

annual pension annual arising in 2001 lessaccruing pension at member contributions

Name of Director Age Service in 2001 31.12.01 paid in 2001

P V Allen 46 9 years £3,349 £31,452 £26,118

S C Cartmell 42 1 year £3,185 £3,982 £20,106

Dr M G Lee 43 3 years £3,223 £10,342 £22,478

Dr U M Ney 50 13 years £17,207 £79,146 £193,093

J Ferguson 46 8 years £2,695 £24,115 £22,984

Service contractsService contracts for Executive Directors (including those subject to re-election at this year’s Annual General Meeting) are for a rollingperiod of 12 months other than in the case of Dr Fellner where the notice period is two years. The notice period in Dr Fellner’s servicecontract was in line with market practice at the time of his appointment and there are no plans to change it. Non-Executive Directorsdo not have service contracts.

Directors’ remuneration

Pension PensionSalary/fees Bonus Benefits Total Total contributions contributions12 months 12 months 12 months 12 months 12 months 12 months 12 months

2001 2001 2001 2001 2000 2001 2000£000 £000 £000 £000 £000 £000 £000

Executive DirectorsDr P J Fellner (highest paid Director) (1) 420.0 370.0 20.9 810.9 704.7 301.4 185.6P V Allen (1)(2) 280.0 206.1 15.6 501.7 458.2 46.1 44.9Dr M G Lee (1)(2) 230.0 152.7 14.8 397.5 334.3 31.6 17.1S C Cartmell (1)(2) 265.0 123.0 12.8 400.8 127.0 57.0 –Dr U M Ney (1)(2) 216.0 86.4 12.4 314.8 236.5 – –J Ferguson (3) 109.0 – 8.8 117.8 172.7 20.8 33.3G Watts – – – – 181.3 – 46.8Dr R C Jackson – – – – 118.3 – 26.9

Non Executive DirectorsJ B H Jackson 120.0 – – 120.0 90.0 – –Sir Tom Blundell (4) 37.0 – – 37.0 37.0 – –Prof. C R W Edwards 25.0 – – 25.0 25.0 – –M G Newmarch (5) 30.0 – – 30.0 30.0 – –H R Collum 40.0 – – 40.0 40.0 – –Dr M E Jaffe 25.0 – – 25.0 25.0 – –Dr B J Price – – – – 12.5 – –Dr P Read (6) 30.0 – – 30.0 19.0 – –J W Baker 40.0 – – 40.0 30.0 – –

Total 1,867.0 938.2 85.3 2,890.5 2,641.5 456.9 354.6

1. The bonus listed above relates to the 12 months ended 31 December 2001. This bonus includes the deferred bonus referred to on page 28 which will be settled by shares

issued from the Celltech Group plc Employee Share Trust over a period of two years. The deferred bonus amounts to 50% of the total.

2. Certain Directors are also members of the Celltech Pension and Life Assurance Scheme, the potential benefits arising from which are separately disclosed. The pension

payments included above relate to additional payments made to the Directors to compensate for the earnings cap. Dr. Ney was not subject to the cap.

3. The payments relate to the period 1 January 2001 to 31 July 2001 when Mr. Ferguson resigned. In addition to the payments noted above, Mr. Ferguson received £344,143

as compensation for loss of office. Mr. Ferguson also received a bonus of £53,100 in February 2001 in relation to the year ended 31 December 2000. Mr. Ferguson is also

a member of the MSEP, the potential benefits arising from which are separately disclosed.

4. Includes £12,000 annual payment as Chairman of the Science Council.

5. Includes £5,000 annual payment as Chairman of the Audit Committee.

6. Includes £5,000 annual payment as Chairman of Medeva Pension Trustees.


Remuneration Reportcontinued

Directors’ interests in sharesThe Directors who held office as at 31 December 2001 and their interests (including the interests of their families) in the share capitalof the Company (all beneficially held) are listed below:

50p Ordinary shares owned Options on 50p Ordinary shares

31.12.01 31.12.00 31.12.01 31.12.00or date of or date of or date of or date of

resignation appointment resignation appointmentif earlier if later if earlier if later

J B H Jackson 100,000 100,000 – –

Dr P J Fellner 313,588 309,492 315,435 196,396

P V Allen 104,096 100,000 108,615 51,896

Sir Tom Blundell – – – –

Prof C R W Edwards – – – –

Dr M G Lee 17,000 17,000 173,317 127,197

Dr U M Ney 4,243 4,243 18,228 74,177

S C Cartmell 198 198 91,331 49,170

M G Newmarch 10,000 10,000 – –

H R Collum 10,465 10,465 – –

J W Baker 13,873 13,873 – –

Dr P Read 1,985 1,985 – –

Dr W Bogie* 19,337 19,337 – –

J Ferguson** 344 344 22,251 24,618

Dr M E Jaffe 1,220 1,220 – –

There has been no change in Directors’ interests since the year end.

* Resigned from the Board on 24 May 2001.

** Resigned from the Board on 31 July 2001.


Directors’ share optionsFurther details of the interests of Directors in shares over which options have been granted are set out below:

Number Number Marketat 31.12.00 Number Number at 31.12.01 price

or date of granted/(lapsed) exercised or date of Exercise on dateappointment during during resignation price exercised

if later year year if earlier £ £ Exercise period Category

Dr P J Fellner 120,000 120,000 5.80 19.08.99 – 16.01.07 b4,096 (4,096) – 2.38 12.28 01.03.01 – 31.08.01 c

72,300 72,300 9.73 27.04.03 – 25.04.10 b102,242 102,242 11.15 05.04.04 – 03.04.11 b

2,690 2,690 11.15 05.04.04 – 03.04.11 a 1,021 1,021 9.48 01.06.04 – 30.11.04 c7,569 7,569 – 08.01.02 – 08.01.11 d7,569 7,569 – 08.01.03 – 08.01.11 d1,022 1,022 – ni1,022 1,022 – ni

P V Allen 4,096 (4,096) – 2.38 12.28 01.03.01 – 31.08.01 c3,083 3,083 9.73 27.04.03 – 25.04.10 a

44,717 44,717 9.73 27.04.03 – 25.04.10 b50,139 50,139 11.15 05.04.04 – 03.04.11 b

1,021 1,021 9.48 01.06.04 – 30.11.04 c 4,252 4,252 – 08.01.02 – 08.01.11 d4,253 4,253 – 08.01.03 – 08.01.11 d

575 575 – ni575 575 – ni

Dr M G Lee 76,080 76,080 2.625 19.08.99 – 23.09.08 b11,420 11,420 2.625 25.09.01 – 23.09.08 a38,000 38,000 9.73 27.04.03 – 25.04.10 b

39,497 39,497 11.15 05.04.04 – 03.04.11 b1,697 1,697 4.33 01.03.07 – 31.08.07 c

2,917 2,917 – 08.01.02 – 08.01.11 d2,918 2,918 – 08.01.03 – 08.01.11 d

394 394 – ni394 394 – ni

Dr U M Ney 15,000 15,000 3.05 19.08.99 – 30.06.02 b12,000 (12,000) – 3.625 19.08.99 – 17.01.09 b43,709 (43,709) – 5.405 06.01.03 – 04.01.10 b

3,468 (3,468) – 3.78 01.03.02 – 31.08.02 c 2,844 2,844 – 08.01.02 – 30.06.02 d

384 384 – niJ Ferguson 1,933 1,933 5.74 29.04.92 – 27.04.02 m

1,496 1,496 3.56 28.09.94 – 26.09.04 m2,822 2,822 5.24 05.04.95 – 03.04.05 m

16,000 16,000 12.71 30.09.03 – 28.03.04 b2,367 (2,367) – 2.48 01.11.01 – 30.04.02 m

S Cartmell 2,360 2,360 12.71 30.09.03 – 28.09.10 a46,810 46,810 12.71 30.09.03 – 28.09.10 b

38,744 38,744 11.15 05.04.04 – 03.04.11 b 1,021 1,021 9.48 01.06.04 – 30.11.04 c1,055 1,055 – 08.01.02 – 08.01.12 d1,055 1,055 – 08.01.03 – 08.01.12 d

143 143 – ni143 143 – ni

Categories

a = Executive options issued under an Inland Revenue approved scheme.

b = Executive options issued under a scheme which has not been approved by the Inland Revenue.

c = Options granted under savings related share option schemes.

d = Deferred bonus. The exercise price for the deferred bonus is £1 in total for the exercise of any number of shares comprised in an award.

m = Medeva originating options, restated at Celltech equivalents.

ni = NI indemnity options linked to the deferred bonus options.

Dr Fellner and Mr Allen exercised their Sharesave options of 4,096 each on 13 June 2001. The share price on that date was £12.28,generating a notional gain of £40,550 each. They both retained the shares from this exercise.


Remuneration Reportcontinued

Share options outstanding to employees of the Company as at 31 December 2001, are as follows:

Celltech Executive Share Option Schemes 1,657 employees hold options (including unapproved options) to subscribe for up to 6,889,475 shares at prices ranging between 128pand 1295p per share exercisable between 2002 and 2011. This includes both Chiroscience and Medeva originating Executive options.Included in this figure are 57,298 options held under the Chiroscience ESOP Trust.

Deferred Bonus Plan12 employees hold options to subscribe for up to 60,946 shares. The shares are held under the Celltech Group plc Employee ShareTrust.

Savings Related Share Option Schemes (includes Celltech, Chiroscience and Medeva originating schemes)563 employees hold options to subscribe for up to 678,253 ordinary shares at prices between 238p and 948p per share exercisablebetween 2002 and 2008.


Celltech is committed to high standards of corporate governance. Throughout the year to 31 December 2001, the Group has compliedwith the provisions of the Combined Code on Corporate Governance embodied in the Listing Rules of the UK Listing Authority, otherthan with regard to the notice period in Dr Fellner’s service contract.

Celltech maintains a good dialogue with shareholders and meetings are held with institutional shareholders throughout the year todiscuss the progress of the Group. Other means of communication include company presentations, press releases and interim andannual reports. There is a company website (www.celltechgroup.com) which provides information on the Group.

Internal controls The Board acknowledges that it is responsible for Celltech’s system of internal controls (including financial control) and for regularlyreviewing its effectiveness. Such a system can only provide reasonable assurance and not absolute assurance against materialmisstatement or loss, as it is designed to manage rather than eliminate the risk of failure to achieve business objectives.

The key procedures that the Directors have established are designed to provide effective internal control within the Group and accord withthe Internal Control Guidance for Directors on the Combined Code issued by the Institute of Chartered Accountants in England andWales. The Board has established a formal and continuous process for identifying and evaluating the significant risks faced by the Group.

Celltech’s internal control procedures include the following:

Risk managementThe organisational structure includes individual reporting lines through to the Board. A structure of management committees andmanagement teams meets regularly to debate and resolve key issues.

Compliance controlsDocumented Quality Procedures are in place to ensure the maintenance of global Regulatory Compliance. These are subject to periodicreview to ensure current standards of quality compliance are maintained. A Quality Group monitors compliance with Good LaboratoryPractice (GLP), Good Clinical Practice (GCP) and Good Manufacturing Practice (GMP) through the implementation of an internalcompliance programme (for in-house activities) and an external auditing programme for Contract Research Organisations (CROs) andContract Manufacturing activities.

