UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 20-F

-OR-

-OR-

Commission File Number: 000-30126

ACAMBIS PLC

(Exact name of Registrant as specified in its charter)

Not Applicable
(Translation of Registrant’s name into English)

England and Wales
(Jurisdiction of incorporation or organization)

Peterhouse Technology Park, 100 Fulbourn Road, Cambridge, CB1 9PT England
(Address of principal executive office)

Securities registered or to be registered pursuant to Section 12(b) of the Act: None

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

ORDINARY SHARES OF 10 PENCE EACH

(Title of Class)

Indicate the number of outstanding shares of each of the Registrant’s classes of capital or

common stock as of the close of period covered by this Annual Report –

107,219,329 ordinary shares of 10p each as of December 31, 2004

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

þ Yes                      No o

     Indicate by check mark which financial statement item the Registrant has elected to follow:

þ Item 17                      Item 18 o

TABLE OF CONTENTS

Item 1 Not applicable

Item 2 Not applicable

Item 3 Key Information

A     Selected financial data

Acambis is a UK public limited company with shares listed on the London Stock Exchange and, in the form of American Depositary Receipts (ADRs), on the NASDAQ National Market. This is the Form 20-F for the year ended December 31, 2004. References to the Group and Acambis throughout this document relate to Acambis plc and all of its subsidiary and associated undertakings. References to the Company are to Acambis plc, the ultimate holding company.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Under the safe harbour provisions of the US Private Securities Litigation Reform Act of 1995, the Company cautions investors that any forward-looking statements or projections made in this document are subject to risks and uncertainties that may cause actual results to differ materially from those projected. These forward-looking statements are based on estimates and assumptions made by the management of Acambis and are believed to be reasonable, though are inherently uncertain and difficult to predict. Actual results or experience could differ materially from the forward-looking statements. Factors that may affect the Group’s operations are discussed in the operating and financial review in Item 5, risk factors in Item 3D and the corporate governance statement in Item 6 and in documents as filed with the US Securities and Exchange Commission from time to time.

SELECTED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA)

The following selected financial information for each of the fiscal years in the five-year period ended December 31, 2004 has been derived from Acambis’ audited Group financial statements. The audited financial statements have been prepared in accordance with the Companies Act 1985 and UK GAAP. The Group financial statements for the three-year period ended 31 December 2004 are included elsewhere in this Annual Report.

The results and balance sheet for 2002 and 2003 have been restated to take account of the adoption of Urgent Issues Task Force (UITF) 38 and UITF 17 (revised) in 2004. The results and balance sheets of years prior to 2002 have not been restated for these new standards as the information is not readily available without undue effort and expense.

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The following selected financial information for each of the fiscal years in the five-year period ended December 31, 2004 has been derived from Acambis’ audited Group financial statements. Translation of pounds sterling into US dollars for the year ended 31 December 2004 has been made at the rate of £1.00=$1.9199, based upon the mid-point closing rate at 31 December 2004. This translation is provided solely for the convenience of the reader and does not reflect financial information in accordance with generally accepted accounting principles for foreign currency translations. Such translations should not be construed as representations that the sterling amounts represent, or have been or could be so converted into US dollars at that rate or any other rate. The following information should be read in conjunction with the financial review, the Group financial statements and the notes thereto appearing elsewhere in this document.

     The Group has not paid dividends in any of the years shown above.

Acambis’ business is subject to a number of significant risks, including those described below. These risks are not the only risks that Acambis faces in its business. Additional risks not presently known to Acambis, or that it currently deems to be immaterial, may also affect its business operations, and this section should not be considered an exhaustive statement of all potential risks and uncertainties with respect to Acambis and its business.

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ACAMBIS’ OPERATING RESULTS MAY BE NEGATIVELY AFFECTED BY EXPOSURE TO FOREIGN EXCHANGE AND OTHER ECONOMIC RISK FACTORS

Acambis conducts a substantial part of its business outside the UK and is, therefore, subject to fluctuations in the exchange rate with other currencies, particularly the US dollar. Acambis has no control over changes in inflation or interest rates, foreign currency exchange rates and controls or other economic factors affecting its business or the possibility of political unrest, legal and regulatory changes or nationalisation in jurisdictions in which it operates. These factors could materially affect Acambis’ future results of operations.

THE SAFETY AND EFFICACY OF ACAMBIS’ PRODUCTS DURING DEVELOPMENT MAY BE UNCERTAIN

There may be issues regarding the safety and efficacy of products both when licensed and while in clinical development. Any failure of safety or efficacy could lead to a project’s demise, the recall of a product, or the suspension or withdrawal of a necessary licence. Acambis may not have the ability to take any particular research project through to market due to issues regarding safety and efficacy, the ability to obtain necessary regulatory approvals, difficulty or excessive cost to manufacture, infringement of patents or intellectual property (IP) rights of others, or the lack of sufficient reserves to continue research and development to a satisfactory conclusion. Additionally, the developmental stage of many of Acambis’ products is lengthy and there can be no assurance that the development of certain of its products will be completed in a timely manner or at all.

FAILURE TO PROTECT ITS INTELLECTUAL PROPERTY COULD HARM ACAMBIS’ BUSINESS

There are several issues relating to IP where patent applications may be denied, or issued patents may be challenged or otherwise not provide adequate or any protection for any commercially viable product. Owing to the nature of the field in which Acambis operates, there is a high project and product attrition rate and any product can fail at any stage of the process from initial investigation to final licensure, and products can be withdrawn at any stage even after they are licensed.

LOSS OR DAMAGE TO ACAMBIS’ FACILITIES COULD MATERIALLY ADVERSELY AFFECT ITS FINANCIAL RESULTS

In addition to Acambis’ R&D facility located in the US, Acambis has two manufacturing facilities, both located in the US. The first in Canton, MA comprises bulk/purification capacity and the second in Rockville, MD comprises lyophilisation (freeze drying) and fill and finish operations currently sufficient for clinical trial scale material. As of June 28, 2005 only the Canton facility was fully operational. In the event that these manufacturing facilities were to experience operational or information technology difficulties or if Acambis were to lose these facilities completely, there would likely be a significant impact on its financial results. Acambis’ facilities are at risk of suffering unforeseen events which would be classified as force majeure, eg. fire, flood or weather damage or weather damage, or loss of utilities, any of which could have a material adverse effect on the Group’s financial condition and results of operations.

ETHICAL ISSUES MAY IMPEDE THE DEVELOPMENT OF ACAMBIS’ PRODUCTS

In addition, there are ethical issues associated with operating in the biotechnology sector, particularly regarding the obligatory requirements to precede human clinical trials with other in vivo testing, and ethical issues surrounding the availability and moral obligations in the conduct of clinical trials in humans. The type of trial required is determined in discussion with the regulatory authorities and costs are widely influenced by the outcome of these discussions. This may further affect Acambis’ ability to produce products at a reasonable cost.

IF ACAMBIS IS NOT ABLE TO OBTAIN ADEQUATE FUNDING FOR ITS PRODUCTS AND RESEARCH, THE DEVELOPMENT OF ITS PRODUCTS COULD BE SIGNIFICANTLY IMPEDED

The nature of biotechnology research means that there are high front-end costs associated with products, which may have lead times to market of several years. Acambis may have insufficient funds for its products or operations either through the inability to raise future funds or by finding that fundraising is available only on unattractive or unacceptable terms, for example by shareholder dilution. If additional funds cannot be raised as needed, this may result in the delay, reduction or elimination of some development programmes. In addition, Acambis has undergone, and continues to undergo, rapid change resulting from its transition from being a start-up biotechnology company without a proven product to a profitable trading business. Acambis has a major contract with the US Government relating to manufacture of a smallpox vaccine and continuing the process of taking that investigational product through to licensure. The costs associated with this programme and revenue recognition from it will have a material impact on Acambis’ financial results until and unless the product is approved.

EVEN LICENSED PRODUCTS MAY BE WITHDRAWN FROM THE MARKET

Regulatory authorities have the ability to withdraw licensed products from the market, at any time, on the grounds of safety. In addition, the nature of research and development in the field of vaccines is characterised by a very high failure rate, both in research and development as well as during and after the licensure process.

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THE BIOTECHNOLOGY INDUSTRY IN THE US AND THE UK IS INTENSELY COMPETITIVE AND COMPETITORS MAY HAVE SUPERIOR PRODUCTS AND RESEARCH AND DEVELOPMENT

Acambis’ business may be negatively affected by the intense competition it faces from pharmaceutical and specialist biotechnology companies engaged in the development of vaccines in areas in which Acambis is engaged. Acambis has not yet completed the full clinical development and subsequent registration of any product candidate. Competitors in the biotechnology and pharmaceutical industries may have superior products, manufacturing capabilities or marketing expertise. Many of Acambis’ competitors may have greater financial and human resources and more experience in research and development (R&D). If Acambis fails to obtain adequate IP rights for its product candidates, competitors may be able to take advantage of Acambis’ R&D efforts. Additionally, the biotechnology field is characterised by significant and rapid technological change. Research and discoveries by its competitors may result in medical insights or breakthroughs that render Acambis’ product candidates obsolete before they generate any income.

FORECASTING INACCURACIES COULD DAMAGE GROUP PERFORMANCE

Inaccurate forecasts leading to overestimate of profit, unexpected calls on reserves or significant unexpected increases in working capital requirements may lead to Acambis being unable to trade as a going concern.

ACAMBIS EXPERIENCES SIGNIFICANT COMPETITION FOR QUALIFIED EMPLOYEES WITH INDUSTRY EXPERIENCE

Acambis is based in areas where there is intense competition for hiring and retaining employees with biotechnology experience, which may lead to increased costs or decreased availability of staff. Furthermore, the loss of key employees could weaken Acambis’ scientific expertise and delay the development of products. Acambis is highly dependent on employees who have an in-depth and long-term understanding of its technologies, products, programmes, collaborative relationships and strategic goals. The loss of these employees could have a negative impact on Acambis’ business and prospects.

THE SUCCESS OF SEVERAL OF ACAMBIS’ PRODUCTS IS DEPENDENT UPON THE PERFORMANCE OF THIRD PARTY COLLABORATORS

Acambis has entered into several significant commercial agreements and the success of some of its products is, therefore, highly dependent on collaborators, most notably Baxter. These collaborators have significant discretion over the resources they devote to Acambis products and Acambis cannot guarantee that third parties will devote adequate resources to the collaborations or that those products can be successfully commercialised without those collaborators. Failure of its collaborators to perform adequately under their commercial agreements could materially adversely affect Acambis’ ability to produce certain products and could also materially adversely affect its results of operations.

ACAMBIS IS SUBJECT TO SIGNIFICANT GOVERNMENT REGULATION IN BOTH THE US AND THE UK WHICH IMPOSE SIGNIFICANT ADDITIONAL COSTS AND RESTRICTIONS

All companies working in vaccines for use in humans are subject to a severe regulatory environment. Regulations enforced by government agencies could impose significant costs and restrictions on the development, testing, approval and manufacturing of pharmaceutical products for human use. Lost market opportunities may result from delays and uncertainties in the approval process of the US Food and Drug Administration (FDA), the European Medicines Agency (EMA) and comparable agencies in other foreign countries. In some countries, including the US and those of the European Union, regulatory controls have become increasingly demanding, increasing not only the cost of product development but also the time required to reach the market and the uncertainty of successfully doing so. The type, duration and cost of clinical trials are determined by external regulatory authorities. Acambis has no control over these factors. Acambis expects that this trend will continue and will expand to other countries. Acambis has no track record of having achieved registration of any product, although expertise does exist within the Group.

