Sir William Castell
Chief Executive

2002 was a watershed year for Amersham. We achieved our goal of becoming one company focused on enabling molecular medicine. The process of transformation began in 1997, when we merged Amersham’s businesses with Nycomed, now Amersham Health, and Pharmacia Biotech, now Amersham Biosciences. This gave us the global franchise and breadth of skills in medical diagnostics and life sciences that are critical for delivering our strategy in molecular medicine – skills that we have since built on and strengthened in two fully-fledged, profitable businesses. Our purchase of the remaining equity in Amersham Biosciences in March 2002 completed the merger process. We now have full ownership of our three main business areas in medical diagnostics, protein separations and discovery systems. This enables us to draw on the total skills base in molecular medicine across the company to drive towards our long-term vision of enabling personalised medicine.

Our newly formed Portfolio Committee plays an important role in enabling innovation across the company. Composed of colleagues at the most senior level in the company as well as distinguished external scientists, the Portfolio Committee oversees the direction of science in Amersham and approves the investment in research, ensuring that we stay on track both commercially and strategically as we go forward.

Amersham’s business maintained the good momentum we have seen in previous years. Our turnover, at constant exchange rates, grew seven per cent, with sales in Amersham Health up by eight per cent to £948 million and Amersham Biosciences sales up six per cent to £670 million. Trading profit increased by seven per cent to £494 million. After an investment in R&D of £184 million, corresponding to approximately 11 per cent of total sales, we had an operating profit, before exceptional items and goodwill amortisation, of £310 million, up seven per cent at constant exchange rates.

We continue to drive our businesses for profits and cash, and we saw strong performance in 2002 in medical diagnostics, with over 20 per cent growth in sales of our patented diagnostic products, and in protein separations, driven by excellent growth in bioprocess systems for the manufacture of biopharmaceutical. Each of these business areas has a global market share of 35 to 40 per cent¹ in growing markets, and they consistently deliver good sales and profits.

Our discovery systems business area is fundamental to our focus on molecular medicine, as it develops the innovative technologies that will feed future advances in life sciences and medical diagnostics. We intend for this business area to contribute to profits as well as innovation. In 2002, discovery systems’ financial performance did not improve as rapidly as we would like, due to market developments in the life science market, and a restructuring programme has been put in place to accelerate its move into profitability during 2004. The R&D portfolio will be refocused on a smaller number of high-value products and systems and we will drive cost efficiencies by reducing the number of employees and consolidating activities on fewer sites. Amersham will incur one-off costs in the range of £45-50 million, which are expected to result in savings running at the rate of £30-35 million per annum by the end of 2004.

We continue to invest in our businesses to expand capacity and support growth. In medical diagnostics, we expanded manufacturing capacity at several sites in 2002, increasing manufacturing efficiencies and enabling us to meet the growing demand for our diagnostic products. A new £47 million expansion of the Lindesnes (Norway) contrast media plant has been approved, to be completed in 2005. Protein separations also benefited from capacity expansion in 2002 and further investments are planned in 2003. Acquisitions in Amersham Biosciences during the year included a controlling stake in Cimarron in informatics, two filtration companies which added membrane separation to our bioprocess product offering in protein separations, and the CodeLink™ pre-arrayed slides business, which in addition to its use in gene expression has significant further potential for leverage into proteomics and diagnostics.

Amersham Health is a global leader in medical diagnostics and our four leading brands – Omnipaque™, Visipaque™, Omniscan™ and Myoview™ – account for 65 per cent of sales. Our patented portfolio of medical diagnostic products grew sales by 22 per cent in 2002, surpassing sales of our unpatented products, for the first time, in the second half of the year. Amersham Health’s operating profit was up nine per cent to £256 million, growing at a faster rate than sales, and operating margins improved over those of 2001, driven by product mix and manufacturing efficiencies.

New studies are supporting or extending the clinical usefulness of our top three patented medical diagnostic products. In cardiac angiography, Visipaque has been shown to have a significantly improved renal safety profile compared to other X-ray products. Our heart diagnostic, Myoview, is now approved for use in breast tumour imaging, and our magnetic resonance agent, Omniscan, is being developed for the diagnosis of cardiovascular disease. In addition to life cycle projects, Amersham Health has implemented changes in its R&D organisation to improve productivity and significantly reduce the time to market for projects in the pipeline. This has also involved reallocating resources to projects with the greatest commercial opportunities.

Our research in medical diagnostics is focused on the development of molecular diagnostics, targeted towards major diseases such as cancer, Alzheimer’s disease and heart disease. These new molecular diagnostics will improve the way medicine is delivered in the future and our company is among the leaders, working not only in our own research laboratories but also, through our Imanet™ network of imaging research centres, in collaboration with pharmaceutical companies such as Pfizer. Eventually, as we learn more about genetic variation, we will have diagnostics that can identify individuals at high risk for development of particular diseases or side-effects of given drugs. Further we can monitor the expression of genes and proteins within cells. Together this will allow physicians to segment patient populations according to their genetic makeup, leading to tailored prevention and therapies.

Our protein separations business area grew sales by 15 per cent in 2002, accelerating throughout the year as new production plants for manufacturing biopharmaceuticals were brought on stream and new drugs entered clinical trials. There are over 100 biopharmaceuticals on the market and our bioprocess instruments and media are used in the manufacture of over 90 per cent of these products. In addition, two new areas contributed to the progress, the rapid growth in development of DNA medicines and sales of our membrane separation systems. The operating profit was £107 million, up from £96 million in 2001. To increase the visibility of this business area, Peter Ehrenheim, President of protein separations, now reports directly to me.

In discovery systems, we have an excellent technology base in genomics, proteomics and bioassays, backed by a growing informatics capability. Genomics moved into profit in 2002, benefiting from restructuring steps taken at the beginning of 2002 and the Applera litigation settlement. Discovery systems experienced a significant decline in instrument sales as a result of reduced capital spending by pharmaceutical companies. Overall, although sales of reagents, consumables and software remained good, sales in discovery systems were down one per cent and this business area had an operating loss of £32 million. Andrew Carr, President of Amersham Biosciences, is focusing on discovery systems and this will strengthen performance management as it moves towards profitability.

In December 2002, Peter Loescher joined the company as President of Amersham Health. Peter, most recently head of Aventis’ business in Japan and with many years of experience in the international pharmaceutical industry, brings additional strength and diversity to our executive management team. He is also an Executive Director on the Board and a member of our Portfolio Committee.

2002 marked the 20th anniversary of Amersham’s privatisation, and it is illuminating to consider just how dramatically our world has changed since 1982. Twenty years ago, Amersham had a turnover of £63 million from its core business in radioactive products. Today, our turnover exceeds £1.6 billion and we are world leaders in medical diagnostics and in life sciences. We played a part in the sequencing of the human genome – a monumental scientific achievement, science fiction 20 years ago. In 1982, there were no biopharmaceutical drugs. No one imagined being able to screen 1,000,000 potential drug compounds a day. Formal confirmation of Parkinson’s disease was only possible at post-mortem, there was no molecular diagnostic to aid in diagnosis. Our innovation has enabled these advances in healthcare and many more.

Innovation, combined with focused management attention on the commercial opportunities in our global marketplace, has enabled us to make good progress in 2002, as the following detailed review of our business shows.

¹Company estimates