The Company also conducts annual Regulatory Compliance training initiatives.

A Pharmacovigilance Group monitors adverse events in support of Celltech’s marketed products and new product developmentprogrammes. These are managed in accordance with formally documented procedures which comply with current regulatoryrequirements.

Finally there is a process for developing and maintaining risk management across Celltech and a tactical plan in the US.

Where judged appropriate, Celltech collaborates with other large pharmaceutical companies regarding the development and marketingor co-marketing of its drug pipeline. This approach serves to share the risk and also provide critical mass in areas which complimentthe Group’s own infrastructure.

Financial The key procedures that the directors have established with a view to providing effective internal financial control are as follows:

• Policies and procedures are in place, including the documentation of key systems and rules relating to the delegation of authorities,which allow management to monitor controls and restrict the unauthorised use of assets.

• Experienced and suitably qualified staff take responsibility for key business functions. Annual appraisal procedures are establishedwhich ensure high standards of performance are maintained.

• Budgets and long term forecasts are prepared which allow management to monitor the key business and financial activities and risksand the progress towards financial objectives set for the year and the longer term. Monthly management accounts are preparedpromptly providing relevant, reliable and up to date information; significant variances from budget are investigated as appropriate.

• Clear policies and authorisation procedures are in place for capital investment; major investment projects are subject to authorisationby the Board.

• The Audit committee reviews reports from management in order to provide reasonable assurance that control procedures are inplace and are being followed.

• Formal procedures have been established for instituting appropriate action to correct weaknesses identified from the above reports.

The Directors confirm that they have carried out a review of the effectiveness of internal control as it operated during the year.

Social responsibilityCelltech intends to comply fully with the SRI Guidelines issued by the Association of British Insurers in October 2001 in respect offuture accounting periods.

Corporate Governance

Board of DirectorsAs at 31 December 2001 the Board of Directors comprised 5 Executive Directors and 8 Non-Executive Directors, including a Non-Executive Chairman. Mr Hugh Collum and Mr John Baker are senior independent Non-Executive Directors. In addition and for the purposes of the Combined Code Mr Newmarch, Professor Edwards, Dr Jaffe and Dr Read are considered by the Board to beindependent Non-Executive Directors. The biographical details of the Board members are set out on pages 22 and 23.

The Board provides effective leadership and manages overall control of the Group’s affairs through a schedule of matters reserved for its decision. This includes approval of the annual budget and business plan, major capital expenditure, significant acquisitions and disposals, and approval of financial statements.

There are eight scheduled Board meetings each year and other meetings are held as necessary.

Board committeesThe Board has Audit, Remuneration and Nomination Committees.

The Audit Committee has operated throughout the year and its current members are Mr Newmarch, Professor Edwards and Dr Read. It is chaired by Mr Newmarch and normally meets twice a year. The responsibilities of the committee include a critical review of theannual and interim financial statements prior to their submission to the Board for approval and the monitoring of the effectiveness ofinternal control systems. The external auditors attend its meetings and have the opportunity for private discussions with the committee.

The Remuneration Committee has operated throughout the year and its current members are Mr Collum, Mr Jackson and Dr Jaffe. The Committee, which is chaired by Mr Collum, meets not less than twice a year. It seeks independent advice, where appropriate, forthe purpose of determining all aspects of the remuneration of the Executive Directors and other senior managers, including the awardof share options, the terms of their service agreements, and recommending to the board the fees paid to the Chairman. The membersof the Committee do not participate in determining or recommending their own remuneration or fees. The fees of the Non-ExecutiveDirectors are determined by the Board on the joint recommendation of the Chairman and the Group Chief Executive.

A Nomination Committee meets as appropriate. The members of the Nomination Committee are Mr Jackson, Mr Baker, Mr Collumand Dr Fellner. The Committee is chaired by Mr Jackson.

Relations with shareholdersCommunications with shareholders are given a high priority. The Chairman’s and Chief Executive’s Statement and Operational andFinancial Reviews on pages 2 to 21 include a detailed review of the business and future developments. A regular dialogue ismaintained with institutional shareholders including presentations after the announcement of the preliminary results at the year-endand half-year. Celltech’s website is regularly updated with information on the Company’s activities.

The Annual General Meeting offers the Board the opportunity to communicate with private and institutional investors and theirparticipation is welcomed. The Chairmen of each of the committees described above will ordinarily be available at the Annual GeneralMeeting to answer questions. Details of resolutions to be proposed at the Annual General Meeting on 23 May 2002 can be found inthe Circular enclosed with this Report.

Going concernThe Directors consider that the funds available to the Group are sufficient for its operations for the foreseeable future and haveprepared the accounts on a going concern basis.


Corporate Governancecontinued

Statement of Directors’ Responsibilities

Company law requires the Directors to prepare accounts for each financial year which give a true and fair view of the statement ofaffairs of the Group and of the profit or loss of the Group for that year. In preparing those accounts, the Directors are required to:

• select suitable accounting policies and then apply them consistently;• make judgements and estimates that are reasonable and prudent; and• state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in

the accounts.

The Directors are responsible for keeping proper accounting records, which disclose with reasonable accuracy at any time the financialposition of the Group and to enable them to ensure that the accounts comply with the Companies Act 1985. They are alsoresponsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraudand other irregularities.


We have audited the accounts on pages 36 to 64.

Respective responsibilities of directors and auditorsThe Directors are responsible for preparing the Annual Report. As described on page 34, this includes responsibility for preparing thefinancial statements in accordance with applicable United Kingdom law and accounting standards. Our responsibilities, as independentauditors, are established in the United Kingdom by statute, the Auditing Practices Board, the Listing Rules of the Financial ServicesAuthority, and by our profession’s ethical guidance.

We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordancewith the Companies Act 1985. We also report to you if, in our opinion, the directors’ report is not consistent with the financialstatements, if the company has not kept proper accounting records, if we have not received all the information and explanations werequire for our audit, or if information specified by law or the Listing Rules regarding directors’ remuneration and transactions with thegroup is not disclosed.

We review whether the statement on pages 33 and 34 reflects the company’s compliance with the seven provisions of the CombinedCode specified for our review by the Listing Rules, and we report if it does not. We are not required to consider whether the Board’sstatements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Group’s corporate governanceprocedures or its risk and control procedures.

We read the other information contained in the Annual Report, including the corporate governance statement, and consider whether it is consistent with the audited financial statements. We consider the implications for our report if we become aware of any apparentmisstatements or material inconsistencies with the financial statements.

Basis of audit opinionWe conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination,on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of thesignificant estimates and judgements made by the directors in the preparation of the financial statements, and of whether theaccounting policies are appropriate to the group’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement,whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of thepresentation of information in the financial statements.

OpinionIn our opinion the financial statements give a true and fair view of the state of affairs of the company and the group as at31 December 2001 and of the loss of the group for the year then ended and have been properly prepared in accordance with the Companies Act 1985.

KPMG Audit PlcChartered AccountantsRegistered AuditorLondon11 March 2002

Independent Auditors’ Report to the Shareholders of Celltech Group plc


Consolidated Profit and Loss Accountfor the twelve months ended 31 December 2001

Restructuring RestructuringPre restructuring items and Pre restructuring items anditems & goodwill goodwill Total items & goodwill goodwill Total

12 months to 12 months to 12 months to 12 months to 12 months to 12 months to31 Dec 2001 31 Dec 2001 31 Dec 2001 31 Dec 2000 31 Dec 2000 31 Dec 2000

Notes £m £m £m £m* £m* £m*

Turnover 2 303.1 – 303.1 235.5 – 235.5 Cost of sales (83.5) – (83.5) (69.7) – (69.7)

Gross profit 219.6 – 219.6 165.8 – 165.8 Investment in research and development (90.7) – (90.7) (74.8) – (74.8)

Selling, marketing and distribution expenses (78.6) – (78.6) (46.8) – (46.8)

Corporate and general administration expenses excludingrestructuring items and goodwill charges (24.9) – (24.9) (24.2) – (24.2)

Restructuring costs 5 – (7.8) (7.8) – (19.2) (19.2) Goodwill amortisation – (92.6) (92.6) – (78.7) (78.7)Goodwill impairment – – – – (353.9) (353.9)

General administration total (24.9) (100.4) (125.3) (24.2) (451.8) (476.0)Operating profit/(loss) before other income 25.4 (100.4) (75.0) 20.0 (451.8) (431.8)Other income 3 18.8 – 18.8 4.6 – 4.6

Operating profit/(loss) 4 44.2 (100.4) (56.2) 24.6 (451.8) (427.2)Net interest receivable 6 3.6 – 3.6 1.6 – 1.6

Profit/(loss) on ordinary activities before taxation 47.8 (100.4) (52.6) 26.2 (451.8) (425.6)Tax on profit/(loss) on ordinary activities 8 (8.1) 5.2 (2.9) (3.9) 5.0 1.1

Profit/(loss) on ordinary activities after taxation 39.7 (95.2) (55.5) 22.3 (446.8) (424.5)

Accrual for unpaid preference share dividend 25 (0.2) – (0.2) (0.2) – (0.2)

Transfer to/(from) profit and loss reserve 25 39.5 (95.2) (55.7) 22.1 (446.8) (424.7)

Basic earnings/(loss) per share 9 14.4 (20.3) 8.4 (161.6)Diluted earnings/(loss) per share 9 14.2 (20.3) 8.2 (161.6)

The results presented above arise from continuing operations. The acquisition of Thiemann in Germany became effective on 1 October 2001. Since the contribution from this business in the period is not material, no separate columnar disclosure has been provided (see note 22).

The 31 December 2000 comparative presented above excludes the results of Medeva prior to its joining the Celltech Group on26 January 2000.

* Restated for FRS 19, see note 8


12 months to 12 months to31 Dec 2001 31 Dec 2000

£m £m*

Consolidated loss for the year (55.5) (424.5)Exchange adjustments on retranslation of net assets of subsidiary undertaking 0.3 3.3

Total recognised losses for the year (55.2) (421.2)

Prior year tax adjustment (note 8) 5.0 n/a

Total losses recognised since last annual report (50.2) n/a

Reconciliation of Movements in Shareholders’ Fundsfor the twelve months ended 31 December 2001


£m £m*

Total recognised losses for the year (55.2) (421.2)Share capital issued 5.0 82.5Reserve arising on acquisition of Medeva – 869.6Reserve arising on acquisition of Cistron – 11.7

Net movement in shareholders funds (50.2) 542.6Shareholders’ funds at start of year (originally £664.4m before prior year adjustment of £5.0m) 669.4 126.8

Shareholders’ funds at end of year 619.2 669.4


Consolidated Statement of Total Recognised Gains and Lossesfor the twelve months ended 31 December 2001


Consolidated Balance Sheetas at 31 December 2001

31 Dec 2001 31 Dec 2000Notes £m £m*

Fixed assetsIntangible assets 11 498.3 543.6Tangible assets 12 103.5 98.3Investments 13 38.3 25.3

640.1 667.2

Current assetsStock 14 45.7 38.7Debtors 15 82.7 61.9Businesses held for resale 23 – 15.2Equity investments 16 2.0 15.1Cash and liquid resources 17 90.4 76.6

220.8 207.5Creditors: amounts falling due within one year 18 (119.2) (93.1)

Net current assets 101.6 114.4

Total assets less current liabilities 741.7 781.6

Creditors: amounts falling due after more than one year 19 (45.6) (43.2)

Provisions for liabilities and charges 20 (76.9) (69.0)

Net assets 619.2 669.4

Capital and reservesCalled up share capital 25 141.0 140.4Share premium account 25 81.6 77.2Other reserves 25 621.2 621.0Profit and loss account 25 (224.6) (169.2)

Shareholders’ funds 619.2 669.4

An analysis of shareholders’ funds between equity and non-equity interests is given in note 25.