THE SUCCESS OF ACAMBIS’ PRODUCTS IS DEPENDENT UPON THEIR ACCEPTANCE IN THE MARKET

With regard to products, Acambis may face patient inertia and reluctance to change from branded products already on the market. Vaccines in general have become the subject of heightened consumer scrutiny, which may impede the success of Acambis’ vaccine products. Vaccine products generate the bulk of Acambis’ revenue and Acambis expects them to continue to play a dominant role in Acambis’ business in the future. Product success will depend on Acambis being able to produce the product at a reasonable cost and to convince doctors to prescribe the product, patients accepting the product and the product being more effective than its competitors. Acambis must also balance its product portfolio to meet market demands, which are constantly shifting. Where the purchaser is not a private individual, third-party reimbursement and healthcare cost containment may operate to constrain healthcare budgets and, therefore, the price of the product. A significant proportion of future revenue may depend on payments by third-party payers, including government health administration authorities and private health insurers. Acambis may not be able to sell its products profitably if reimbursement is unavailable or limited.

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ACAMBIS’ LISTING ON BOTH THE UK (LSE) AND US (NASDAQ) MARKETS IS LIKELY TO GENERATE INCREASE COMPLIANCE COSTS AND RISKS.

Dual listing generates significant additional costs and regulatory requirements. In some cases, the listing requirements and regulations in one of Acambis’ markets differ substantially from those in the other, leading to additional compliance costs. It is also possible that new regulatory initiatives in one of Acambis’ markets will create additional compliance costs.

ACAMBIS MAY NOT BE ABLE TO OBTAIN ADEQUATE INSURANCE COVERAGE AGAINST PRODUCT LIABILITY OR OTHER CLAIMS

Legal factors, including product liability claims, environmental concerns and patent disputes with competitors, could preclude commercialisation of products or negatively affect the profitability of such products, or give rise to liabilities for which the Group may have no, or only limited, insurance coverage. The nature of Acambis’ business exposes it to potential product liability claims inherent in the research and development, pre-clinical study, clinical trials, manufacturing, marketing and use of its products. Acambis secures insurance before commencing clinical trials and periodically reviews its insurance coverage, however, in the event of any claim, it is possible that the level of insurance Acambis presently carries or may carry in the future may not be adequate, and a product liability or other claim may materially and adversely affect its financial position. There is no guarantee that Acambis will continue to be able to obtain satisfactory insurance cover.

DIFFERENCES BETWEEN INTERNATIONAL FINANCIAL REPORTING STANDARDS, UK GAAP AND US GAAP MAY HAVE A SIGNIFICANT IMPACT ON ACAMBIS’ FINANCIAL STATEMENTS WHEN RECONCILING TO US GAAP

In common with other listed companies governed by the law of an EU member state, for financial years beginning on or after January 1, 2005 the Group will be required to prepare its financial statements in accordance with international accounting standards (IAS) adopted at the European level (endorsed IAS or IFRS). This requirement will therefore first be applicable to the Group’s financial statements for the year ended December 31, 2005.

ACAMBIS’ NET PROFITS ARE AFFECTED BY TAXATION

The effective tax rate on the Group’s earnings is affected by the tax rates applicable in the UK and the US. Changes in tax laws or in their application with respect to matters, such as transfer pricing, that relate to the proportion of the Group’s earnings, which may be taxed at more favourable rates, could increase the Group’s effective tax rate and adversely affect its net earnings.

ACAMBIS MAY NOT BE ABLE SUCCESSFULLY TO TRANSITION FROM AN R&D-BASED ENTITY INTO AN INTEGRATED BIOPHARMACEUTICAL CONCERN

As a result of a strategic review during 2004, Acambis decided to implement changes that would assist a transition from a company predominantly focused on R&D to one with integrated biopharmaceutical capabilities. These changes are not yet complete and there is a risk that they will not be successful, which will create substantial near-term costs and impede Acambis’ ability to perform effectively in the future.

STOCKS OF ACAM2000 BECOME SURPLUS TO REQUIREMENTS

Acambis does not have firm orders to cover all stocks of ACAM2000 smallpox vaccine.

RELIANCE ON THE US GOVERNMENT AND THE SMALLPOX VACCINE PRODUCES IRREGULAR REVENUE STREAMS AND MAY IMPAIR FUTURE PERFORMANCE

Acambis is reliant on the smallpox franchise, from the US Government, for the vast majority of its revenue. Orders for additional smallpox product can come at unpredictable intervals, resulting in a potential lack of recurring revenue. There is no guarantee that demand for the company’s smallpox franchise will continue or that it will continue to contribute to Acambis’ revenue stream.

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Item 4 Information on the Company

A     History and development of Acambis

COMPANY SECRETARY, REGISTERED OFFICE AND GROUP HEADQUARTERS
Elizabeth Brown
Peterhouse Technology Park
100 Fulbourn Road
Cambridge CB1 9PT, UK
Telephone +44 (0) 1223 275 300

Acambis plc
Registered number 2863682
Date of incorporation October 19, 1993
Jurisdiction of incorporation: England and Wales

Acambis is a biopharmaceutical company operating in the infectious disease arena, with a focus on developing new vaccines. It is headquartered in Cambridge, UK. The majority of its operations are based in the US, with R&D in Cambridge, MA, manufacturing in Canton, MA, a sales and marketing operation in Miami, FL and a fill and finish facility in Rockville, MD that Acambis acquired in May 2005. Following that acquisition, Acambis now has control of the three principal stages of the vaccine manufacturing process – bulk production, purification and fill and finish – and provides the capability to take a vaccine from concept to commercialisation.

     Acambis aims to become a fully integrated, profitable biopharmaceutical company, targeting infectious diseases with vaccines and other biological products, and generating predictable and sustainable revenues through both organic growth and acquisitions. To deliver that goal, it is focused on exploiting its smallpox franchise to the full, driving the development of other products in Acambis’ pipeline, developing and leveraging core capabilities and improving the predictability of its revenue stream.

     Acambis was established in 1992 in the UK as Peptide Therapeutics Limited and floated on the London Stock Exchange in November 1995. It listed its shares in the form of ADRs on NASDAQ in February 2001.

     In May 1999, it acquired a US-based vaccine research company, OraVax, Inc. and, in December 2000, was renamed Acambis plc. Around that time, it refocused its operations on the development of vaccines, and subsequently sold its drug discovery business, Mimetrix, to Medivir AB, a Swedish biotechnology company.

     Much of its recent success has come from government contracts for its new, investigational smallpox vaccine, which is sold to the US and other governments under a FDA Investigational New Drug (IND) application.

     Acambis started work on developing a new smallpox vaccine in 2000, having been awarded a contract by the US Government to develop and test a new vaccine and manufacture a 40 million-dose stockpile of the vaccine once it had been licensed. Following the events of September 11, 2001, this contract was accelerated and expanded, and Acambis bid for and won a second US Government contract to manufacture a further 155 million doses of investigational smallpox vaccine as part of the US’s new plan to establish a stockpile sufficient to provide a dose for every man, woman and child in the US. Acambis has now supplied the US with 182.5 million doses of its investigational ACAM2000 vaccine (see further information in Item 10C (a)). It is also supplying the vaccine to a number of other governments around the world as an investigational product.

     In 2000, Acambis established a strategic alliance with Baxter Healthcare Corporation, part of Baxter International, Inc (Baxter). This involved a number of agreements, including Baxter taking an equity stake in Acambis and a manufacturing agreement. Since then, the relationship has expanded into other important areas, including the smallpox vaccine supply contracts and development of a next-generation smallpox vaccine, Modified Vaccinia Ankara (MVA), under a contract with the US National Institute of Allergy and Infectious Diseases (NIAID). Although Baxter no longer has a shareholding in Acambis and the manufacturing agreement was terminated in 2004, the strength of the relationship means that the two companies continue to work very closely in these other key operational areas.

     The Acambis-Baxter partnership has been awarded two NIAID contracts relating to MVA. The first, for $9.2m was awarded in February 2003 and relates to R&D work plus the manufacture of several thousand doses of MVA. The second was awarded in September 2004. It is potentially worth up to $131m. The core part of the contract requires continued clinical testing and manufacture of 500,000 doses of MVA. The US Government has an option to procure a further 2.5 million doses under the second part of the contract, which, if activated, would be worth approximately $55m.

     Acambis is developing core capabilities in-house that it considers to be critical to its long-term success. Between 2001 and 2003, it undertook the reactivation of its manufacturing facility in Canton, MA to establish a capability

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     consistent with the very latest regulatory standards. In August 2003, the Group added a sales, marketing and distribution capability through the acquisition of Berna Products Corporation (BPC), based in Miami, FL, which sells Vivotif^®, a licensed oral typhoid vaccine, in North America.

     During May 2005 Acambis acquired a lyophilisation and fill and finish facility in Rockville, MD from BioReliance Corporation. Acambis made an upfront payment of $3.0m in May 2005 with an additional $4.5m payable over a period of 12 years, until 2018. Acambis anticipates spending $4-6m on capital investment to upgrade the facility during 2005.

CAPITAL EXPENDITURE IN RECENT YEARS

During 2004, Acambis made additions of short leasehold land and buildings of £1.5m (2003 – £2.9m, 2002 – £5.0m), acquired £0.9m of laboratory and manufacturing equipment (2003 – £1.9m, 2002 – £4.5m) and £0.9m of office equipment (2003 – £1.0m, 2002 – £1.2m). Additions in 2004 were principally in the US. Additions in 2003 and 2002 were primarily in relation to the reactivation of a manufacturing facility in the US. In the period from December 31, 2004 to the end of May 2005, the Group has made additions of £0.2m for laboratory and manufacturing equipment and £nil for computer equipment. These additions were in the US. All additions in the period from 2002 have been financed using cash, and related predominantly to the cost of redeveloping and expanding areas of its US R&D facility. Additional amounts of expenditure will be incurred during 2005 to upgrade the fill and finish facility in Rockville MD, US, which was acquired in May 2005.

B     Business overview

THE VACCINE INDUSTRY

There are an estimated 200 companies operating in the vaccine arena, selling or developing around 600 products. The five major players – Sanofi Pasteur (SP), GlaxoSmithKline (GSK), Merck, Wyeth and Chiron – generated around 83% of the $8.9bn worldwide sales in 2003 ¹ . Other sales were shared between mid-size companies such as Acambis, Baxter Vaccines, Berna Biotech, ID Biomedical and Solvay.

     Typically, these mid-size companies, like Acambis, employ between 250 and 1,000 employees, are often investing in developing their infrastructures, including manufacturing and marketing, and tend to have varied geographical coverage. Companies such as these may sell some products and have late-stage development programmes but may not be inclined to out-license products except to gain experience or coverage that they lack.

     The need for long-term investment in R&D, considerable manufacturing capacity and capability, and the ever-increasing regulatory burden have established high barriers to entry and encouraged industry consolidation to bring the acquirer access to products, expertise or expanded geographical reach. Recent examples include ID Biomedical’s acquisition of Shire’s vaccine business, Chiron’s acquisition of PowderJect and Berna Biotech’s acquisition of Rhein Biotech.

     Although the majority of sales today are for paediatric vaccines, elective vaccination of adolescents, adults and the elderly is gaining profile. Target markets include vaccines for diseases associated with pregnancy, sexual contact, drug use and hospital-acquired infections, as well as the more well-known travel/military vaccination markets, biodefence vaccines and the high-profile influenza market.

     The infectious disease arena and, in particular, infectious disease vaccines offer major opportunities for companies such as Acambis. Through factors such as an increased emphasis on preventative medicine in Western countries, emergence of new diseases, continued growth in travel to endemic regions and concerns about the threat of viruses and bacteria being used as biological weapons, vaccines are now recognised internationally as a critical part of health management strategies. Vaccines, which are Acambis’ focus, continue to represent the fastest-growing infectious disease sector, with a compound annual growth rate of almost 26% between 1999 and 2003².