Approved on behalf of the Board on 11 March 2002

John Jackson

Dr. Peter FellnerDirectors



31 Dec 2001 31 Dec 2000Notes £m £m

Fixed assetsInvestments 13 291.2 289.4

Current assetsCash 17 15.0 4.1

Total assets less current liabilities 306.2 293.5

Net assets 306.2 293.5

Capital and reservesCalled up share capital 25 141.0 140.4Share premium account 25 81.6 77.2Other reserves 25 2.2 2.0Profit and loss account 25 81.4 73.9

Shareholders’ funds 306.2 293.5

An analysis of shareholders’ funds between equity and non-equity interests is given in note 25.

Approved on behalf of the Board on 11 March 2002

John Jackson

Dr. Peter FellnerDirectors

Company Balance Sheetas at 31 December 2001


Consolidated Cash Flow Statementfor the twelve months ended 31 December 2001


Notes £m £m

Net cash inflow from operating activities 29 38.7 12.5

Returns on investments and servicing of finance

Interest received 5.1 4.1

Interest paid (2.4) (2.5)

Interest paid on finance leases (0.2) (0.3)

Net cash inflow from returns on investment and servicing of finance 2.5 1.3

Taxation

Taxation paid (4.3) (3.1)

Taxation refunded 13.0 7.9

Taxation inflow 8.7 4.8

Capital expenditure and financial investment

Payments made to acquire tangible fixed assets (16.1) (15.7)

Payments made to acquire intangible fixed assets (11.8) –

Payments made to acquire fixed asset investments (7.0) –

Proceeds from disposal of equity investments 11.5 –

Proceeds from sale of fixed assets 1.1 2.4

Receipts from sale of ESOP shares – 1.6

Net cash outflow from capital expenditure and financial investment (22.3) (11.7)

Acquisitions and disposals

Deferred consideration (1.5) (3.7)

Proceeds from disposal of Rapigene – 7.4

Cash acquired less acquisition expenses of Medeva and Cistron – 13.8

Acquisition of Thiemann, less cash acquired 22 (26.2) –

Net proceeds from European asset sales 24 3.0 –

Cash funding in respect of businesses held for resale (4.1) (47.2)

Proceeds from sale of businesses held for disposal 23 15.3 30.2

Net cash (outflow)/inflow from disposals and acquisitions of businesses (13.5) 0.5

Net cash inflow before management of liquid resources and financing 14.1 7.4

Management of liquid resources (7.0) 61.2

Financing

Receipts from issuing shares 5.0 23.0

Capital element of finance lease rental payments (1.3) (1.3)

Repayment of loan of acquired subsidiaries (5.4) (75.0)

Net cash outflow from financing (1.7) (53.3)

Increase in cash in the period 5.4 15.3



Notes £m £m

Increase in cash 5.4 15.3Management of liquid resources 7.0 (61.2)

Total increase/(decrease) in cash and liquid resources 12.4 (45.9)Loans and finance leases acquired with subsidiaries (5.4) (108.9)Loans and finance leases disposed with asset sales 0.3 –Decrease in long term debt and finance leases 6.7 76.3Inception of new finance leases – (2.4)

Change in net funds 14.0 (80.9)Exchange differences 0.5 (1.9)

Movement in net funds in the period 14.5 (82.8)

Net funds at beginning of period 29 38.6 121.4

Net funds at 31 December 29 53.1 38.6

Reconciliation of Net Cash Flow to Movement in Net Fundsfor the twelve months ended 31 December 2001


Notes to the Financial Statementsat 31 December 2001

1. Accounting policiesAccounting conventionThe financial statements are prepared under the historical cost convention and in accordance with applicable accounting standards.

Basis of consolidationThe consolidated accounts include the results of the Company and all of its subsidiary undertakings. No profit and loss account ispresented for Celltech Group plc as provided by section 230 of the Companies Act 1985. The results of businesses acquired areincluded in the Group accounts from their date of acquisition.

Income recognitionRevenue from product sales is recognised upon shipment to customers. Provision for discounts and rebates to customers, returns andother adjustments is made in the period that the related sales are recorded.

Research and development milestones and royalties receivable under collaborative agreements are recognised as they accrue; patentroyalties receivable under licensing agreements are recognised when they are earned.

GoodwillGoodwill represents the excess of consideration paid over the fair value of the net separable assets acquired at the date of acquisition.Goodwill arising after 1 January 1998 is capitalised and amortised over its useful economic life, normally not exceeding 20 years, on astraight line basis. Prior to 1 January 1998 goodwill was written off directly to reserves and on disposal would be charged to the profitand loss account.

IntangiblesIntangible assets represent acquired licences, patents, know-how and marketing rights, where these relate to specific compounds,products or know-how which are being developed or used for commercial applications. Intangible assets acquired separately from abusiness are capitalised at cost. Intangible assets acquired as part of a business are capitalised separately where their value can bemeasured reliably; otherwise they are treated as part of goodwill acquired with that business. Separately capitalised intangible assetsare stated at cost less provision for amortisation. Intangible assets in relation to licences, patents and marketing rights are amortisedover their estimated useful lives to match the sales of the related products or, where this is not readily identifiable, on a straight-linebasis. Estimated useful lives are reviewed annually and are generally not presumed to exceed 20 years. Platform technologiessupporting the Group’s discovery research strategy is presumed to have an indefinite life and consequently is subject to annual reviewsand amortised as necessary if impairment is considered to have taken place.

Research and developmentResearch and development expenditure, including appropriate administrative overheads, is written off as incurred, except for clinicaltrial material stocks which are written off upon use.

DepreciationDepreciation is provided on all fixed assets at rates calculated to write off the cost of each asset evenly over its expected useful life,as follows:

Leasehold properties and improvements – the shorter of 20 years or the lease termFreehold buildings – 50 yearsFreehold land – No depreciationPlant and machinery – 2 to 10 years

StocksStock of material for use in scheduled clinical trials is written off to investment in research and development upon use. Other stocksare stated at the lower of cost and net realisable value.

Leased assetsAssets acquired under finance leasing arrangements are capitalised at cost upon inception and depreciated over their expected useful lives.

The interest element of the rental obligations is charged to the profit and loss account over the period of the lease and represents aconstant proportion of the balance of capital repayments outstanding.

Rentals paid under operating leases are charged to the profit and loss account as they accrue.


Foreign currenciesAssets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date.

Transactions in foreign currencies are recorded at the rate ruling at the previous months close or at the contracted rate if thetransaction is covered by a forward exchange contract. The operating results of overseas subsidiary companies are translated intosterling at the average rate of exchange for the period. Exchange differences arising on consolidation are recorded as movementson reserves. All other exchange differences are taken to the profit and loss account.

Preference share dividendsAccumulated unpaid preference share dividends are accounted for as a reserves accrual (see note 25).

PensionsThe Group operates contributory and non-contributory defined benefit and defined contribution pension schemes covering themajority of its employees. The schemes’ funds are administered by trustees and are independent of the Group’s finances. Contributionsare paid to the schemes in accordance with the recommendations of independent actuaries. The Group’s contributions are charged tothe profit and loss account so as to spread the costs of pensions over employee’s working lives with the Group.

Equity investmentsEquity investments are valued at the lower of cost and net realisable value. In determining net realisable values, market values are usedin the case of listed investments and Directors’ estimates are used in the case of unlisted investments.

Deferred taxationDeferred taxation is provided on timing differences that have originated but not reversed by the balance sheet date on a non-discounted basis. Deferred taxation assets are recognised only to the extent that it is more likely than not that there will be suitabletaxable profits from which future reversals of the underlying timing difference can be deducted.

The adoption of FRS 19 ‘Deferred taxation’ has resulted in the recognition of an additional £15.3m deferred tax liability on theacquisition of Medeva along with a £15.3m goodwill asset. In addition the adoption has resulted in a prior year adjustment of £5.0mas discussed in note 8. Had FRS 19 not been adopted the current year tax charge would have been £8.1m.

Financial instrumentsThe Group uses financial instruments, in particular forward exchange contracts to manage the financial risks associated with theGroup’s underlying business activities and the financing of those activities. The Group does not undertake any trading activity infinancial instruments.

A discussion of how the Group manages its financial risks is included in the Financial Review and in note 21. The primary financialinstruments used by the Group are forward exchange contracts which are used to hedge foreign exchange exposures arising onforecast receipts and payments in foreign currencies. Forward foreign exchange contracts for existing transactions are stated at fairvalue at the balance sheet date and the gains/losses arising are recognised in the Group profit and loss account. Contracts to hedgeanticipated exposures are not marked to market and gains/losses are deferred until the transaction is complete.

The aggregate fair values at the balance sheet date of the hedging instruments described above are disclosed in note 21 to theseaccounts.

Newly adopted accounting standardsUK Financial Reporting Standard 18 (FRS 18) – ‘Accounting Policies’ requires an entity to adopt accounting policies most appropriateto its particular circumstances, to review them regularly for appropriateness and to disclose sufficient information to enable users offinancial statements to understand the policies adopted and how they have been implemented. The impact of adoption on Celltech’sFinancial Statements was not material.

The Group has adopted FRS 19 ‘Deferred Tax’ in the year, the impact on adoption is described above.

In addition, the following new accounting standard has been issued but has not yet been fully adopted:

UK Financial Reporting Standard 17 (FRS 17) – ‘Retirement Benefits’ becomes fully effective for accounting periods ending on or after22 June 2003, with increasing levels of disclosure required for each accounting period ending on or after 22 June 2001. It sets out therequirements for accounting for retirement benefits, including the fair value of assets and liabilities arising from employer’s obligations,the treatment of related costs, and level of disclosure. Celltech has adopted FRS 17 to the extent of the mandated disclosurerequirements for the year ended 31 December 2001 and these are included in note 27 to the Financial Statements.


Notes to the Financial Statementscontinued

2. Analysis of turnover, profit and net assets Turnover is represented by product sales and royalties receivable during the year. Income receivable as milestones arising from researchand development collaborations is treated as other operating income.

(a) Turnover by geographical destination12 months to 12 months to

31 Dec 2001 31 Dec 2000£m £m

UK 46.3 48.1Rest of Europe 29.6 26.2USA 220.2 152.5Rest of World 7.0 8.7

303.1 235.5

Turnover comprises of £241.7m (2000: £197.8m) of product sales and £61.4m (2000: £37.7m) of royalty income.

(b) Segmental analysis by country of originOperating profit

before goodwill andTurnover restructuring items Operating loss Net assets

12 months to 12 months to 12months to 12 months to 12 months to 12 months to 12 months to 12 months to31 Dec 2001 31 Dec 2000 31 Dec 2001 31 Dec 2000 31 Dec 2001 31 Dec 2000 31 Dec 2001 31 Dec 2000

£m £m £m £m £m £m £m £m

UK 102.5 80.1 (15.1) (31.5) (39.4) (152.9) 178.0 182.8Rest of Europe 34.2 26.1 11.3 7.6 2.2 (33.9) 79.5 60.1USA 166.4 129.3 48.0 48.5 (19.0) (240.4) 361.7 426.5

Total 303.1 235.5 44.2 24.6 (56.2) (427.2) 619.2 669.4

Substantially all turnover and operating profits are generated from the Group’s principal activity being the research and developmentof novel therapeutic products for human use and the manufacture and sale of prescription pharmaceutical products.

3. Other income12 months to 12 months to

31 Dec 2001 31 Dec 2000£m £m

Pharmacia income 17.5 – Milestones 1.3 4.6

18.8 4.6

The Pharmacia income relates to $25m (£17.5m) of the $50m initial payment received from the company for the co-development andco-promotion of CDP 870. The income recognised is in relation to the non-refundable, non-creditable signature payment for thelicence. The remainder of the upfront payment will be offset against CDP 870 research and development expenditure incurred by theGroup. Research and development expenditure in 2001 is shown net of £8.4m funding, with the remaining £9.1m held on the balancesheet within accruals and deferred income (note 18).

4. Operating lossThe operating loss is stated after charging:


Depreciation – owned assets 12.2 10.4– assets held under finance leases 0.4 0.8

Operating lease rentals – land and buildings 3.7 2.9– other 0.7 0.7


4. Operating loss continuedFees paid to auditorsKPMG Audit Plc succeeded Ernst & Young as the Group’s auditor on 24 May 2001. The following summarises the audit and non-auditfees paid to each auditor:

2001 2000£m £m

Audit feesKPMG Audit Plc 0.3 –Ernst & Young – 0.4

Fees for other services KPMG Audit Plc 0.4 –Ernst & Young – 0.7

Included in the fees for other services are £0.2m in the year ended 31 December 2001 paid to KPMG Audit Plc and associates inrespect of the acquisition of Thiemann and £0.6m in the year ended 31 December 2000 paid to Ernst & Young in respect of theacquisitions of Medeva and Cistron. These fees were capitalised as costs of the respective transactions.

The Company audit fee amounted to £25,000 (2000: £55,000).

5. Restructuring12 months to 12 months to

31 Dec 2001 31 Dec 2000£m £m

Redundancy 6.9 –Thiemann integration (name change, consulting) 0.6 –Medeva integration (redundancy, relocation) – 8.5Consulting – 1.5Discontinued R&D – 6.1Other 0.3 3.1

7.8 19.2

During 2001 the Group undertook a restructuring programme predominantly affecting the US business but also impacting the UKoperations of the Company. In addition on 1 October 2001 the Group acquired effective control of Thiemann resulting in certain otherintegration costs.

On 26 January 2000 the Group acquired Medeva. The cost of restructuring the Medeva and Celltech businesses was £19.2m.

As at 31 December 2001 £5.9m still remained to be spent of the 2001 and 2000 restructuring amounts. The remaining provision isexpected to be utilised within the next financial year.

6. Net interest receivable12 months to 12 months to

31 Dec 2001 31 Dec 2000£m £m

Bank interest receivable 4.0 3.5Interest on PowderJect loan note receivable 2.1 0.4

6.1 3.9

Interest payable on $50m senior debt (2.3) (2.0)Interest paid on finance leases (0.2) (0.3)

(2.5) (2.3)

Net interest 3.6 1.6



7. Staff costs(a) Staff costs, including the emoluments of the Executive Directors, amounted to:


£m £m

Salaries 74.8 70.3Social security costs 7.6 7.4Other costs including pensions 8.6 7.6

91.0 85.3

The 2000 presentation has been changed to correspond with the current year presentation.

(b) The average number of staff employed by the Group, including Executive Directors, during the year was:


Production 619 560Sales and distribution 646 474General and administration 156 161Research and technical 608 608

2,029 1,803

(c) Details of Directors’ Remuneration for each Director, compensation for loss of office, pension entitlements and share options areincluded in the Remuneration Report.

8. Taxation12 months to 12 months to

31 Dec 2001 31 Dec 2000£m £m

UK corporation tax at 30% (2000: 30%) 5.0 24.0Utilisation of tax losses (5.0) –Double taxation relief – (23.3)

UK corporation tax – 0.7Overseas – federal and state tax 2.1 (8.4)

– deferred tax 6.0 11.3Withholding tax suffered on overseas receipts – 0.3

Overseas taxation 8.1 3.2

Taxation before restructuring items and goodwill 8.1 3.9Deferred tax credit on goodwill (5.2) (5.0)

Taxation 2.9 (1.1)

The effective rate is lower than the UK statutory rate principally due to the availability of brought forward losses.

The deferred tax credit on goodwill arises as a result of the adoption of FRS 19 ‘Deferred Tax’ during the year. The standard requiresthat a full provision is recognised for deferred tax liabilities including those in respect of goodwill on which tax benefits are obtained.This has resulted in the Group recognising an additional deferred tax liability on the acquisition of Medeva of £15.3m, recorded as aprior year adjustment, of which £5m has been taken as a credit in 2000 and £5.2m has reversed in 2001.

A tax credit has not been taken on the restructuring costs due to the availability of tax losses.

The table below reconciles the actual income tax charge to the expected tax rate. Computed by applying the UK tax rate of 30%(2000: 30%) to the loss on ordinary activities before taxation:


Expected tax charge/(credit) at UK corporation tax rate (15.8) (127.7)Permanent difference on goodwill 23.4 125.4Restructuring costs 2.3 5.8Difference in local tax rates (3.5) (6.8)Utilisation of losses (5.0) –Other 1.5 2.2

2.9 (1.1)


8. Taxation continuedThe deferred taxation provision at the end of the year is set out below:

31 Dec 2001 31 Dec 2000Deferred taxation £m £m

Accelerated capital allowances 6.1 11.3 Losses and other timing differences 59.4 45.1

65.5 56.4

The movement in the provision in the year is set out in note 20.

There are taxation losses of approximately £278m (2000: £272m) which have not been recognised.

9. Earnings per shareThe basic loss per share is based upon a loss of £55.7m (2000: loss of £424.7m) after deduction of accrued unpaid preference sharedividends of £0.2m (2000: £0.2m).

In addition for the twelve months ended 31 December 2001 the earnings per share before goodwill and restructuring items is providedwhich is based on profits of £39.5m (2000: profit of £22.1m). This is reconciled to the loss of £55.7m (2000: loss of £424.7m) as setout below:


£m £m

Attributable loss (55.7) (424.7)Goodwill amortisation 92.6 78.7Goodwill impairment – 353.9Restructuring costs 7.8 19.2Tax on goodwill (5.2) (5.0)

Adjusted profit 39.5 22.1

The diluted earnings/(loss) per share, takes into account the dilutive effect of share options and preference shares. A reconciliationbetween the number of shares used in the calculation of the basic and diluted earnings/(loss) per share is shown in the table below:

12 months to 12 months to 31 Dec 2001 31 Dec 2000

Number m Number m

Basic weighted average number of shares 274.5 262.8Share options 2.6 4.7Convertible preference shares 1.9 1.8

Diluted number of shares 279.0 269.3

Due to the loss making position of the Group, the exercise of share options and conversion of preference shares do not increase thebasic loss per share and therefore according to FRS 14 the Basic and Diluted loss per share remain the same. The 2000 and 2001earnings per share before goodwill and restructuring items has been adjusted for the dilutive effect.

10. Profit attributable to members of the holding company In accordance with the exemption allowed by Section 230 of the Companies Act 1985 the Company has not presented its own profitand loss account.

The profit dealt with in the financial statements of the Company was £7.7m (2000: profit £51.5m).



11. Intangible fixed assetsIntangible

Goodwill Assets Group£m £m £m

CostAt beginning of the year 960.9 – 960.9FRS 19 prior year adjustment 15.3 – 15.3

At beginning of the year – restated 976.2 – 976.2Medeva amendments (note 22 (i)) 2.9 – 2.9Thiemann (note 22 (ii)) 32.6 – 32.6Abgenix (see below) – 11.8 11.8

1,011.7 11.8 1,023.5

Provisions for amortisationAt beginning of the year 432.6 – 432.6Amortisation charged in the year 92.6 – 92.6

525.2 – 525.2

Net book value:

At 31 December 2001 486.5 11.8 498.3

At 31 December 2000 543.6 – 543.6

The goodwill amortisation charge reflects a full years ownership of Medeva (£90.7m) and Cistron (£0.7m). The acquisition ofThiemann was effective from 1 October 2001 and a three month charge (£1.2m) is therefore reflected.

The intangible addition is in respect of the payment of $17m (£11.8m) to Abgenix for extensive access to its SLAM technology.Amortisation has not been charged on this in the year as the Directors consider that it has an indefinite life and that there has beenno impairment in the underlying value of the technology. As required by FRS 10 Goodwill and Intangible Assets, the Directors haveundertaken to carry out annual impairment tests to support future determinations of the value.

12. Tangible fixed assetsLand & buildings Plant & Machinery

Long Group Freehold leasehold Owned Leased Total

£m £m £m £m £m

Cost: At 31 December 2000 36.8 23.1 90.7 3.7 154.3Acquisition of subsidiary – Thiemann 1.4 – 0.1 – 1.5Additions 3.2 2.3 10.6 – 16.1Disposals (1.2) – (2.6) (1.0) (4.8)Exchange 0.9 0.1 1.2 – 2.2

At 31 December 2001 41.1 25.5 100.0 2.7 169.3

Depreciation:At 31 December 2000 4.9 6.0 43.3 1.8 56.0Provided during the period 1.1 1.1 10.0 0.4 12.6Disposals (0.9) – (1.9) (0.5) (3.3)Exchange 0.1 – 0.4 – 0.5At 31 December 2001 5.2 7.1 51.8 1.7 65.8

Net book value:

At 31 December 2001 35.9 18.4 48.2 1.0 103.5

At 31 December 2000 31.9 17.1 47.4 1.9 98.3

Included in the above are items held under finance leases with a net book value of £2.4m (2000: £4.6m).


13. InvestmentsLong term investments:

Group Company

31 Dec 2001 31 Dec 2000 31 Dec 2001 31 Dec 2000 £m £m £m £m

Loan notes 31.0 25.0 – –Investment in companies 7.0 – – –Investments in subsidiary undertakings – – 199.3 199.3Loans to subsidiary undertakings – – 91.9 90.1Own Shares (held in Chiroscience ESOP) 0.3 0.3 – –

38.3 25.3 291.2 289.4

Loans to subsidiary undertakings have been subordinated by Celltech Group in favour of any third party liabilities that may accrue.

Investments include two five year convertible redeemable loan notes issued by PowderJect Pharmaceuticals plc, one for £25m issuedon 2 October 2000 and a second for £6m issued on 30 March 2001. These were issued at par, pay interest half yearly at 4% perannum and have a yield to maturity of 7%. Interest is being accrued and credited in the profit and loss account at the 7% rate. Theloan notes are convertible by Celltech into PowderJect ordinary shares at a fixed price of £7.19. The loan notes can be redeemed atpar by PowderJect, subject to the payment of a redemption premium of 13% per annum thereon.