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ACAMBIS’ PRODUCTS

Acambis’ current revenues are principally driven by sales of ACAM2000, the lead product in its smallpox vaccine franchise, which, unusually, is being sold to governments even while it undergoes clinical testing. Additional revenues come from sales in North America of a licensed oral typhoid vaccine, Vivotif^® by its sales and distribution operation, BPC.

     Acambis plan to drive future revenues through sales of other products Acambis are currently developing and by acquiring additional products that are licensed or close to licensure.

     Acambis recently conducted an extensive review of its existing portfolio to analyse the potential market opportunities available for its projects. Acambis identified nine key projects that can drive its short, medium and long-term growth. Some fall into one of the two franchises Acambis are developing in smallpox biosecurity and travel vaccines, while others are stand-alone projects that represent significant opportunities Acambis believe to be worth pursuing.

     Ownership of product rights is a key strategy for Acambis because its aim to gain the maximum value from its portfolio by retaining product rights as long as possible. In some cases – such as the travel vaccines – this could be from research to sales because Acambis already have a sales infrastructure in place through BPC. In other cases, such as C. difficile, Acambis plan to take the vaccine through to licensure and then to seek either a partner or a distributor to sell the product.

ACAMBIS’ OPERATIONS

As part of its strategy to hold onto product rights, Acambis have put in place key operations required to develop, test, manufacture and sell a vaccine. Acambis’ headquarters are based in Cambridge, UK where, in addition to head office functions, Acambis have a clinical and regulatory team, and business development and sales and marketing departments. Acambis’ principal research and development operation is located in Cambridge, Massachusetts, US. Acambis’ bulk/purification manufacturing facility is in Canton, Massachusetts, US, together with associated functions such as quality control and quality assurance. Acambis’ fill and finish facility is based in Rockville, MD. BPC, its sales and distribution business, is based in Miami, FL, US and has an office in Toronto, Canada.

     The acquisition of the fill and finish facility in 2005 fits with Acambis’ strategy of creating a complete internal supply chain with the object of enabling it to take a vaccine from development to market.

ACAMBIS’ MARKETS

The majority of Acambis’ revenues today come from sales of its investigational smallpox vaccine to governments, with the US Government being its principal customer.

     As Acambis is currently a relatively small company, it has selected its target markets carefully. Acambis’ main focus initially is the US as this is the single largest vaccine market and many of its products can be sold through BPC, either exclusively or possibly as one of a number of channels. In other markets, Acambis will look to find a partner with established systems for distribution of vaccines, such as pharmaceutical companies or supranational organisations.

THE REGULATORY ENVIRONMENT

The process to gain a licence to sell a vaccine takes a long time and requires a significant amount of investment. An application for licensure of a vaccine requires a vast amount of data from the results of clinical and pre-clinical testing and about the manufacturing process, and the standards expected of an approvable product are ever increasing. With Acambis’ primary focus being on the US, the regulatory authority that oversees much of its work is the FDA. However, licensure of its vaccines will often also be sought from other regulatory authorities, such as the European Medicines Agency (EMA).

STRATEGY

Acambis aims to become a fully integrated biopharmaceutical company, targeting infectious diseases. It has identified four key components to deliver that goal:

EXPLOITING THE SMALLPOX FRANCHISE TO THE FULL

Much of Acambis’ recent success has come from government contracts for its new, investigational smallpox vaccine, ACAM2000. Governments and other bodies are keen to ensure that they are prepared for potential smallpox outbreaks. Acambis is at the forefront of helping governments to meet that need.

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Acambis has positioned itself to gain maximum benefit from the smallpox biodefence opportunity, which offers the possibility for both profitable, short-term revenues from government stockpiling contracts and sustainable revenues from ongoing ‘warm-base’ manufacturing (that is, contractual arrangements to keep immediate manufacturing capability available and to use this capability to fill product orders) and stockpile maintenance contracts.

DRIVING THE DEVELOPMENT OF NEW PRODUCTS

A clear benefit to Acambis of the smallpox franchise is that it generates cash for it to invest in the product development pipeline, which is the main driver of medium- to long-term value and growth. It maintains a balanced pipeline of early-, mid- and late-stage programmes to maximise its probability of success. The products it has in development reflect key areas of expansion within the vaccine industry, including biodefence, travel, emerging diseases and those individuals, such as the elderly, whose weaker immune systems put them at greater risk of suffering severe effects from an infection.

DEVELOPING AND LEVERAGING CORE CAPABILITIES

Acambis is continuing to build its core capabilities. It has built significant clinical development and regulatory expertise, plus manufacturing capacity and the requisite Quality Assurance/Quality Control (QA/QC) expertise to oversee product development and manufacture. It also has a US travel vaccine sales, marketing and distribution infrastructure. In May 2005, Acambis announced that it had acquired a fill and finish facility in the US.

     These core capabilities, together with its balance sheet strength, enable Acambis to increase the retained value of its product pipeline by investing in and conducting product development itself and, wherever possible, manufacturing products in-house and marketing them. Where it is able to use its own resources, Acambis can gain greater control over its operations and also retain a greater proportion of a product’s profit margin than if it out-licensed it to a pharmaceutical company, contracted third-party manufacture or used a distributor to market and/or sell it.

IMPROVING THE PREDICTABILITY OF ACAMBIS’ REVENUE STREAM

Whilst bidding for government contracts remains a major part of Acambis’ business, its revenues will continue to be volatile and unpredictable. Clearly, it wants to maximise those revenue streams, but it also wants to develop predictable revenues from sustainable business. As its existing pipeline is not expected to make a substantial contribution to revenues before 2008, at the earliest, it is seeking to leverage its strengths to bring in additional projects and revenues through in-licensing, partnering or acquisition.

BASIS OF PREPARATION OF FINANCIAL STATEMENTS

The financial statements contained within this Form 20-F have been prepared in accordance with UK GAAP. A reconciliation to US GAAP is set out in note 32 in Item 17. The principal differences between UK GAAP and US GAAP accounting arise on revenue recognition timing differences (which resulted in lower revenue being recorded under US GAAP in 2002 which reversed partially in 2003 and 2004, with the remainder expected to reverse during 2005 and 2006), accounting for share options, deferred tax, the treatment of goodwill and the acquisition of BPC. These differences are described within note 32 within Item 17.

     For US GAAP purposes, the Group adopted Staff Accounting Bulleting (SAB) 104 with effect from January 1, 2000. In 2002, revenue was recognised for shipments of vaccine that were subject to contingent acceptance by the customer. This had no impact on the amounts recognised in UK GAAP, under the Group’s accounting policies. Under UK GAAP, revenue is recognised on a cost to completion basis. Under US GAAP, the revenue should be deferred until acceptance becomes unconditional.

TURNOVER

The Group’s turnover comprises product sales, licence fees, contract research fees and milestone payments. One customer, the US Centres for Disease Control and Prevention (CDC), accounted for 84%, 88% and 95% of Group turnover in 2004, 2003 and 2002 respectively. The Directors are of the opinion that the Group has only one class of business.

     The geographical analysis of turnover under UK GAAP by origin and customer location, profit/(loss) on ordinary activities before taxation and net assets/(liabilities) is set out below:

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Net assets and profit/(loss) on ordinary activities have been restated under UK GAAP purely on adoption of UITF 38 and UITF 17, as noted in Item 17. In 2004, sales to Europe represented 10% and sales to North America represented 90% of total sales.

     Profit on ordinary activities before taxation in 2004 includes net income from exceptional items of £7.6m (see note 4 within Item 17) (2003 — charge of £7.4m, 2002 – charge of £nil), of which £1.8m (2003 – charge of £5.3m, 2002 – charge of £nil is included within Europe and £5.8m (2003 – charge of £2.1m, 2002 – charge of £nil) is included within North America.

EMPLOYEES

At December 31, 2004, Group headcount had reduced to 270 (2003 – 320, 2002 – 274). The decrease seen in 2004 was a result of the closure of the UK Research department, announced in January 2004, following the decision to consolidate Acambis’ research operations in the US.

ADR SPLIT

In February 2004, Acambis undertook a change in the ratio of its NASDAQ-listed ADRs, which has had the effect of bringing the price of its ADR more in line with the prices of peer group companies.

     Since listing on NASDAQ in February 2001 until December 2003, Acambis’ ADR price had risen from approximately $18 to around $60. To ensure continued accessibility for both institutional and private investors in the US, Acambis took the decision to change the ADR ratio from one ADR for 10 ordinary shares to one ADR for two ordinary shares. All ADR holders on the register as at February 20, 2004 were issued on February 23, 2004 with four additional ADRs for each one held.

C     Organisational structure

These subsidiaries are all consolidated into the Group accounts.

The cost of the investments in the subsidiary undertakings in the books of the Company is as follows:

D     Property, plant and equipment

DESCRIPTION OF PROPERTY

The following table summarises the premises that Acambis currently leases:

In March 2000, the Group entered into a sub-lease with Medivir UK Limited (Medivir) with respect to a part of the facility at Peterhouse Technology Park in the UK. In December 2003, this sub-lease was amended, such that 45% of the facility was rented to Medivir until September 2004 with an option to extend until November 2004. Medivir terminated the sub-lease in September 2004. During 2004, Medivir contributed £0.2m (2003 – £0.3m, 2002 – £0.3m) in operating lease rentals relating to land and buildings.

The Group believes its properties to be adequately maintained and suitable for their intended use.

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Item 5 Operating and financial review and prospects

A     Operating results

The information in this ‘Operating and financial review and prospects’ section should be read in conjunction with the financial statements (see Item 17) and the Notes thereto and Item 3: Key Information, D: Risk Factors.

OVERVIEW OF 2004

With good news and progress in some areas and disappointments in others, 2004 was a year of mixed fortunes for Acambis. Much attention was directed during the year to its high-profile ACAM2000 investigational smallpox vaccine project as it faced not only a five month-long clinical hold on its two Phase III trials but also the US Government’s unexpected decision not to place an anticipated order for a further 26.5 million doses.

     However, the clinical hold on ACAM2000 was lifted in September 2004 and Acambis is working towards submitting a Biologics License Application (BLA) to the FDA during 2005, under the fast-track status it was granted at the end of 2004. Acambis also succeeded in winning ACAM2000 contracts with three other governments during 2004 and has submitted a proposal to the US Government to provide it with an ongoing production readiness capability, known as ‘warm-base’ manufacturing.

     Acambis was delighted to be awarded in September 2004 a second US Government contract for development and manufacture of its MVA attenuated smallpox vaccine, which also received fast-track status from the FDA during the year. This second contract, potentially worth up to $131m, ensures that Acambis continues to be very well positioned to bid for future US Government stockpiling contracts.

     It also became the first company to report results from a human clinical trial of a West Nile vaccine candidate with the publication of data from the first cohort of a Phase I trial in 2004, followed by the full results in May 2005. In addition, based on the data from its Phase I trial, the ChimeriVax-Dengue vaccine is advancing to the next stage of clinical development.

     On the management front, following his appointment as Chief Executive Officer in February 2004, Gordon Cameron is providing strong leadership in driving forward Acambis’ strategy and operations. Together with David Lawrence, who joined as Chief Financial Officer from Chiron Vaccines in August 2004, and Chief Scientific Officer, Tom Monath, Acambis’ team of Executive Directors represents a strong combination of diverse knowledge and experience, and is well equipped to manage the Group’s next phase of growth.