Celltech has acquired a minority interest in Neogenesis for $10m (£7.0m). This investment will allow Celltech to access its innovativefocused libraries and screening technology. This investment is of a long-term strategic nature and is carried in the balance sheet at thelower of cost and net realisable value to the Group.

Movements in investments during the year are as follows:Group Company

£m £m

At 31 December 2000 25.3 289.4Loan notes received 6.0 –Investment in Neogenesis 7.0 –Movement in loans to subsidiary undertakings – 1.8

At 31 December 2001 38.3 291.2



13. Investments continuedThe following information relates to the Company’s principal subsidiary undertakings:

ProportionCountry of held at

Name of Company incorporation Holding 31 Dec 2001 Nature of business

Celltech R&D Limited England Ordinary Shares 100%* Research and DevelopmentCelltech Therapeutics Inc USA Common Stock 100% CommercialChiroscience Group Limited England Ordinary Shares 100%* Holding CompanyDarwin Discovery Limited England Ordinary Shares 100% Research and DevelopmentChiroscience R&D Limited England Ordinary Shares 100% Research and DevelopmentCelltech R&D Inc. USA Common Stock 100% Research and DevelopmentDarwin Molecular Corp USA Common Stock 100% Holding Company

Medeva Limited England Ordinary shares 100%* Holding company

Thiemann Arzneimittel GmbH & Co. KG Germany Ordinary Shares 100%Celltech Pharmaceuticals Limited England Ordinary shares 100%International Medication Systems (U.K) Ltd England Ordinary shares 100% Manufacture and sale of a rangeCelltech Pharma SA Spain Ordinary shares 100% of branded specialty and genericCelltech Pharma SA France Ordinary shares 100% pharmaceutical productsCelltech Pharma SA Belgium Ordinary shares 100%

6Celltech Manufacturing CA Inc USA Common stock 100% Manufacture and sale of specialistCelltech Pharmaceuticals Inc USA Common stock 100% pharmaceutical productsCelltech Manufacturing Inc USA Common stock 100%

6Celltech Holdings Inc USA Common stock 100% Holding CompaniesCelltech Americas Inc USA Common stock 100% 6Medeva BV Netherlands Ordinary shares 100% Owns licences and other intellectual

property relating to pharmaceutical products

Cistron Biotechnology Inc USA Common stock 100% Research and Development

* Directly held

A full list of subsidiaries will be annexed to the Company’s next annual return filed with the Registrar of Companies.

14. StockGroup

31 Dec 2001 31 Dec 2000£m £m

Raw materials and consumables 6.6 8.1Clinical trials material 6.6 7.8Work in progress 13.2 5.9Finished goods and goods for resale 19.3 16.9

45.7 38.7

The Group has now valued work in progress across all its US manufacturing sites on a direct cost plus attributable overhead basisrather than purely on a direct cost basis. This overhead allocation methodology has been used by all sites to value finished goodsconsistently and is considered by the Group to be the most appropriate for its operations. Had the Group continued to use a directcost only approach, year end work in progress would have been £3.6m lower, the adjustment to 2000 would not have been material.


15. DebtorsGroup

31 Dec 2001 31 Dec 2000£m £m

Trade debtors 56.7 46.2Other debtors 15.5 4.9Prepayments and accrued income 10.5 10.8

82.7 61.9

Other debtors includes £5.7m (2000: £0.2m) which is recoverable in more than one year. This relates to $3m (£2.1m) of deferredconsideration in respect of the disposal of Armstrong and $3.6m (£2.5m) of funds moved to a trust account in accordance withpension scheme rules in the US and £1.1m of rolled up PowderJect interest.

Other debtors also includes £0.7m (2000: £nil) receivable on the Armstrong disposal within one year, £0.4m (2000: £nil) in relation toa pension surplus within Thiemann and £1.7m (2000: £nil) of accrued PowderJect income.

16. Equity investmentsEquity investments are valued at the lower of cost and net realisable value. As at 31 December 2001 equity investments comprised thefollowing:

No. of sharesMarket held at

listed 31 Dec 2001 £m

Targeted Genetics Corporation NASDAQ 937,000 1.8Matrix Pharmaceuticals Inc. NASDAQ 207,500 0.2

Total equity investments 2.0

During the year the Group disposed of 459,167 shares in Matrix Pharmaceuticals Inc., 1,588,235 shares in Acambis Plc, 531,341shares in Connetics Corporation and 490,392 shares in Targeted Genetics Corporation. The total proceeds were £11.5m from thesedisposals. A net loss of £1.6m has been recorded to goodwill as a result of the disposal of these former Medeva holdings and markingto market the remaining shareholding as at 31 December 2001.

17. Cash and liquid resourcesCelltech manages its funds in a portfolio of cash, short term bank deposits and liquid resources, with maturities chosen to meet itsshort and medium term requirements. These liquid resources are held in fully negotiable instruments.

Group Company

31 Dec 2001 31 Dec 2000 31 Dec 2001 31 Dec 2000 £m £m £m £m

Cash 36.3 29.5 15.0 4.1Liquid Resources 54.1 47.1 – –

Total cash and liquid resources 90.4 76.6 15.0 4.1

18. Creditors: amounts falling due within one yearGroup

31 Dec 2001 31 Dec 2000£m £m

Trade creditors 36.9 31.4Other creditors 25.6 22.3Accruals and deferred income 53.5 36.2Deferred consideration – 1.1Leasing obligations 1.5 2.1Corporation taxes 1.7 –

119.2 93.1



19. Creditors: amounts falling due after more than one year 31 Dec 2001 31 Dec 2000

£m £m

Senior loan notes 34.5 33.6Other creditors 4.0 0.8Deferred consideration 5.8 6.5Leasing obligations 1.3 2.3

45.6 43.2

The senior loan notes were issued on 17 December 1998 by Medeva, by means of a Private Placement with US qualified institutionalinvestors. They are unsecured, carry a fixed coupon rate of 6.51% and are repayable in December 2003.

Other long term creditors of £4.0m relates to provided pension obligations. As at 31 December 2000 these obligations were shownwithin provisions for liabilities and charges as well as other long term and short term creditors and totalled £3.9m.

Obligations under finance and operating leases31 Dec 2001 31 Dec 2000

Finance leases £m £m

Amounts payable:Within one year 1.6 2.0Between two and five years 1.5 3.0Less interest element (0.3) (0.6)

2.8 4.4

Operating leases The Group has annual commitments under non-cancellable operating leases as follows:

Land and buildings Other

31 Dec 2001 31 Dec 2000 31 Dec 2001 31 Dec 2000£m £m £m £m

Operating leases which expire:Within one year – 0.6 0.4 0.2Between two and five years 1.1 – 1.0 0.4Over five years 4.4 3.4 – 0.1

5.5 4.0 1.4 0.7

The Company has no commitments under operating or finance leases.

20. Provisions for liabilities and chargesRestructuring Business

and other held forDeferred tax (i) resale Pensions Total

Deferred tax £m £m £m £m £m

Balance at 1 January 2001 46.1 6.0 4.7 1.9 58.7FRS 19 prior year adjustment 10.3 – – – 10.3

Balance at 1 January 2001 restated 56.4 6.0 4.7 1.9 69.0

Medeva adjustments (see note 22) (2.1) 5.6 – – 3.5Profit and loss account charge 6.0 7.8 – – 13.8Utilised in year – (8.0) (4.7) (0.3) (13.0)Currency translation 0.7 – – – 0.7Transferred from/(to) creditors 4.5 – – (1.6) 2.9

At 31 December 2001 65.5 11.4 – – 76.9

There are no material deferred tax liabilities in the Company.

(i) The remaining provision relates to restructuring charges booked during the year as described in note 5 and final adjustments inrelation to the Medeva acquisition as described in note 22.


21. Derivatives and other financial instrumentsThe main risks arising from the Group’s financial instruments and the strategy for managing these is set out below:

Interest rate riskThe Group has £34.5m ($50m) of long term fixed borrowings in the form of a Private Placement which carries an interest rate of6.51%.

Liquidity riskThe Group ensures that it has sufficient long term funding and committed bank facilities to meet foreseeable peak borrowingrequirements. At 31 December 2001 the Group had £125.5m of committed facilities of which £91.0m were undrawn.

Foreign currency riskApproximately 42% of the Group assets (excluding goodwill) are in the US. The Group’s only borrowing is denominated in US$ whichprovides a partial hedge against exchange gains or losses on these assets. However, the Group does not currently actively hedgeagainst the effect of exchange rate differences resulting from the translation of foreign currency earnings but does, where appropriate,seek to hedge significant transaction exposures.

The Group occasionally uses financial derivatives, in particular forward exchange contracts, to manage the financial risks associatedwith the Group’s underlying business activity.

The Group does not undertake any trading activity in financial instruments. Further loan stock was acquired during the year as a resultof the disposal of the vaccines business in 2000.

The disclosures below and overleaf, with the exception of currency exposures, exclude short term debtors and creditors.

(a) Interest rate riskAt fixed Interest At fixed Interestinterest free Total interest free Total

2001 2001 2001 2000 2000 2000Interest rate risk profile of financial liabilities £m £m £m £m £m £m

Sterling 2.8 1.0 3.8 4.4 1.5 5.9US dollar 34.5 3.0 37.5 33.6 – 33.6Swiss francs – 5.8 5.8 – 5.8 5.8

37.3 9.8 47.1 38.0 7.3 45.3

Weighted average Weighted averageWeighted average period for which Weighted average period for which

fixed interest rates rates are fixed fixed interest rates rates are fixed2001 2001 2000 2000

Fixed rate financial liabilities % Months % Months

Sterling 7.2 35 7.9 37US dollars 6.5 24 6.5 36

6.6 25 6.7 36

The interest free liabilities are primarily in relation to deferred consideration on which there is no fixed repayment date.

The financial liabilities of the Group comprised:At 31 Dec 2001 At 31 Dec 2000

£m £m

Borrowings 34.5 33.6Finance leases 2.8 4.4Deferred consideration 5.8 6.5Other creditors 4.0 0.8

47.1 45.3



21. Derivatives and other financial instruments continuedAt fixed At floating Interest

interest rates interest rates free Total2001 2001 2001 2001

Interest rate risk profile of financial assets £m £m £m £m

Sterling 31.0 39.9 – 70.9US dollar – 41.3 9.0 50.3Euro – 9.2 – 9.2Swiss Francs – – – –

At 31 December 2001 31.0 90.4 9.0 130.4

At fixed At floating Interestinterest rates interest rates free Total

2000 2000 2000 2000Interest rate risk profile of financial assets £m £m £m £m

Sterling 28.5 39.6 1.0 69.1US Dollar – 30.3 14.1 44.4Euro – 3.1 – 3.1Swiss Francs – 0.1 – 0.1

At 31 December 2000 28.5 73.1 15.1 116.7

Floating rate financial assets comprise cash deposits on money market call, certificates of deposit and commercial paper. Fixed ratedeposits comprise a £31m (2000: £25m) convertible loan note carrying an interest rate to maturity of 7%. There are no fixed ratecertificates of deposit or commercial paper in place as at 31 December 2001. At 31 December 2000 there were £3.5m of suchdeposits with a weighted average interest rate of 5.95% and which were fixed for a weighted average period of 2 months.

(b) Currency exposuresThe table below shows the Group’s transactional currency exposures that give rise to net currency gains and losses in the profit andloss account. Such exposures comprise the monetary assets and liabilities of the Group that are not denominated in the functionalcurrency of the operating unit involved.

Net monetary assets/(liabilities)

US $ Euro Other Total£m £m £m £m

At 31 December 2001 – 2.9 0.1 3.0

At 31 December 2000 (1.1) 3.4 0.1 2.4

(c) Maturity of financial liabilitiesThe maturity profile of the Group’s financial liabilities as at 31 December 2001 was as follows:

2001 2000£m £m

In one year or less 1.5 2.1In more than one year but not more than two years 35.1 1.0In more than two years but not more than five years 4.7 35.7

41.3 38.8

The above analysis excludes deferred consideration amounting to £5.8m on which there is no fixed repayment date.


(d) Committed borrowing facilitiesThe facilities available as at 31 December 2001 were as follows:

Committed Undrawn£m £m

Revolving credit facility 80.0 80.0$50m senior loan notes 34.5 –Overdraft facility 11.0 11.0

125.5 91.0

Expiring in less than one year 11.0

Expiring in more than one year but less than two years 80.0

(e) Fair value of financial instrumentsBook value Fair value Book value Fair value


Primary financial instruments:Cash and short-term deposits 90.4 90.4 76.6 76.6Convertible loan notes 31.0 31.0 25.0 25.0Investment in Neogenesis 7.0 7.0 – –Other creditors (4.0) (4.0) (0.8) (0.8)Finance leases (2.8) (2.8) (4.4) (4.4)Senior loan notes (34.5) (34.5) (33.6) (33.6)Deferred consideration (5.8) (5.8) (6.5) (6.5)Equity investments 2.0 2.0 15.1 17.3Derivative financial instruments – forward exchange contracts – 1.9 – 1.5

83.3 85.2 71.4 75.1

Market values have been used to determine the fair value of short-term deposits, equity investments and the derivative financialinstruments. The Directors have assessed the fair value of the senior loan notes and convertible loan stock based on (i) the availabilityof alternative finance for the loan notes and (ii) the risk premium attached to the convertible notes. It was determined in both casesthat the book values fairly represented the actual value to the Company as at 31 December 2001. Other amounts are determined tobe equal to their book values.

(f) Gains and losses on hedgesNo financial instruments were held for the purposes of dealing or other financial instrument trading activities.

The unrecognised gains at 31 December 2000 were £1.5m, which were recognised during the year ended 31 December 2001.The unrecognised gains at 31 December 2001 are £1.9m, of which £1.3m are expected to be realised during 2002 and £0.6m in the yearending 31 December 2003.



22. Acquisition of subsidiary undertakings(i) Medeva Fair value adjustmentsOn 26 January 2000, the Group acquired Medeva PLC. Given the size and complexity of the acquisition, the fair values established in2000 were provisional and gave rise to goodwill of £600.2m. The fair values have since been finalised and are presented below.

The assets and liabilities of Medeva acquired as follows:Provisional value Total

2000 Adjustments fair value £m £m £m

Fixed assets – tangible 67.7 2.8 (a) 70.5Stocks 24.1 – 24.1Debtors 71.3 2.1 (b) 73.4Equity investments 15.1 (1.6) (c) 13.5Cash 17.0 – 17.0Creditors (145.2) (1.4) (d) (146.6)Loans and finance leases (108.9) (108.9)Provisions for liabilities (28.9) (5.6) (e) (34.5)Businesses held for resale 70.2 0.8 (f) 71.0

Net assets acquired (17.6) (2.9) (20.5)

Goodwill as originally stated, after impairment (£954.1m less £353.9m) 600.2FRS 19. prior year adjustment (g) 15.3

Original goodwill revised for FRS 19 615.5Adjustments (as above) 2.9

Goodwill – final 618.4

The material adjustments to the provisional fair values of Medeva were determined as follows:

(a) During the year, the Group sold part of its French and Belgian businesses, realising a profit of £2.8m. On acquisition of Medevathe fair value of these operations had been assumed to be equivalent to book value.

(b) Additional tax refunds of £2.1m, over and above those that been assumed were received during 2001.

(c) As part of the Medeva acquisition, the Group inherited certain equity investments which had been purchased by Medeva as partof its research and development relationships. Due to the size of the holdings and the nature of the underlying relationships it hastaken Celltech some time to dispose of these investments. The profits made on disposals during the year along with a writedownrequired of the remaining holdings as at 31 December 2001 has been taken to goodwill. In total a net loss of £1.6m has beenadjusted.

(d) Adjustment to reflect non-recoverable debtors and other additional liabilities of the Medeva Group.

(e) This reflects the provision that has been determined to be required for additional onerous commercial contracts of the MedevaGroup, now identified, that were existing at the time of the transaction.

(f) This reflects the final determination of the value of the businesses held for disposal in 2000.

(g) This relates to the adjustment required on the adoption of FRS 19 as discussed in note 8.

(ii) ThiemannOn 1 October 2001, the Group acquired effective control of Thiemann SA, the parent company of Thiemann Arzneimittel GmbH & CoKG (‘Thiemann’).

The total cost of the acquisition was DM89.8m (£28.8m) and in addition Celltech inherited a loan of DM16.9m that was immediatelyrepaid on acquisition, and cash of DM9.6m. The total net cash outflow was thus DM97.1m (£31.2m).

Goodwill of £32.6m has been capitalised and is being amortised over 7 years which is based on the directors’ estimate of usefuleconomic life.


The assets and liabilities of Thiemann acquired were as follows: Total

Book value Fair value fair value£m £m £m

Fixed assets – tangible (a) 1.4 – 1.4

– intangible (b) 11.2 (11.2) –Stocks (c) 2.2 (0.4) 1.8Debtors (d) 1.8 (0.5) 1.3Cash 3.0 – 3.0Creditors (1.6) (0.2) (1.8)Provisions for liabilities (e) (0.8) (2.9) (3.7)Loans (5.4) – (5.4)

Net liabilities acquired 11.8 (15.2) (3.4)Total consideration 28.8Costs of acquisition 0.4

Goodwill 32.6

The provisional fair value adjustments to the net assets of Thiemann were determined as follows:

(a) Tangible fixed asset fair values have been based on current market price where these were available. As at the date of thesefinancial statements property valuations had not been finalised.

(b) Intangible assets consisted of capitalised goodwill from prior Thiemann transactions. This has been subsumed into the overallgoodwill on acquisition.

(c) Stocks have been valued at the lower of replacement cost and net realisable value. Consequently promotional stocks held byThiemann have been written off.

(d) Net pension assets have been reduced by an actuarial valuation conducted as at 31 December 2001.

(e) The adjustment consists of two components:£m

Provision for onerous contracts 0.9Deferred taxation 2.0

2.9

The turnover and operating profits of the business, before restructuring and goodwill items, consolidated by the Group for the periodsince acquisition are £6.6m and £1.0m respectively.

23. Businesses held for resaleDuring the first quarter of 2001 the Group completed the process of disposing of the businesses it had identified for resale with theacquisition of Medeva.

The total receipts in 2001 from these disposals (primarily Armstrong) was £15.3m, compared with the £15.2m which was anticipated.After taking into account amounts still receivable and final disposal costs a final adjustment of £0.8m has been made to goodwill (seenote 22(i)-f).

The total turnover not consolidated, under FRS 2, in these statements as it relates to businesses identified for disposal was £4.1m(2000: £54.8m). The operating loss excluded is £0.1m (2000: £1.1m).

24. European asset salesOn 31 March 2001 the Group disposed of its Belgian Fine Chemicals business for £2.4m; the assets disposed of were also £2.4m,resulting in neither a gain nor a loss on disposal.

On 1 January 2001 the Group disposed of its rights to various French ‘over the counter’ products. The receipts were £3.0m aftertaking account of expenses the Group achieved a profit of £2.8m on this disposal which has been booked to goodwill (see note 22(i)-a).



25. Shareholders’ fundsCalled up Share Profit

share premium Other and losscapital account reserves account Total

Group £m £m £m £m £m

At 31 December 2000, as previously stated 140.4 77.2 621.0 (174.2) 664.4Prior year adjustment – – – 5.0 5.0

At beginning of year as restated 140.4 77.2 621.0 (169.2) 669.4Proceeds of exercise of Celltech share options 0.6 4.4 – – 5.0Exchange differences on retranslation of net assets

of subsidiary undertaking – – – 0.3 0.3Accrual for unpaid preference share dividends

transferred to other reserves – – 0.2 (0.2) –Net transfer to profit and loss account – – – (55.5) (55.5)

At 31 December 2001 141.0 81.6 621.2 (224.6) 619.2

Other reserves arise from the reorganisation of the Group structure on 1 October 1997, the accrual for unpaid preference sharedividends and the acquisitions of Darwin Molecular Corporation, Medeva and Cistron together with merger adjustments in relation to the merger of Celltech and Chiroscience, and the reserve transfer on the disposal of ChiroTech.

The cumulative goodwill written off directly to reserves was £60.5m (2000: £60.5m).

Called up Share Profitshare premium Other and loss 2000

capital account reserves account TotalCompany £m £m £m £m £m

At 31 December 2000 140.4 77.2 2.0 73.9 293.5Proceeds of exercise of share options 0.6 4.4 – – 5.0Accrual for unpaid preference share dividends transferred to other

reserves – – 0.2 (0.2) –Net transfer from profit and loss account – – – 7.7 7.7

At 31 December 2001 141.0 81.6 2.2 81.4 306.2

An accrual has been made for dividends not paid on convertible preference shares. Preference share dividends become payable in cashonly if and to the extent the consolidated balance sheet of Celltech Group plc shows positive distributable reserves.

The accrual of £2.1m is held in other reserves since it is likely that the dividends will be discharged at the time of conversion of thepreference shares by the issue of additional ordinary shares.


Analysis of shareholders’ fundsGroup Company


Equity interests 613.6 664.0 300.6 288.1Non equity interests 5.6 5.4 5.6 5.4

Shareholders’ funds 619.2 669.4 306.2 293.5

Non equity interests comprise 6.9% convertible redeemable preference shares and accrued unpaid preference share dividends.

Analysis of share capital31 Dec 2001 31 Dec 2000

Authorised Number Number

Ordinary shares of 50p each 373,064,416 373,064,4166.9% convertible redeemable cumulative preference shares of £1 each 3,467,790 3,467,790

31 Dec 2001 31 Dec 2000 31 Dec 2001 31 Dec 2000Allotted, called up and fully paid Number Number £m £m

Ordinary shares of 50p each 274,967,263 273,845,647 137.5 137.06.9% convertible redeemable cumulative preference shares of £1 each 3,467,790 3,467,790 3.4 3.4

140.9 140.4

The preference shares have a term of 10 years, and can be converted to ordinary shares at a price of £3 per ordinary share at any timeuntil 31 March 2003.