SMALLPOX FRANCHISE UPDATE

ACAM2000

Preparations for the possibility of a smallpox outbreak continue to have a high profile internationally. In November 2004, the World Health Organisation (WHO) published a report on smallpox (WHO EB115/36; December 23, 2004) that was accepted by the World Health Assembly at its meeting in May 2005. In it, the WHO highlighted that ‘timely administration of vaccine according to well-established epidemiological principles has historically been effective in rapidly containing smallpox outbreaks. Vaccine stocks currently held by countries are, however, unevenly distributed and of uncertain quality’. The report outlined plans for a five million-dose vaccine stockpile to be held by the WHO in Geneva and for a ‘virtual’ stockpile of up to 200 million doses that countries pledge to make available to the WHO in the event of an outbreak. It also supports the concept of maintaining ‘standby capacity’, i.e., warm-base manufacturing, in at least two countries around the world.

     The US Government continues to take the lead in preparations. Although Acambis were disappointed that the US CDC did not place an additional order of 26.5 million doses of ACAM2000, Acambis are confident that the US Government remains committed to smallpox preparedness.

     Acambis has submitted a proposal to the CDC for Acambis to provide the US Government with an ongoing warm-base manufacturing capability. It proposes that this activity commence in 2005 and continue for several years thereafter. Acambis awaits a final decision on its proposal from the CDC.

     Since the lifting of the clinical hold on ACAM2000 in September, which had been placed on the Phase III trials in April 2004 by the FDA following identification of a small number of cases of the heart-related condition myocarditis, Acambis have been closing out the trials and analysing the safety and efficacy data. Acambis are planning to file the BLA with the FDA in the second half of 2005 and hope to have a decision on its application during 2006. Cost savings associated with closing the trials early had a positive effect on the gross margin for this fixed-price contract.

     Acambis believes that if ACAM2000 is approved by the FDA, licensure could be instrumental in achieving further sales to other governments. In 2004, Acamnis’ share of sales to other governments generated £6m in revenue to Acambis and Acambis are confident that, based on an assessment of discussions currently ongoing, it will be able to achieve at least a similar level of sales in 2005. Since the beginning of 2005, Acambis has already completed one further

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government contract.

Vaccinia immune globulin (VIG)

During 2004, the Group received its first government order for Cangene’s C-VIG and is in discussions with a number of other governments. As a treatment for adverse reactions to smallpox vaccination, VIG is recommended for any government stockpiling smallpox vaccines. Acambis acts as Cangene’s agent outside North America and Israel. In May 2005, C-VIG was licensed by the FDA.

Modified Vaccinia Ankara

Acambis is currently evaluating MVA, an attenuated smallpox vaccine, in human clinical trials under a US Investigational New Drug (IND) application. The clinical trials are being conducted to assess whether MVA is safe and effective for use by the proportion of the population for whom standard smallpox vaccines are contraindicated. In the US, this represents up to 20% of the population.

     In September 2004, Acambis was one of two companies to win a second US Government contract, for the development and manufacture of its investigational MVA vaccine from the NIAID, part of the US National Institutes of Health (NIH). The Group is co-developing its MVA3000 vaccine candidate with Baxter Healthcare (Baxter). This contract is potentially worth up to $131m.

     Under the principal part of this contract, worth approximately $76m, Acambis is conducting a series of clinical trials and demonstrating its ability to scale up production processes by delivering 500,000 doses of vaccine. The second part of the contract, which is an option awardable at the discretion of the NIAID, would be worth approximately $55m and require delivery of a further 2.5 million doses of MVA3000. Work is progressing under the principal part of the contract and, with the clinical testing program, will continue through 2007, with the majority of the work being conducted during 2005 and 2006.

     In April 2005, Acambis published results from a Phase I trial of MVA3000. The trial was designed to test the safety, tolerability and immunogenicity of MVA3000 in 88 healthy adult subjects who had not previously been vaccinated against smallpox. A comparator group of 22 subjects received a placebo. The data show that, after two doses were administered at the highest dose level, 97% of the subjects developed vaccinia virus-specific antibodies by the ELISA assay and 82% developed vaccinia-neutralising antibodies. No unexpected or serious adverse events were reported.

     Successful performance under the US Government contracts is critical to establishing a strong competitive position when bidding for the larger stockpiling contract that the US Government has indicated it intends to issue under Project Bioshield, which was signed into law in July 2004. In May 2005, the US Government issued for industry comment a draft Request for Proposals for procurement of 10 to 20 million doses of MVA, with an option to procure up to 60 million doses thereafter. Acambis remains confident that, together with its partner, Baxter, it is in a strong competitive position in bidding for the contract.

TRAVEL VACCINE FRANCHISE UPDATE

     In its first full year as an Acambis subsidiary, BPC performed extremely well, with its sales of the oral typhoid vaccine, Vivotif^®, well ahead of the previous years. Furthermore, sales in 2005 to date are ahead of the equivalent period in 2004.

CLINICAL DEVELOPMENT UPDATE

ARILVAX^TM

The Group has US marketing rights to this yellow fever vaccine from its owner and manufacturer, Chiron Vaccines. Having completed all clinical trials required to apply for licensure of ARILVAX^TM in the US, Acambis submitted a BLA to the FDA in December 2003. However, it withdrew the application in February 2004 because Chiron Vaccines had indicated the requisite Pre-Approval Inspection by the FDA of its manufacturing facility would not be possible within the 10-month BLA review timeframe. Following a project review, Acambis will not now be in a position to resubmit the BLA within the previously indicated timescale of the first half of 2005. At this stage, it is premature to indicate when or indeed if the resubmission will take place. The revised timelines and regulatory strategy are the subject of discussion between the companies.

ChimeriVax-JE

Japanese encephalitis (JE) is a mosquito-borne viral disease that affects much of Asia and parts of Australia. According to the WHO, 50,000 human cases of JE are reported annually in Asia, resulting in 15,000 deaths, although the true incidence is probably higher as surveillance and reporting rates are poor WHO Initiative for Vaccine Research.

     ChimeriVax-JE is the most advanced of the vaccines Acambis are developing based on its proprietary ChimeriVax^TM technology. JE vaccines have been available for many years but the WHO Initiative for Vaccine Research has recognised a need for development of a second-generation JE vaccine that is safer, requires fewer doses and can be used more

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readily in developing countries. The major markets for ChimeriVax-JE would be endemic populations and travellers/military personnel from overseas who are visiting endemic regions.

     The clinical phase of the ‘bridging’ trial that the Group is conducting is now complete and serological analysis is underway. This follows the strategic decision in 2003 to bring commercial-scale manufacture of ChimeriVax-JE in-house and to finalise scale-up of the manufacturing process to optimise a stable, freeze-dried formulation prior to undertaking Phase III clinical testing. The bridging trial aims to confirm that the new material has a clinical profile similar to that seen in previous trials of the vaccine. Once complete, Acambis plans to initiate Phase III trials in the second half of 2005.

ChimeriVax-West Nile

West Nile, which is a mosquito-borne virus closely related to JE, is causing particular problems in the US where it was first identified in 1999. Since then, there have been more than 16,000 cases and 650 deaths related to West Nile virus, according to CDC data.

     Results from a Phase I trial of ChimeriVax-West Nile were announced in May 2005. In the 80-subject safety and immunogenicity trial, 45 subjects received one of two dose levels of ChimeriVax-West Nile, 30 subjects received placebo and five subjects received a licensed yellow fever vaccine control. Of the subjects who received ChimeriVax-West Nile, 96% developed West Nile-neutralising antibodies at the higher dose and 100% at the lower dose. As previously reported, a serious adverse event was noted in the form of an elevation of the enzyme creatine phosphokinase, which Acambis believes was caused by strenuous exercise. A paper on this subject was recently published in Human Vaccines (1:1, Jan-Feb 2005). There was no notable difference in the incidence of treatment-related reactions between the three groups.

     Acambis is manufacturing ChimeriVax-West Nile clinical trial material at its Canton manufacturing facility and plans to initiate the next trial in the second half of 2005.

ChimeriVax-Dengue

Dengue is a mosquito-borne viral infection that, in recent years, has become a major health concern. The WHO estimates that there are approximately 50 million dengue infections each year and that more than 500,000 cases of the more severe form of the disease, dengue haemorrhagic fever, require hospitalisation each year. As there are four distinct dengue virus serotypes, a successful vaccine will need to protect against all four.

     Rights to Acambis’ tetravalent (four-component) ChimeriVax-Dengue vaccine are licensed to SP, which fully funds the development program. Acambis is entitled to milestone payments and a royalty on any sales. Preliminary safety data are available from a Phase I trial of this tetravalent vaccine. SP is expected to publish the data when comprehensive validated Phase I safety and immunogenicity data are available. As planned in the license agreement between Acambis and SP, responsibility for manufacturing and for further clinical testing is with SP. SP is proceeding to the next phase of clinical trials and is engaged in industrial scale-up of the product. Acambis will continue to be involved in the program through to licensure of the product as part of a joint steering committee.

C. difficile

Clostridium difficile (C. difficile) bacteria are often found in institutional settings such as hospitals and nursing homes. Treatment with antibiotics can permit these bacteria to over-populate the colon and cause C. difficile-associated diarrhoea (CDAD) by releasing two toxins. CDAD can be recurrent and life-threatening.

     The vaccine the Group is developing aims to stop the recurrence of CDAD, which occurs in approximately one in five CDAD patients after standard treatment. However, the rising incidence and severity of this infection may also justify clinical development towards a primary prevention indication. Acambis has previously conducted Phase I trials of its vaccine but discontinued these when it found that the vaccine lot in use was losing its potency four years after manufacture. It has recently completed the development of a new, more robust and scaleable in-house manufacturing process. It is now returning to clinical testing with two Phase I trials planned to commence during 2005.

BUSINESS DEVELOPMENT UPDATE

As part of the Group’s efforts to develop a more predictable revenue stream, Acambis are pursuing opportunities to acquire, in-license or co-market products. It is particularly interested in revenue-generating products that can be sold through BPC, where these can be channelled through the existing infrastructure at marginal cost. It is also looking to leverage its clinical and regulatory expertise and manufacturing infrastructure to partner in projects with companies that are seeking to benefit from such capabilities or experience.

     The Board believes that the Group has the balance sheet strength, particularly from its cash and short-term investments balance of more than £100m at December 31, 2004, to give it considerable flexibility in pursuing such opportunities.

OUTLOOK

In the Board’s view, 2005 is a year of investment aimed at driving the Group’s product pipeline forward, further building Acambis’ core capabilities and seeking to exploit opportunities to expand the business.

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     Though Acambis has been a profitable company since 2002, the Group anticipates that the expected decline in revenues from its ACAM2000 US Government contract, coupled with the level of investment required to develop its product pipeline, may mean that it needs to make a choice between remaining profitable in the short-term and making the required R&D investment. Given that choice, the Board believes it is appropriate that the Group should invest in the products for the long-term value they can generate.

     Acambis has clear goals of building a fully integrated business and maximising its revenue-generating opportunities to enable it to drive forward and expand the product portfolio. With its new management team in place, the Group is confident that, during 2005, it will make good progress towards its aim of establishing Acambis as one of the leading players in a new generation of vaccine companies.

BAXTER

Acambis had a commercial agreement with Baxter to manufacture components of its bacterial vaccines at its Canton manufacturing facility. In May 2004, Acambis announced that it had reached an amicable agreement with Baxter on the terms for mutual termination of this Canton manufacturing agreement. This agreement dated from December 2000 and required Acambis to manufacture components of Baxter’s bacterial vaccines. As Baxter no longer required this service, it agreed to pay Acambis an unconditional payment of $19m as compensation for termination of the agreement. The first $9m was received in May 2004, the second payment of $5m was received in January 2005 and the final payment of $5m is due in January 2006.