During the period 1,121,566 ordinary shares with a nominal value of £0.6m were issued fully paid upon the exercise of share options.The cash consideration received amounted to £5.0m and resulted in an increase in the share premium account of £4.4m.

Share options outstanding to employees of the Group as at 31 December 2001 are as follows:

Celltech Executive Share Option Schemes 1,657 employees hold options (including unapproved options) to subscribe for up to 6,889,475 shares at prices ranging between 128pand 1295p per share exercisable between 2002 and 2011. This includes both Chiroscience and Medeva originating Executive options.Included in this figure are 57,298 options held under the Chiroscience ESOP Trust.

Celltech Savings Related Share Option Schemes (includes Celltech, Chiroscience and Medeva originating schemes)563 employees hold options to subscribe for up to 678,253 ordinary shares at prices between 238p and 948p per share exercisablebetween 2002 and 2008.

Deferred Bonus Plan12 employees hold options to subscribe for up to 60,946 shares. The shares are held under the Celltech Group plc Employee Share Trust.



26. Capital commitments31 Dec 2001 31 Dec 2000

£m £m

Contracted 1.8 1.2

27. Pension arrangementsThe Group operates a number of pension schemes, the majority being defined benefit arrangements. Details of the Group’s schemesare as follows:

(i) Pension schemesThe charge for the year comprises:

31 Dec 2001 31 Dec 2000£m £m

Celltech pension and life assurance scheme 1.3 1.0Medeva UK pension plan 0.7 0.7Medeva senior executive plan 0.2 0.3US qualified scheme 1.0 0.8US non-qualified scheme 0.5 0.4Thiemann plan 0.1 –Defined contribution schemes (US and UK) 1.8 1.7

5.6 4.9

The defined contribution schemes relate primarily to the Celltech Group Personal Pension Plan (CGPPP) and US 401K plans. The CGPPPwas introduced as of 1 January 2000 for all new UK employees of the Group. The Celltech Pension and Life Assurance Scheme, theMedeva UK Pension Plan and the Medeva Senior Executive Plan are all closed to automatic new membership, although membership tothe Celltech defined benefit scheme may on certain rare occasions be authorised by the Group, if approved by the Trustees of thefund.

Under the CGPPP the Group contributes 8% of salary to individual plans for employees.

The contributions outstanding at the end of the financial year in respect of the Group’s UK pension schemes was £0.2m. These werepaid in accordance with trust rules during January 2002.

Details of the Group’s defined benefit schemes are set out below:

UK SchemesThe last full actuarial valuation of the UK schemes, for SSAP 24 purposes, was as set out below:

Celltech Pension and Life Assurance Scheme (‘CPLA’) 30 September 1999Medeva UK Pension Plan (‘MUKP’) 6 April 1999Medeva Senior Executive Pension Plan (‘MSEP’) 5 April 2000

The actuarial valuations have been updated for all the schemes to 30 September 2001. Asset values have been further updated to31 December 2001. The main financial assumptions used in these updates were as follows:

%

Inflation assumption 2.5Rate of increase in salaries 4.0Rate of increase of pensions in payment 2.5Discount rate 6.25

The assets and liabilities of the schemes was as follows:

CPLA MUKP MSEP Total

Assets 15.6 19.4 5.1 40.1Liabilities (15.5) (19.2) (5.2) (39.9)

Surplus/(deficit) in scheme 0.1 0.2 (0.1) 0.2


The Group’s UK Pension Schemes are thus funded at 101% of the liabilities.

Market value was used to assess the value of the schemes assets and the attained age methodology to obtain the actuarial valuationfor liabilities. The attained age methodology is the most appropriate in the circumstances of these schemes which have been closed tonew membership.

The Group’s UK defined benefit schemes have been funded in accordance with actuarial advice in all periods and consequently there isno material surplus or deficit between the pension cost and the amounts actually paid into the plans.

On the basis of the actuarial reviews the Group expects that the future service contribution rates will be 16% for the CPLA, 13% forthe MUKP and 39.2% for the MSEP. Pension costs are not expected to increase significantly as a result of the revised fundingrequirements. The surplus/(deficit) in the schemes has been spread as a percentage of payroll over the future working lifetime of theactive membership. The variation from the regular pension cost arising under SAAP 24 is not significant for the Group’s UK schemesand has therefore not been separately disclosed.

The UK defined benefit plans are managed and funded in accordance with actuarial advice, on a SSAP 24 basis, which is regularlyreceived and for which the most recent results and conclusions are presented above.

US Qualified SchemeThe most recent valuation of the plan under US accounting standards was carried out on 31 December 2001. At the valuation datethe market value of the assets of the plan was £8.5m and the liabilities were £12.6m. Thus the assets of the plan represented 67.5%of the value of the benefits that had accrued to members after allowing for expected future increases in earnings.

On the basis of the above valuation and the December 2000 valuation, contribution rates have been agreed with the schemes actuaryand are funded at the maximum levels permissible whilst still retaining tax allowable status.

The funding of the US plan in respect of the year that has just ended is typically not paid to the trust until several months after theyear end, which is in accordance with US regulations on this matter. The anticipated funding for 2001 is $1.7m (£1.2m) which wouldreduce the underfunding reported above.

The projected unit method was used to derive the valuation above and the key actuarial assumptions are identical to those set out in(ii) below.

US Unqualified SchemeThe most recent valuation of the plan under US accounting standards was carried out on 31 December 2001. The liabilities of thescheme at this date were £3.1m, the plan is unfunded. However, the Group is carrying a liability in creditors of £3.0m against thisobligation and also holds a ‘Rabbi’ trust account of £2.5m for this liability (see (ii) below).

The projected unit method was used to derive the valuation above and the key actuarial assumptions are indentical to those set out in(ii) below.

Thiemann PlanOn 1 October 2001 the Group acquired Thiemann in Germany. The most recent valuation of the plan was carried out as at31 December 2001. At the valuation date the market value of the assets of the plan was £5.1m and the liabilities were £4.7m. Thusthe assets of the plan represented 109% of the value of the benefits that had accrued to members after allowing for expected futureincreases in earnings.



27. Pension arrangements continuedThe key actuarial assumptions that were used are as set out in (ii) below.

(ii) FRS 17 disclosuresAs explained in note 1 ‘New Accounting Standards’ the Group has adopted FRS 17 to the extent of the mandated disclosurerequirements for the year ended 31 December 2001. FRS 17 is more prescriptive than SSAP 24 in the assumptions and methodologythat must be used in order to assess actuarial liabilities. In particular FRS 17 prescribes the use of the projected unit method ofvaluation and a discount rate obtained from corporate bonds rather than equities. The results of the FRS 17 review are presentedbelow.

Qualified independent actuaries updated the actuarial valuations of the major defined benefit schemes operated by the Group to31 December 2001. The main financial assumptions used in this update were as follows:

UK US Germany

Inflation assumption 2.6% 3.0% 2.0%Rate of increase in salaries 4.1% 5.0% 3.0%Rate of increase of pensions in payment 2.0 – 2.6% – 2.0%Discount rate 5.9% 7.0% 6.0%

The assets and liabilities of the major defined benefit schemes operated by the Group at 31 December 2001 are as follows:

UK US Germany Total£m £m £m £m

Equities 38.5 5.7 – 44.2Bonds 1.6 2.8 5.1 9.5‘Rabbi’ trust account – 2.5 – 2.5

Total fair value of assets 40.1 11.0 5.1 56.2Present value of scheme liabilities (48.0) (15.7) (4.7) (68.4)

(Deficit)/surplus in the scheme (7.9) (4.7) 0.4 (12.2)

The scheme deficits shown above are before taking account of creditors and provisions of £1.0m (UK), £3.0m (US) and an asset of£0.4m (Germany) which are already included in the accounts in accordance with SSAP 24 with respect to these schemes.

The ‘Rabbi’ trust account is held in the Group’s own name and is shown within other debtors in note 15. This account can only beused by the Group to pay the pension liabilities of the US Unqualified Scheme, except in the case of bankruptcy when it wouldbecome part of the general pool of assets and pensioners would rank as ordinary creditors.


28. Contingent liabilities (a) The Group has an unsecured and undrawn overdraft facilities of £11m net. The Company has provided guarantees to finance

companies in respect of finance leases to Celltech Chiroscience Limited not exceeding £2,782,062 (2000: £2,980,424) of which£1,781,411 (2000: £2,162,745) has been utilised.

(b) The principal litigations in which the Group has been involved in 2001 are discussed below. In common with most tradingcompanies, Celltech and various of its subsidiary undertakings are the subject of a number of legal claims or potential claimsagainst the Group, the outcome of which cannot at present be determined. Provision has been made in these accounts for allliabilities, which might be reasonably expected to materialise from these claims.

Litigation relating to 69kD: Celltech is the owner of patents for 69kD, the Bordetella pertussis protein also know as pertactin.Celltech has granted GlaxoSmithKline an exclusive worldwide license to use the patents. Under the terms of the license, Celltechhas the first option to take proceedings to enforce the patents. Litigation has arisen in Europe and Canada involving Celltech’spatents and acellular pertussis vaccines owned by Chiron and its subsidiaries and Aventis Pasteur (formerly ConnaughtLaboratories Ltd).

Europe: On 23 July, 1998, Celltech issued infringement proceedings against Chiron SpA (and a local chemist shop) in Milan, Italyfor infringement of one of Celltech’s patents relating to the 69kD antigen and seeking an injunction to prevent Chiron frommarketing its product. Chiron is defending that action, and has counterclaimed for a declaration of invalidity of the patent. Courtexperts have been appointed, but the date when their report will be provided is not known. This patent is also subject toopposition proceedings in the European Patent Office brought by Aventis Pasteur on 8 October, 1997 and Chiron on 22 January,1997. The European Patent Office has determined in a decision issued in November 2000 that the patent should be revoked. Thisdecision of the EPO is the subject of an appeal by Celltech.

Canada: On 3 July, 1996, Aventis Pasteur filed proceedings seeking a declaration of non-infringement by its acellular pertussisvaccines of Celltech’s Canadian patent number 1,253,073, the Canadian patent covering the 69kD antigen, and a declaration ofinvalidity of Celltech’s Canadian 69kD patent in the Canadian Federal Court in Toronto. Celltech has counterclaimed forinfringement. Both the original proceedings and the counterclaim have been withdrawn following the agreement byGlaxoSmithKline to grant Aventis a worldwide sub-licence to the 69kD patents.

Ionamin: In July 1997 significant health concerns were raised over the use of the so-called ‘fen-phen diet’ (co-prescription offenfluramine and phentermine). These concerns resulted in the voluntary withdrawal from the market of fenfluramine and arelated drug dexfenfluaramine in September 1997. These withdrawals were followed by the commencement of a significantnumber of lawsuits in the US against manufacturers and prescribers of fenfluramine, dexfenfluramine and phentermine. The mostcommon allegation is that the ‘fen-phen diet’ caused heart valve problems, neurological dysfunction and, much less frequently,primary pulmonary hypertension, a rare, frequently fatal disease of the lungs. Celltech has been named in approximately 5,900 ofthese cases, approximately 3,000 of which were pending as at 31 December 2001. The Group’s involvement derives from the saleby a Celltech subsidiary, since 2 July 1996, of lonamin, the phentermine prescription pharmaceutical acquired from FisonsCorporation (‘Fisons’) on that date. At 12 March 2002 the Group had been dismissed from approximately 2,750 of these caseswithout payment of any sums by way of damages or costs to third parties, and dismissals of more than 2,500 additional cases,also without payment, were filed but were not yet effective.

Celltech denies liability on a number of grounds, including fundamentally that Ionamin does not cause the health conditionscomplained of. Ionamin has been marketed since 1959 and the FDA did not request that Ionamin or any other phentermine bewithdrawn from the market. Moreover, Celltech believes it will be indemnified for any unanticipated liability by Fisons (forIonamin sold prior to 2 July 1996) and by Celltech’s product liability insurance carriers (for Ionamin sold after 2 July 1996).Celltech’s defence costs are being paid by Fisons and its insurance carriers as required by their contractual indemnities. Fisons’indemnity obligations are guaranteed by Rhone Poulenc Rorer Inc, now part of Aventis Pharmaceuticals.

Based on the merits of its defences and based on the third party insurance coverage benefiting Celltech discussed above, Celltechbelieves that the ultimate outcome of this litigation will not have a material adverse effect on its financial position and results ofthe operations. However, if the Company were ultimately held liable in these lawsuits and the indemnities and insurancediscussed above were not available or were inadequate, the ultimate liability could have a material adverse effect (a reasonableestimate of which cannot be made at this time) on the financial position and results of operations of the Company.



28. Contingent liabilities continued(c) Self insurance

Since 20 September 2001 the Group has been required to increase its levels of self insurance in respect of methylphenidate.Accordingly the Group has decided to retain a level of self insurance of up to £10m, to establish its own captive insurer and toenter into alternative financing arrangements in respect of an additional £40m.

No methylphenidate claims have been received since 20 September 2001.

29. Consolidated cash flow statements

Reconciliation of operating loss to net cash outflow from operating activities 12 months to 12 months to

31 Dec 2001 31 Dec 2000£m £m

Operating loss (56.2) (427.2)Restructuring 7.8 19.2

Operating loss before restructuring costs (48.4) (408.0)Depreciation 12.6 11.2Goodwill impairment – 353.9 Goodwill amortisation 92.6 78.7Increase in stocks (5.5) (7.5) (Increase)/Decrease in debtors (26.2) 12.1Increase/(Decrease) in creditors 20.5 (15.5)

Net cash inflow from operating activities before restructuring costs 45.6 24.9Outflow relating to restructuring costs (6.9) (12.4)

Net cash inflow from operating activities 38.7 12.5

Analysis of net funds At Exchange At

1 Jan 2001 Acquisition Disposal Cash flow Movements 31 Dec 2001£m £m £m £m £m £m

Cash 29.5 – – 5.4 1.4 36.3Liquid resources 47.1 – – 7.0 – 54.1Finance leases (4.4) – 0.3 1.3 – (2.8)

Loans (33.6) (5.4) – 5.4 (0.9) (34.5)

Net funds 38.6 (5.4) 0.3 19.1 0.5 53.1


On 15 June 1999 Celltech and Chiroscience announced plans for the merger of their respective businesses. The merger took effect on3 August 1999. On 26 January 2000, the Celltech Group acquired Medeva PLC. Due to the significant impact to the financial positionof the Celltech Group caused by these two transactions the Directors believe that shareholders would benefit from certain additionalpro-forma financial information.

Presented below is a three year summary of the Celltech Group, on a pro-forma basis as if the Chiroscience and Medeva businesseshad been part of the Celltech Group for the entire period.

Total continuing operations

Twelve months Twelve months Twelve months31 Dec 2001 31 Dec 2000 31 Dec 1999

Turnover 303.1 250.2 243.4Cost of sales (83.5) (74.1) (72.5)

Gross profit 219.6 176.1 170.9

Investment in research and development (90.7) (78.5) (80.9)Selling, marketing and distribution expenses (78.6) (52.0) (57.1)Corporate and general administrative expenses (24.9) (26.7) (33.4)

Operating profit/(loss) before other income 25.4 18.9 (0.5)Other income 18.8 4.6 20.2Operating profit 44.2 23.5 19.7Interest 3.6 1.6 (0.1)

Profit before tax 47.8 25.1 19.6

Basis of preparation1. The results are presented before goodwill and restructuring.2. The 2000 and 1999 results are presented at historic exchange rates.3. The results of businesses held for immediate disposal on the acquisition of the Medeva Group are excluded (note 23).4. The 2001 figures are extracted, without adjustment, from the audited profit and loss account, before goodwill and restructuring

charges, for the current year. The 2000 and 1999 comparative figures are extracted, without adjustment, from the audited pro-forma note presented last year.

Pro-forma Condensed Combined Profit and Loss Accounts


Differences between United Kingdom and United States generallyaccepted accounting principles

The Group’s consolidated financial statements have been prepared in accordance with UK GAAP which differs in certain significantrespects from US GAAP. The effects of the application of US GAAP to net loss and equity are set out in the tables below:

(i) Profit and loss accountAdjustments between loss for the period under UK GAAP and net loss under US GAAP are as follows:

12 months ended 12 months endedNotes 31 Dec 2001 31 Dec 2000

Loss for the period under UK GAAP (55.5) (424.5)

US GAAP adjustments:Medeva impairment – 353.9Medeva goodwill adjustment a (1.4) –Amortisation of goodwill and other intangibles b (14.6) (18.4)Write off of in-process research and development costs – (39.4)Provision for reorganisation and integration costs – 8.5Inventory adjustment c (0.8) (24.2)Pension costs 0.8 0.2Stock-based compensation d 2.1 (28.3)Unrealised gains on derivative financial instruments e 0.4 –Deferred taxation f (5.2) (5.0)Net loss before cumulative effect of change in accounting policy (74.2) (177.2)Cumulative effect of change in accounting policy due to adoption of SFAS 133 e 1.5 –

Net loss as adjusted to accord with US GAAP (72.7) (177.2)

(ii) Shareholders’ equityAdjustments between shareholders’ equity under UK GAAP and US GAAP are as follows:

12 months ended 12 months endedNotes 31 Dec 2001 31 Dec 2000

Shareholders’ equity under UK GAAP 619.2 669.4

US GAAP adjustments:Goodwill and intangibles b 148.3 158.8Equity investments – 2.2Pensions 2.1 1.3Unrealised gains on derivative financial instruments e 1.9 –Employee Share Ownership Plan g (0.3) (0.3)Deferred taxation f 5.1 10.3

Shareholders’ equity as adjusted to accord with US GAAP 776.3 841.7


Notes

(a) Medeva goodwill adjustments

Under US GAAP the time frame allowed to make adjustments to goodwill is one year from the date of acquisition, except for adjustments in respect of taxation when an

indefinite period is available. Under UK GAAP the time frame available extends to the first full reporting period after the reporting period in which the acquisition was made.

Thus a longer period to make goodwill adjustments is generally available under UK GAAP. Consequently the goodwill adjustments identified in note 22 (i) to the accounts, with

the exception of taxation, are booked to the US profit and loss account.

(b) Amortisation of goodwill and other intangibles

Under US GAAP the merger between Celltech and Chiroscience failed to qualify as a pooling of interest and therefore additional goodwill and intangible assets were

established on the US balance sheet. In addition the treatment of certain aspects of acquisitions differs between US and UK GAAP leading to different fair value adjustments

and therefore goodwill, particularly in relation to provisions, inventory and in-process research and development.

(c) Inventory adjustments

The 2001 adjustment relates to the Thiemann acquisition and the 2000 adjustment to the Medeva acquisition. Under UK GAAP acquired inventory is recognised at replacement

cost. Under US GAAP inventory is recognised at selling price less an allowance for selling costs. There is no impact on shareholders’ equity at the end of the year.

(d) Stock Based compensation

Under UK GAAP, no compensation expense is recorded in connection with the issue of share options to Group employees at market value. Under US GAAP, APB 25, an annual

compensation expense is imputed for variable stock option plans based on the excess of the then prevailing market price over grant price.

(e) Unrealised gains on derivative financial instruments

As described in note 1 to the accounts ‘Financial Instruments’ the Group uses forward exchange contracts to match against forecast receipts and payments in foreign currency.

As the contracts are not matched to specific receivables or payables the gain or loss arising on the hedges are not recognised until such time as they are realised under UK

GAAP. SFAS 133 determines that under such circumstances recognition should be made of the gain or loss that has arisen in the profit and loss account.

The Group adopted SFAS 133 in the current year and accordingly the adjustment recognised in the current year takes into account the cumulative effect of this change in

accounting policy.

(f) Deferred taxation

The Group adopted FRS 19 in the current year resulting in prior year adjustments to goodwill and deferred taxation under UK GAAP. Under US GAAP deferred tax liabilities are

not established on differences between the book value and tax value of goodwill at the date it is acquired.

(g) Employee Share Ownership Plan (‘ESOP’)

Under UK GAAP own shares held by the ESOP are recorded as fixed asset investments at cost. Under US GAAP those shares not fully vested are regarded as treasury stock and

recorded at cost as a deduction from shareholders’ equity.


Shareholder Informationas at 31 December 2001

The shareview portfolio service from Lloyds TSB Registrars provides information on your investments including balance movements andindicative share prices.

The portfolio service is:

Easy to use – You just need your User ID and PIN to logon. Information about your shareholdings is displayed clearly and convenientlyand is updated regularly from our records. Registration takes only a few minutes.

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For more details on this and practical help on transferring shares or updating your details, visit www.shareview.co.uk.

Analysis of share register at 31 December 2001Number of Percentage of Number of

Shareholding range holders total holders shares

1 – 1,000 19,839 80.04 7,016,6481,001 – 5,000 3,658 14.76 7,268,5165,001 – 25,000 651 2.63 7,354,68925,001 – 100,000 321 1.30 16,852,713100,001 – 500,000 211 0.85 46,607,933500,001 – 1,000,000 46 0.19 30,276,9091,000,001 and over 58 0.23 159,589,855

100.00

Company Information

Celltech Group plc208 Bath RoadSloughBerkshire SL1 3WEUnited KingdomTelephone: 01753 534655Facsimile: 01753 536632Internet: www.celltechgroup.com

Registered number: 2159282

Celltech’s shares are listed on the London Stock Exchange under the symbol ‘CCH’, and, in the form of ADS’s, on the New YorkStock Exchange under the symbol ‘CLL’. There are two ordinary shares to one ADS.

Company advisersAuditor: KPMG Audit PlcCorporate Relations: BrunswickInvestment Bankers: J P MorganSolicitors: Allen & OveryStockbrokers: Cazenove

RegistrarsLloyds TSB Registrars The CausewayWorthingWest Sussex BN99 6DATel: 01903 502541

AnnouncementsHalf-year results:September 2002Preliminary announcement of full year results:March 2003

Financial calendarAnnual General Meeting to be held at: Merchant Taylors’ Hall 30 Threadneedle StreetLondonOn Thursday 23 May 2002 at 11.30 a.m.

highlights - ucb...highlights > 2001 results* • product sales and royalties – £303.1m (+21%)...

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