     What is most important to Acambis is that neither of these changes with Baxter impacts its most important commercial associations, which relate to its ACAM2000 smallpox vaccine, the MVA project and the use of Baxter’s serum-free vero cell technology to make its ChimeriVax™ vaccines. These collaborations are important to both companies and Acambis continues to enjoy a very close and co-operative working relationship with Baxter.

IMPORTANT INFORMATION REGARDING THE FINANCIAL POSITION OF ACAMBIS

The review of trading results set out below should be read in conjuction with the risk factors noted in Item 3, on the understanding that the following uncertainties exist in the Group’s business:

The following four major risks have been identified as those most pertinent to Acambis in 2005.

SMALLPOX FRANCHISE

Acambis aim to win a significant stockpiling contract under the US government’s MVA procurement process, which could have a significant impact on its short-term earnings profile. There is a risk that such procurement is for fewer doses, generates less revenue or materialises later than anticipated, or that a contract is not awarded to Acambis at all.

REVENUE

Acambis anticipate agreeing a warm-base manufacturing contract for ACAM2000 vaccine production with the US Government during 2005. The risks are that this is delayed, is of less commercial value than anticipated or does not materialise. Acambis currently remain heavily reliant on the smallpox franchise for a recurrent revenue stream.

OPERATIONS

During 2004, Acambis undertook a company-wide review of its strategic and operational management processes and identified changes that need to be made as it continued a transition from an R&D organisation into a fully integrated biopharmaceutical company. There is a risk that the structural changes that have been implemented are not successfully integrated.

PIPELINE

The Acambis product development pipeline continues to be a major driver of medium-and-long-term value. There is a risk that there might be no or insufficient reward in marketing these products, that one or more of them fails in development or clinical trails, that development delays threaten first-to-market advantage or that increasing costs negatively impact potential returns.

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RESULTS OF OPERATIONS

The information contained below covers the results prepared under UK GAAP for the year ended December 31, 2004 compared to the prior year ended December 31, 2003.

2004 year versus 2003

TRADING RESULTS

REVENUES

Revenue for the year was £85.5m (2003 – £169.1m). As in 2003, the main sources of revenue were the fixed-price 155 million-dose ACAM2000 contract with the CDC and its order for an additional 27.5 million doses of the vaccine. The reduction compared with 2003 reflects the fact that the majority of the work under the 155 million-dose contract was undertaken in 2002 and 2003. During the year, Acambis continued to record revenue from sales of ACAM2000 to other governments. Acambis has also recorded revenues from its two contracts with the NIAID in respect of its MVA programme, the second of which was awarded in September 2004, from sales of Vivotif and from SP for Acambis ChimeriVax-Dengue vaccine programme.

COST OF SALES

Cost of sales in 2004 decreased to £34.3m (2003 – £98.4m) in line with revenues. These relate to all of the above revenue except costs on the ChimeriVax-Dengue programme, which are recorded within R&D costs.

     Gross profit margin for the year increased sharply to 59.9% (2003 – 41.8%). This represents the change in the mix of revenues recorded in the two years. It was also impacted by the reassessment of costs under the 155 million-dose contract following the decision to close out the two Phase III clinical trials early and expensing of certain costs to R&D costs as the manufacturing facility was used to support proprietary vaccine development programmes.

R&D EXPENDITURE

Expenditure on R&D increased significantly in the year to £28.9m (2003 – £19.9m) as a result of the progression of projects into later stages of development and the process development and manufacturing work for R&D projects.

SALES AND MARKETING COSTS

Sales and marketing costs, which include both Acambis’ internal sales and marketing infrastructure and the BPC operation, which Acambis acquired in August 2003, were £2.7m (2003 – £1.3m). The increase principally reflects a full year of costs in 2004 associated with BPC.

ADMINISTRATIVE COSTS

Administrative costs, including amortisation of goodwill, increased to £5.1m (2003 – £4.5m) as a result of the acquisition of BPC.

EXCEPTIONAL COSTS

During the year, the Group recorded two items related to the Canton manufacturing facility. Firstly, in May, it announced that it had reached a £10.6m ($19.0m) settlement with Baxter in respect of the termination of the Canton manufacturing agreement. £10.2m of that income has been recorded as exceptional other operating income during the year. The balance of £0.4m is recorded within interest receivable and similar income to reflect the staged-payment nature of the agreement, with £0.2m recorded during 2004 and the remaining £0.2m to be recorded during 2005. The first £5.1m ($9m) due under this agreement was received in 2004 and the second instalment of £2.6m ($5m) was received in January 2005 and the third and final instalment of £2.6m ($5m) is payable in January 2006. Secondly, as a result of this agreement with Baxter, the Group also recorded during the year a non-cash impairment charge of £1.9m ($3.5m) as an exceptional administrative item, which related to certain of the fixed assets in the plant for which, as a result of terminating the agreement with Baxter, Acambis no longer had a use. The net income recorded by these two transactions was £8.3m (2003 – £nil).

     The Group recorded a further exceptional administrative item of £0.7m (2003 – £nil) associated with the restructuring of its research operations and the closure of its UK research department, announced in January 2004.

INTEREST AND OTHER NON-OPERATING INCOME/(EXPENSES)

Interest receivable increased significantly in 2004 to £4.6m (2003 – £2.1m) as a result of higher average levels of cash and interest rates throughout the period. In 2004, the Group sold its investment in Medivir AB for £0.7m, resulting in a loss of £0.1m under. Interest payable reduced marginally in 2004 to £0.9m (2003 – £1.0m), representing primarily interest payable on the lease-financing facility that was put in place for the reactivation of its manufacturing plant. During 2004, an exchange gain of £0.3m (2003 – £0.4m) was recorded as a result of the revaluation of the amounts outstanding under its US dollar-denominated debt facility for its ARILVAX^TM programme.

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PRE-TAX PROFIT

Pre-tax profit for 2004 was £26.2m (2003 – £39.6m). The reduction was in line with expectations, principally as a result of a lower level of activities on the ACAM2000 155 million-dose CDC contract.

EFFECTIVE TAX RATE AND TAX CHARGES

In 2004, the Group recorded a tax charge of £6.4m (2003 – £3.9m) The effective tax rate for 2004 was 24.4% (2003 – 9.8%). This is lower than previously expected as a result of more effective utilisation of Group tax losses.

CAPITAL EXPENDITURE

Capital expenditure in 2004 was lower at £3.3m (2003 – £6.0m). Expenditure during the year related predominantly to the cost of redeveloping and expanding areas of Acambis’ US R&D facility.

     The Group anticipates that $4-6m of capital expenditure will be incurred during 2005 to upgrade the fill and finish facility in Rockville MD, US, that was acquired in May 2005.

BALANCE SHEET HIGHLIGHTS

The information contained below covers the balances prepared under UK GAAP for the year ended December 31, 2004 compared to the prior year ended December 31, 2003.

     Acambis’ adopted method for recognising revenue under the ACAM2000 contract with the CDC, which involves the recognition of revenue in line with the degree of completion of the contract, continues to give rise to a significant difference between invoices submitted and amounts recognised as revenue. During 2004, the amount recorded as deferred income under this contract reduced significantly to £16.5m (2003 – £49.5m) as a result of activities being completed on the contract. This is included within the total Creditors: amounts falling due within one year of £46.2m (2003 – £96.9m). The Group expects this level of creditors will reduce further during 2005 as revenues under the 155 million-dose contract continue to be recognised.

2003 year versus 2002

TRADING RESULTS

The information contained below covers the results prepared under UK GAAP for the year ended December 31, 2003 compared to the prior year ended December 31, 2002.

REVENUES

Revenue for 2003 increased significantly to £169.1m (2002 – £79.7m) and arose primarily from the 155 million-dose ACAM2000 smallpox vaccine contract with the CDC. During 2003, the Group also recorded revenue from the sales of ACAM2000 smallpox vaccine, in conjunction with its partner Baxter, to other foreign governments. In 2003, the Group recorded revenue for the first time from the NIAID in respect of the MVA contract and the first sales from Vivotif^® following the acquisition of BPC in August. During the year, the Group also continued to receive revenues from Aventis Pasteur for its ChimeriVax-Dengue vaccine programme.

COST OF SALES

Cost of sales in 2003 also increased sharply to £98.4m (2002 – £49.2m), in line with revenues, and related to all of the above revenue except costs on the ChimeriVax-Dengue programme, which are recorded within R&D. All costs in relation to the manufacturing plant were expensed within cost of sales following full reactivation at the end of 2002.

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     Gross profit margin increased to 41.8% in 2003 (2002 – 38.3%). This increased margin reflected the change in the mix of revenues recorded in the two years.

R&D EXPENDITURE

Expenditure on R&D increased to £19.9m (2002 – £16.5m). The increase in expenditure in 2003 was as a result of the progression of projects to later stages of development.

SALES AND MARKETING COSTS

The Group recorded costs under sales and marketing costs for the first time in 2003. Costs were £1.3m in the year (2002 – £nil), representing the internal sales and marketing infrastructure established at the end of 2002 and the relevant costs incurred by BPC from the point of acquisition of that business in August 2003.

ADMINISTRATIVE COSTS

Administrative costs under UK GAAP, including amortisation of goodwill, increased marginally to £4.5m (restated) (2002 – £4.3m restated) as a result of the acquisition of BPC and increased infrastructure costs in other areas of the business.

     In October 2003, the Group announced that it had reached a £12.0m settlement with BTG International Limited (BTG) to discharge all past and future rights, obligations and claims under a technology licence agreement originally established in 1994. Under the terms of that agreement, Acambis was required to pay 2% of its reported turnover to BTG, potentially until 2024. Of the £12.0m settlement, £4.6m related to historic amounts due under the agreement and is included in cost of sales during 2002 and 2003. The balance of £7.4m was recorded as an exceptional item against operating profit in 2003.

INTEREST AND OTHER NON-OPERATING INCOME/(EXPENSES)

Interest receivable increased significantly in 2003 to £2.1m (2002 –£0.7m) as a result of the higher levels of cash throughout the period, principally receivable from the smallpox vaccine contract with the CDC.

     In accordance with the Companies Act 1985 and UK GAAP, in 2003 the Group recorded a gain of £0.5m (2002 – loss of £0.1m) in respect of the reversal of a previous write-down of the investment held in Medivir AB. At December 31, 2003, the book value of the investment was £0.8m (2002 – £0.3m).

     Interest payable reduced marginally in 2003 to £1.0m (2002 – £1.2m), representing primarily interest payable on the lease-financing facility that exists for the reactivation of the Canton, MA, US manufacturing plant. During 2003, an exchange gain of £0.4m (2002 – £0.5m) was recorded as a result of the revaluation of the amounts outstanding under the US dollar-denominated debt facility for the ARILVAX™ programme.

PRE-TAX PROFIT

The pre-tax profit for 2003 was £39.6m (restated) (2002 – £9.6m restated), with the improvement being achieved primarily as a result of increased revenues under the smallpox vaccine programme. Pre-exceptional pre-tax profit for 2003 (excluding the £7.4m exceptional element of the BTG settlement) was £47.0m (restated) (2002 – £9.6m).

EFFECTIVE TAX RATE AND TAX CHARGES

In 2003, the Group recorded a tax charge of £3.9m (2002 – £nil). During 2002 and 2003 the majority of the Group’s historic tax losses were utilised. The effective tax rate for 2003 was 9.8% (restated) (2002 – nil).

CAPITAL EXPENDITURE

Capital expenditure in 2003 was £6.0m (2002 – £11.5m). Expenditure during the year related predominantly to the cost of redeveloping and expanding areas of Acambis’ US R&D facility. The reduction in expenditure over 2002 levels followed the completion around the end of 2002 of the reactivation of Acambis’ manufacturing plant in the US.

CRITICAL ACCOUNTING POLICIES

The preparation of the Group’s financial statements requires it to make estimates and judgments that affect the reported amount of net assets at the date of the financial statements and the reported amounts of revenues and expenses during the period.

Critical accounting policies are those that have a significant impact on the Group’s results and require the most difficult, subjective or complex judgments by management. For a full description of the Group’s accounting policies please refer to note 1 within Item 17 of the Group’s financial statements. Acambis’ critical accounting policies include the following:

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REVENUE RECOGNITION

Revenue on long-term contracts under UK GAAP is recognised according to estimates by management of the progress of the contract and the estimated total costs. This requires that the extent of progress towards completion of contracts may be estimated with reasonable certainty. Revisions in these estimates may cause the Group’s revenues to fluctuate from period to period.

     The Group’s US GAAP revenue recognition accounting policy for multiple-element arrangements, which is described more fully in note 32 within Item 17, requires the determination of the fair value of the individual elements of multiple-element arrangements and the allocation of the total contract value amongst the elements identified using the relative fair value method as prescribed by Emerging Issues Task Force (EITF) Issue No. 00-21 ‘Accounting for Revenue Arrangements with Multiple Deliveries’. Under the Group’s UK GAAP accounting policy, contracts are accounted for as long-term contracts and are only segmented into multiple elements where this is required by Financial Reporting Standard (FRS) 5, for example where the Group is capable of attributing a reliable fair value to each element by reference to individual transactions (which might be the case, for instance, where separate tenders were submitted for each element). The Group, therefore, makes significant judgments in determining whether a particular multiple-element arrangement is capable of segmentation under the requirements of UK and US GAAP. Where, under US GAAP, segmentation is required, significant assumptions are made in selecting appropriate similar contracts to provide evidence of the fair value of the individual elements. Changes in estimates of fair value of elements in an arrangement would have a significant impact on the timing of revenue recognition.

     Differences in revenue recognition policies under UK GAAP and US GAAP give rise to a significant reconciling adjustment. The size and direction of this reconciling amount in the reconciliation of UK to US GAAP net income will vary considerably from period to period, based on the nature of contract activity in the period and the actual outcome of events relative to the judgement exercised by management.

VALUATION OF LONG-LIVED ASSETS AND GOODWILL

Depreciation and amortisation rates are determined based on management estimates of the expected useful economic lives of the assets concerned. The most appropriate life is determined separately for each asset on acquisition, subject to prescribed ranges of asset lives, as disclosed in note 1 within Item 17 to the financial statements. Changes to the useful lives selected could have a material impact on the Group’s net profit.

     The Group assesses the carrying value of long-lived assets and goodwill whenever events or changes in circumstances indicate that such carrying value may not be recoverable, as required by applicable accounting standards. When the Group determines that the carrying value of long-lived assets and goodwill may not be recoverable, Acambis base any impairment on a projected discounted cash flow method using a discount rate determined by its management to be commensurate with the risk inherent in its current business model. This review is based upon Acambis’ projections of anticipated timing and amount of future cash flows and appropriate discount rates. While the Group believes that its assumptions are appropriate, such estimates and assumptions could differ materially from actual results and accordingly result in a material impact on the carrying value of long-lived assets and goodwill.

DEFERRED TAX

Provision is made for all deferred tax assets and liabilities when an event has taken place by the balance sheet date which gives rise to an increased or reduced tax liability in the future. Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse based on tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Deferred tax assets are recognised to the extent that they are regarded as recoverable, and this determination requires significant management judgement. Deferred tax assets and liabilities are not discounted.

INVENTORY

Inventory is stated at the lower of cost and net realisable value. In general, cost is determined on a first-in-first-out basis and includes transport and handling costs. Where necessary, provision is made for obsolete, slow-moving or defective inventory on the basis of management’s best estimates and judgements.

B     Liquidity and capital resources

The Group had aggregate cash and liquid resources of £101.8m at December 31, 2004 (2003 – £125.2m), a decrease of £23.4m since the start of the year (2003 – increase of £113.4m). During 2004, Acambis received £1.9m (2003 – £8.9m) primarily being attributable to the issue of new shares to satisfy share option exercises. Cash outflow from operations during the year was £19.5m (cash inflow 2003 – £119.1m).

     During 2004, Acambis made additions of short leasehold land and buildings of £1.5m (2003 – £2.9m), acquired £0.9m of laboratory and manufacturing equipment (2003 – £1.9m) and £0.9m of office equipment (2003 – £1.0m).

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     From incorporation through to December 31, 2004, Acambis has financed its operations primarily from equity issuances totalling £96.1m, licence fees and milestone payments totalling £3.3m, R&D contract fees and sales of product totalling £356m and government grants totalling £4.7m. At December 31, 2004, Acambis held investments in Acambis ordinary shares through Acambis’ Employee Share Ownership Trust (market value at December 31, 2004 of £0.2m, 2003 – £1.8m).

     At December 31, 2004, the balance on the ARILVAX^TM overdraft facility was £3.6m ($7m) (2003 – £3.9m). At December 31, 2004, the Group did not have any undrawn borrowing facilities in respect of this overdraft facility (2003 – £nil). Given certain circumstances, this facility, which is fully described in note 20 within Item 17, ‘Evans Vaccines agreement’, may be repayable within one year. In December 2001, the Group secured lease financing for up to $40m (approximately £21m) with Baxter in respect of its Canton, MA, US manufacturing facility. At December 31, 2004, the Group had an outstanding liability of £9.9m under this financing facility (2003 – £12.6m). At December 31, 2004, the Group had $15.8m (approximately £8.2m) undrawn borrowing facilities in respect of this financing facility (2003 – £9.8m). The repayment terms of this facility are described in note 23 within Item 17.

     The Group does not have any other financial liabilities.

     At the end of the year, capital commitments contracted but not provided for were £0.2m (2003 – £0.2m, 2002 – £0.1m).

     Acambis’ future capital requirements will depend on many factors, including, but not limited to, the expenditure required to maintain the manufacturing facility, the progress of R&D programmes, pre-clinical and clinical testing, the time and costs involved in obtaining regulatory approvals, the cost of filing, prosecuting and enforcing any patent claims and other intellectual property rights, competing technological and market developments, changes in its existing research relationships, ability to establish collaborative arrangements, receipt of any licence fees and royalties, the acquisition of additional facilities and capital expenditure.

     As a result of the award of the US Government smallpox vaccine contract in November 2001, Acambis believe that there will be sufficient cash to fund its operations through 2005. Changes in R&D plans or other events affecting its operations, however, may result in accelerated or unexpected expenditures. If additional funds are raised by issuing equity securities, dilution to existing shareholders may result and future investors may be granted rights superior to those of existing shareholders.

C     Research and development, patents and licences, etc.

RETAINING PRODUCT RIGHTS

The Group’s strong financial position, with cash and short-term investments totalling £101.8m at the end of 2004, gives it the flexibility to invest in its own pipeline up to a later stage of development, thereby retaining the maximum value of the products within the Company. It also enables the Group to drive development of its projects as rapidly as possible through to licensure and to manufacture and sell the products itself where practicable.

ACQUIRING OR IN-LICENSING ADDITIONAL PRODUCTS

The Group strong financial position also enables it to acquire or in-license additional products. Acambis is actively pursuing a number of opportunities, with its primary interest being marketed or late-stage products, particularly ones that could be channelled through BPC.

See also Item 10C for material contracts, and Item 7 for information on related party transactions. Contractual obligations under lease commitments are outlined in note 23 (within ‘financial liabilities’) and note 29 within Item 17.

D     Trend information

During 2004 Acambis continued to record sales of ACAM2000 smallpox vaccine to the US CDC under the 155-million dose contract. Revenue was also recorded for sales of smallpox vaccine to non-US governments and revenue in respect of the MVA contract with the NIAID, which were both new revenue streams in 2003.

     In early 2004, Acambis conducted a portfolio review of its products, based on an extensive assessment of the market potential, Acambis identified nine key high-value vaccine projects that it plans to pursue. These products are either already licensed, well advanced in clinical development or represent significant market opportunities, such as vaccines for West Nile, dengue or C. difficile. The review enabled Acambis to identify these key projects as the areas in which to direct its resources in a highly focused, well-targeted way that should drive development timelines as rapidly as possible.

     The smallpox vaccine opportunity highlighted to Acambis the potential for expansion by playing to existing areas of expertise. Following the US Government contract, Acambis has established a smallpox vaccine franchise that aims not only to maximise sales of ACAM2000 but also to exploit the potential of two related products, VIG and MVA.

     Acambis is also developing a travel vaccines franchise with products such as Vivotif^® that can be sold through its North American sales and distribution infrastructure.

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E     Off balance sheet arrangements

The Group leases its property and certain equipment under non-cancellable operating agreements, which expire at various dates until 2023. The future amounts payable under current lease commitments at December 31, 2004 were as follows:

F     Tabular disclosure of contractual obligations

The minimum annual rentals payable by the Group under non-cancellable operating leases are as follows:

In March 2000, the Group entered into a sub-lease with Medivir UK Limited (Medivir) in respect of 50% of the facility at Peterhouse Technology Park in the UK. In December 2003, this sub-lease was amended, with only 45% of the facility being rented to Medivir from that point. Medivir terminated the sub-lease in September 2004. During 2004, Medivir contributed £0.2m (2003 – £0.3m, 2002 – £0.3m) in operating lease rentals relating to land and buildings.

G     Safe Harbour

Under the safe harbour provisions of the US Private Securities Litigation Reform Act of 1995, the Company cautions investors that any forward-looking statements or projections made in this document are subject to risks and uncertainties that may cause actual results to differ materially from those projected. These forward-looking statements are based on estimates and assumptions made by the management of Acambis and are believed to be reasonable, though are inherently uncertain and difficult to predict. Actual results or experience could differ materially from the forward-looking statements. Factors that may affect the Group’s operations are discussed in the operating and financial review, risk factors and the corporate governance statement sections contained within the most recent 20-F and in documents as filed with the US Securities and Exchange Commission from time to time.

Item 6 Directors, senior management and employees

A     Directors and senior management

Alan Smith, 60, a member of the Chartered Institute of Public Finance and Accountancy, joined the Board of Acambis on November 3, 1995 as a Non-executive Director and was appointed non-executive Chairman on May 20, 1999. On appointment, Alan met the criteria for independence under the 2003 Combined Code for Non-executive Directors, however the test of independence is not appropriate in relation to the role of Chairman to which he was subsequently appointed. He is Chairman of the Nominations Committee. He was Group Managing Director of Anglian Water plc until December 1997 and is currently Chairman of Avlar Bioventures Limited and a Non-executive Director of CeNeS Pharmaceuticals Plc.

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Gordon Cameron, 39, was appointed CEO on February 23, 2004. He was originally appointed to the Board on March 1, 1997 as CFO (formerly Finance Director), having joined Acambis in 1996 from the corporate finance department at N M Rothschild where he had advised Acambis on its listing on the LSE. From March 31, 2001 until his appointment as CEO, Gordon was additionally President of Acambis’ US division, Acambis Inc., and he also served as Company Secretary for the Group from February 28, 1998 until July 1, 2002. In 2004, he was appointed an Officer of the Order of the British Empire for services to the British biotechnology industry in the US.

     Gordon was instrumental in Acambis winning the major smallpox vaccine supply and R&D contract with the US Government and oversaw a successful programme to reactivate Acambis’ vaccine manufacturing facility in Canton, MA. He combines considerable financial experience with the extensive industry knowledge he has developed during more than eight years with Acambis.

David Lawrence, 42, was appointed to the Board on July 8, 2004 (with an official start date of August 31, 2004) from Chiron Vaccines, where he was Vice President of Finance. In his role at Chiron Vaccines, David was responsible for all aspects of finance and accounting, and also for strategic planning and business development. In particular, he played a lead role in Chiron’s acquisition of PowderJect Pharmaceuticals plc and the subsequent disposal of various non-core assets/businesses. Prior to Chiron Vaccines, the majority of David’s career had been spent with GSK, which he joined in 1988.

     David’s appointment follows the promotion of the previous CFO, Gordon Cameron, to CEO in February 2004. David brings considerable industry knowledge and strong financial and management skills to Acambis and this, coupled with the experience he has gained through playing an active role in the rapid growth of Chiron Vaccines, will be invaluable in the management of Acambis’ continued growth. His responsibilities at Acambis include overseeing the Finance function and corporate development.

Tom Monath, 64, a qualified medical doctor, joined the Group in 1992 and was appointed to the Board as CSO on March 12, 2002. Prior to joining Acambis, he worked as Colonel and Chief of the Virology Division of the US Army Medical Research Institute of Infectious Disease. Previously, during almost 20 years as Director of the CDC’s Division of Vector-Borne Infectious Diseases, he was instrumental in building the division into a key centre for research into arthropodborne viruses such as yellow fever.

     Tom is responsible for the direction of Acambis’ programmes to develop vaccines against infectious diseases such as smallpox, JE, dengue fever and West Nile, and led the development of Acambis’ proprietary ChimeriVax technology. He served as a member of the US National Vaccine Advisory Committee. During his career, he has published more than 300 scientific papers and six books, including a seminal work on flaviviruses. Among other external positions, he is an Adjunct Professor at Harvard School of Public Health, and President of the American Society of Tropical Medicine and Hygiene.

Randal Chase, 56, was appointed to the Board of Acambis as a Non-executive Director on October 1, 2004. The Board considers Randal to be an independent Non-executive Director. Most recently, he was President of Shire Biologics, until its recent sale to ID Biomedical. Previously in his career, Randal was President of North American Vaccine and President of Aventis Pasteur Canada. He has a PhD in biochemistry from the University of British Columbia. Randal is currently a Director of Medicago Inc., a privately-held Canadian biopharmaceutical company, ConjuChem Inc.,which is listed on the Toronto Stock Exchange, Bioject Medical Technologies, Inc., a needle free injection company and Director, Executive Chairman of Molecular Templates Inc., an oncology company.

Alan Dalby, 68, became a Non-executive Director of Acambis on May 1, 1998. He is the senior independent Non-executive Director and Chairman of the Remuneration Committee. The Board considers Alan to be an independent Non-executive Director. Alan was previously an executive director of SmithKline, a predecessor company to GSK, and retired from the role of Chairman of Reckitt Benckiser plc in 2001. He is a Director of Alteon, Inc., a US-based biotechnology company.

Ross Graham, 57, was appointed to the Board of Acambis as a Non-executive Director on March 25, 2004. The Board considers him to be an independent Non-executive Director. He is Chairman of the Audit Committee. Ross was most recently Corporate Development Director of Misys plc, which he joined as Finance Director in 1987 at the time of its flotation, and was appointed Corporate Development Director in 1998 with Board responsibility for corporate transactions and management of strategic alliances. He stepped down from Misys’ Board of Directors at the end of 2003 after more than 16 years. Prior to his career at Misys, Ross was a partner with the predecessor firm to Ernst & Young, where he qualified as a Chartered Accountant. He is also a Non-executive Director of Wolfson Microelectronics plc and Patientline plc, and non-executive Chairman of Astute Software Limited and Vecta Software Corporation Ltd.

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Michael Lytton, 48, was appointed to the Board of Acambis as a Non-executive Director on March 12, 2001. The Board considers Michael to be an independent Non-executive Director. He is a General Partner of Oxford Bioscience Partners, a US-based life sciences venture capital fund. Prior to this, he was a Partner of the Boston-based law firm of Palmer & Dodge LLP, where he represented biotechnology and healthcare clients. He holds a JD and an MSc in Epidemiology and Medical Statistics. He is a member of the Board of Alantos Pharmaceuticals AG, Decision Biomarkers, Inc., Enanta Pharmaceuticals, Inc., GPC Biotech AG, Rib-X Pharmaceuticals, Inc., Santhera Pharmaceuticals AG and Vaxlnnate Pharmaceuticals, Inc. In addition, Michael represents Oxford Bioscience Partners and has observation rights for the boards of Avco Pharmaceuticals, Inc., Concentric Medical, Inc, and NuVios Pharmaceuticals, Inc. Michael also sits on the Board of Trustees of the CBR Institute for Biomedical Research, Harvard Medical School.

Elizabeth Brown, 33, was appointed Company Secretary on July 1, 2002. In taking over as Company Secretary from Gordon Cameron, she has brought greater independence to this role as she does not hold a Board position. Elizabeth is a certified accountant and joined Acambis in 1996. As Vice President of Financial Management, Elizabeth is responsible for financial performance measurement, budgeting and long-term financial planning. In addition, Elizabeth has, in the last few years, overseen the development of the Group’s risk management systems.

Nick Higgins, 48, was a BSc in Biochemistry, an MSc in Biochemical Engineering and an MSc in Management of Intellectual Property. He joined Acambis in 1994 with responsibility for managing its intellectual property, became Licensing Director in 1996 and was appointed to the Board as Chief Business Officer (formerly Commercial Director) on October 3, 1996. He previously worked for Unilever, PA Consulting Group and Porton International, where his work included a biosecurity-related project. Nick was also a Non-executive Director of Intercytex Limited up until the time he was appointed their CEO in January 2005. Nick resigned from the Board on December 31, 2004.

The directors who served during 2004 were:

Executive: Gordon Cameron, Nicolas Higgins – resigned December 31, 2004, Dr Thomas Monath and David Lawrence – appointed July 8, 2004, officially joining the company on August 31, 2004.

Non-executive: Alan Smith, Alan Dalby, Michael Lytton, Ross Graham – appointed March 25, 2004, Randal Chase – appointed October 1, 2004.

The usual business address of all of the Directors is the registered office of the company, except Gordon Cameron and Dr Thomas Monath whose usual business address is that of Acambis Inc, at 38 Sidney Street, Cambridge, MA in the US.

     In accordance with the Company’s Articles of Association, Gordon Cameron and Dr Thomas Monath retired by rotation at the 2005 Annual General Meeting (AGM) and, being eligible, offered themselves for re-election. In addition David Lawrence and Dr Randal Chase, who had been appointed since the last AGM, offered themselves for election at the 2005 AGM. Each of these candidates was elected as a Director by shareholders on May 11, 2005.

B     Compensation

In accordance with the Directors’ Remuneration Report Regulations 2002, a resolution was put to the Company’s shareholders at the 2005 AGM to approve the Remuneration Committee’s report. The report was approved.

COMPONENTS OF EXECUTIVE DIRECTORS’ REMUNERATION

Set out below are the Remuneration Committee’s compensation guidelines.

BASIC SALARY AND BENEFITS

In determining the basic salary of each Director, the Committee takes into account, and intends to take into account in respect of future financial years, the individual’s responsibilities, and pay levels are set in the light of independent assessment of market practices. Basic salaries for Executive Directors are reviewed annually and compared to salary levels in a group of comparably sized biotechnology companies. The Committee also takes into consideration percentage increases for all employees when reviewing salary increases. During the year, Mr Cameron’s base salary was reviewed to take into account his new position as CEO. For US-based Executive Directors, salary levels in companies of a similar size to Acambis Inc. are also reviewed for comparative purposes. Salary reviews take account of all responsibility changes. Benefits offered to all Executive Directors comprise private healthcare, life assurance, permanent health insurance, private telephone and the use of Group assets. In addition, Mr Cameron receives a car allowance and a benefit related to Group-provided accommodation and travel for both himself and his family during his period of assignment to the US. Mr Lawrence also receives a car allowance as well as, for a period of six months from his joining the Company, a benefit related to Group-provided accommodation. In addition, Mr Lawrence will receive a benefit relating to travel up to the point of his relocation. Mr Higgins received a car allowance until the date of his resignation from the Board.

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ANNUAL BONUS

Bonuses are non-pensionable and based on a percentage of basic salary. From 2004, the maximum annual bonus was 75% of basic salary. The maximum 75% bonus level can only be achieved for significantly outperforming budgeted targets.

     Bonuses are paid at the discretion of the Committee in recognition of the Directors’ contributions to the success of the Group. Objectives are set that are considered to be both challenging and realistic. The performance metrics on which bonus payments are assessed are a mix of short-term financial, product development and business development targets. For 2004, the bonuses awarded to Executive Directors were determined following an evaluation of Group performance to agreed objectives. Following termination, any bonuses paid are at the discretion of the Committee.

     In 2003, the Committee reviewed the operation of that part of the Acambis Share Incentive Plan that permitted Directors to receive up to 50% of their annual bonus in Acambis shares and to receive one further matching share for every four shares so held, after a period of one year. As a result of that review, that aspect of the Share Incentive Plan has not been operated since the start of 2004.

PENSION SCHEME

In the UK, the Company operates a self-administered, defined contribution, Inland Revenue-approved pension scheme for the Executive Directors (including Gordon Cameron, who is currently based in the US). The Company contributes 18% of basic salary into this scheme on behalf of each Executive Director. No other benefits are pensionable. In the US, the Group offers a 401k Savings and Retirement Plan for all employees, including Executive Directors based in the US. Participants may contribute up to 15% of their annual compensation into the plan. The Company can make discretionary matching contributions, up to a maximum of 3% of basic salary. Pension costs for each Director are shown under the Directors’ Remuneration section.

     During 2005, the Committee will formally review the impact of any changes arising from the pensions legislation due to come into force in April 2006. As the Company operates defined contribution arrangements, no significant changes are envisaged but, in any event, the Committee confirms that it does not envisage the overall cost to the Company increasing.

NON-EXECUTIVE DIRECTORS’ FEES AND TERMS

The Non-executive Directors’ fees are determined, and it is intended shall be determined in future financial years, by the Board on the basis of independent advice on current levels in similar businesses. Fees are reviewed periodically. Non-executive Directors are not eligible and do not participate in pensions, incentives, bonuses or any similar payments other than out-of-pocket travel and accommodation costs in connection with the performance of their duties. Non-executive Directors’ fees comprise a basic fee plus an additional fee for chairing a committee. Consideration is given to the time commitment required of Non-executive Directors when setting their fees. Non-executive Directors’ fees are not dependent on specific meeting attendance or linked to the number of hours of time spent on Group matters. Whilst there is no set time commitment specified in Non-executive Directors’ service contracts, it is expected that they attend all relevant meetings. Non-executive Directors are entitled to their fees during any notice period.

     The Board believes that it is in the Company’s best interest for Non-executive Directors to serve a minimum three-year term before retiring by rotation. Typically, Acambis expect them to serve two three-year terms, although they may be invited to continue in office for a further period.

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DIRECTORS’ REMUNERATION

The total remuneration of the Directors for the year ended December 31, 2004 (shown below) comprised salaries, benefits, bonuses, pension contributions and Non-executive Director fees. During the year, no Directors waived emoluments. The remuneration received by each Director who served during the year was as follows:

NOTES

C     Board practices

The following statement describes the main principles of corporate governance and how they have been applied by Acambis.

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COMPLIANCE WITH THE CODE OF BEST PRACTICE

Acambis complied throughout 2004 with the provisions of the Code of Best Practice set out in Section 1 of the Combined Code published in July 2003 by the Financial Reporting Council, except in those areas highlighted below.

STATEMENT OF APPLYING THE PRINCIPLES OF GOOD GOVERNANCE

Acambis has applied the Principles of Good Governance set out in Section 1 of the Combined Code by complying with the Code of Best Practice, with the exception of those points reported above. Further explanation of how the principles have been applied is set out below and, in relation to Directors’ remuneration, in the ‘Components of Executive Directors Remuneration’ above.

THE BIA CODE OF BEST PRACTICE (BIA CODE)

Acambis, as a member of the BioIndustry Association (BIA), has also complied with the principles in the BIA Code and maintains and develops procedures to support compliance with its specific provisions. The BIA Code was introduced in 1999, is obligatory for all BIA members, and includes principles and provisions relating to corporate governance matters, access to external advice, confidentiality, dealings in a company’s shares and standards of public announcements. It is intended to operate by reference to the particular circumstances of bioscience companies in support of the Combined Code.

THE BOARD AND COMMITTEES

BOARD OF DIRECTORS

The Board currently comprises the Chairman, three Executive Directors and four independent Non-executive Directors. It meets, in person, at least six times a year, with additional meetings as required. The Chairman meets during the year with the Non-executive Directors without the Executive Directors being present. During 2004, the Board met eight times. It oversees and approves Acambis’ business and commercial strategy major transactions, financial statements and operating and capital expenditure budgets, and monitors progress. The information provided to the Board includes strategic and operational reviews, management accounting summaries and specific reports that provide details in respect of the ongoing running of the business. The Executive Directors are fully involved with the management of the Group’s strategic direction and exercise control at all levels. A formal schedule of matters reserved for the Board exists and is available on the Company’s website. All Directors have access to professional advice and training at the Company’s cost and to the services of the Company Secretary in the furtherance of their duties. The Board ensures that all newly appointed Directors receive a formal induction including, but not limited to, latest analyst reports, shareholder perception reports, Board and committee minutes, meetings with senior management and internal corporate literature. The Board delegates the day-to-day responsibility of managing the Group to a number of committees, details of which are set out below. Written terms of reference exist for the Audit, Remuneration and Nominations Committees. These were available during the year, and are now published on the Company’s website.

AUDIT COMMITTEE

The Audit Committee is currently made up of all the independent Non-executive Directors and since March 25, 2004 has been chaired by Ross Graham. It examines and reviews, on behalf of the Board, internal financial controls, financial and

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accounting policies and practices, the form and content of financial reports and statements, compliance with corporate governance best practice and the appointment and work of the external auditors. In the second half of 2005, the Audit Committee will review the tax strategy for the Group. The Audit Committee reviews non-audit services provided by the external auditors on an ongoing basis to ensure that auditor objectivity and independence is safeguarded. In advance of any non-audit service engagements, the Audit Committee reviews whether objectivity and independence may be impaired and where appropriate, engages alternative external accountants. The Audit Committee reviews the type of service and fee level in this respect. The policy to ensure that the external auditors do not provide prohibited services was formalised in early 2005. The Audit Committee reports to the Board on these matters. The external auditors, PwC, have provided the Company written assurances under Statement of Auditing Standards 610 (revised) ‘Communication of audit matters to those charged with governance’ and Independence Standards Board Standard No. 1, ‘Independence Discussions with Audit Committees’, that they are independent accountants with respect to the Company, within the meaning of UK regulatory and professional requirements and the SEC, and that the objectivity of the audit engagement partner and the audit staff is not impaired.

     The CEO, the CFO and the external auditors may be in attendance at meetings. The Audit Committee meets, as a minimum, four times a year and at least once during the year without any Executive Directors present. During 2004, the Audit Committee met eight times.

REMUNERATION COMMITTEE

The Remuneration Committee is made up of all of the independent Non-executive Directors and is chaired by Alan Dalby. It determines, on behalf of the Board, the Group’s policy for executive remuneration and the individual remuneration packages for the Executive Directors. The CEO may be in attendance at meetings, except when his own remuneration is being considered. The Committee met four times in 2004, and has access to professional advice in the furtherance of its duties. During 2004, the Remuneration Committee appointed Towers Perrin to provide a Group-wide review of remuneration policy and strategy. Its report will be considered during 2005.

NOMINATIONS COMMITTEE

The Nominations Committee comprises the Chairman and all of the independent Non-executive Directors and is chaired by Alan Smith. It has responsibility for proposing to the Board any new appointments of both Executive and Non-executive Directors. The Chairman would not chair the Nominations Committee if it were dealing with the appointment of the successor to the Chairman. During 2004, the Nominations Committee met four times. The CEO may be in attendance at Nominations Committee meetings.

     With respect to the process followed to appoint new Directors to the Board, it is the Nominations Committee’s policy to appoint an executive search agency to conduct an international search. The Board provides a role specification. Candidates are selected by the executive search agency, from which a shortlist is prepared. Interviews are conducted by Non-executive and Executive Directors as appropriate. The Nominations Committee will review succession plans during 2005; this did not take place during 2004 given the number of changes to the Board seen during the year.

     During the year, the Board made appointments into four positions: CEO, CFO and two Non-executive Directors. Each appointment was managed by the Nominations Committee with the assistance of an executive search agency, ensuring that an open and fair process was followed in each case such that the best candidates were selected.

OPERATIONAL MANAGEMENT

The Board delegates operational management to an Executive Committee made up of the Executive Directors. Members of the senior management team attend this meeting. It is chaired by the CEO, meets on a monthly basis and makes recommendations to the Board.

INTERNAL CONTROLS

The Board has applied principle C.2 of the Combined Code by establishing a process for identifying, evaluating and managing the significant risks the Group faces. This process has been in place since the start of 2000 and is in accordance with Internal Control: Guidance for Directors on the Combined Code published in September 1999. The Board is responsible for the Group’s system of internal control and for reviewing its effectiveness. Such a system manages rather than eliminates the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurances against material misstatement or loss.

     The Board regularly reviews the risks to which the business is exposed and the controls in place to mitigate those risks. It delegates the operational management of the business risk process to the Executive Directors, who in turn have put in place a specific working group comprising senior management from different areas of the business to carry out reviews on a periodic basis. From 2005, the Operations Committee, which has oversight of the day-to-day operational activities of Acambis, will review the work of that group.

     Following the appointment of David Lawrence as CFO in 2004, the Group strengthened its internal controls by restructuring the global finance team, and recruiting additional qualified financial staff into key areas.

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     In compliance with provision C.2.1 of the Combined Code, the Board reviews the effectiveness of the Group’s system of internal control. The Board’s monitoring covers all material controls, including financial, operational and compliance controls and risk management. It is based, principally, on reviewing reports from management to consider whether significant risks are identified, evaluated, managed and controlled and whether any significant weaknesses are promptly remedied or indicate a need for more extensive monitoring. The Board has also performed a specific assessment for the purpose of this Annual Report considering all significant aspects of internal control arising during the year, including the need to have an internal audit function. The Audit Committee assists the Board in discharging its review responsibilities.

     As of the date of this Annual Report on Form 20-F, based on the assessment of the Board of Directors, there were no changes in the Group’s internal controls or in other factors that could significantly affect adversely these controls subsequent to the date of their evaluation.

DIRECTORS’ SERVICE CONTRACTS

Details of the service contracts of those who served as Directors during the year are:

NOTES

All Executive Directors have rolling contracts with 12-month notice periods, in line with current best practice. On early termination of contract, an Executive Director would be entitled to basic salary and benefits for the notice period.

     The Remuneration Committee believes that, in the event of early termination of an Executive Director’s contract, it is appropriate to examine the specific circumstances of each case. Where appropriate, the Committee may agree to a phased payment of compensation over a fixed term. During this term, if the Executive Director were to find a new position the principle of mitigation would apply and payments would cease. The Committee does, however, reserve the right to make a payment in lieu of any period of notice.

     The Board believes that it is in the Company’s best interest for Executive Directors to serve a minimum three-year term before retiring by rotation. Under the terms of their contracts, Non-executive Directors do not take any part of their fees in the form of Acambis shares.

EXTERNAL APPOINTMENTS

The Remuneration Committee recognises that Executive Directors may be invited to take up non-executive directorships or public service appointments and that these can broaden the experience and knowledge of the Director, from which the Company would benefit. Accordingly, subject to Board approval, they may accept non-executive appointments, as long as these are not likely to lead to a conflict of interest. They are also allowed to retain any fees paid under such appointments. During 2004, Mr Higgins was the only Executive Director who had a non-executive directorship and received fees of £12,500 (2003 — £12,500) in that respect.

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D     Employees

The average monthly number of employees during the year (including Executive Directors) was:

At December 31, 2004, the Group had 270 employees (2003 — 320, 2002 — 274) and the Company had four employees, all of whom were Directors (2003 — four, 2002 — four).

E     Share ownership

LONG-TERM INCENTIVES

The Remuneration Committee principally seeks to incentivise Executive Directors by offering participation in share-based long term incentive schemes.

     Executive Directors currently participate in grants of share options under the Acambis 1995 savings-related share option scheme, the Acambis 1996 Approved Share Option scheme, the Acambis 1999 Share Option Plan and in grants of performance shares under the Acambis Share Incentive Plan. These plans and the performance conditions that apply to awards under these plans are described in more detail below.

     The Committee has established a policy that it believes is balanced whereby Executive Directors can receive an annual grant of options of up to one times basic salary per annum (granted in two half-yearly tranches) and an annual grant of performance shares of up to one times basic salary per annum. The Committee would consult major shareholders should it wish to alter this policy in the future to allow additional grants to be made.

     At the beginning of 2004, the Committee reviewed the performance conditions applying to share options and determined that there would be no retesting of performance conditions for options granted from 2004 onwards.

     The Committee acknowledges that the performance conditions applicable to its long-term incentives are the same for share options and performance shares. It is committed to reviewing those conditions as part of a study being currently carried out by Towers Perrin and will provide an update in the 2005 Annual Report.

     The Committee acknowledges the importance of updating shareholders on the current performance of grants made to Executive Directors for share options and performance shares against pre-set conditions. The Committee is committed to providing this information in its 2005 Annual Report.

     Following the approval granted at the 2003 AGM to revise the dilution limits of ordinary share capital of the Company in issue from time to time to 5% over a five-year period, to date the Company has, on average, remained within the 1% per annum limit agreed.

A) SHARE OPTION SCHEMES

All Executive Directors are eligible to participate in the Company’s share option schemes.

     The performance-linked share option schemes consist of an Inland Revenue-approved executive scheme and unapproved executive schemes. The grant of options under the current executive schemes (the ‘1996 Scheme’ and the ‘1999 Plan’ as defined below) is at the discretion of the Committee and their exercise is subject to performance conditions.

     Grants to be made in 2005 will be subject to performance conditions relating to the performance of Acambis’ total shareholder return (TSR) compared with a comparator group of other companies within the industry. These companies are:

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These companies are all the London Stock Exchange (LSE) — and Alternative Investment Market (AIM)-listed pharmaceutical and biotechnology companies with a market capitalisation greater than £50m but excluding AstraZeneca PLC and GSK. The Committee has chosen this group as being the most appropriate for Acambis. As in 2003, during 2004 the Committee did consider including selected US biotechnology companies within the TSR comparator group and again concluded that they did not consider this appropriate given the Group is primarily compared to other UK-based biotechnology companies. This will continue to be reviewed in future years.

     The TSR condition seeks to align the interests of Executive Directors with the interests of shareholders by requiring superior relative TSR performance compared with other pharmaceutical and biotechnology companies before options can be exercised. The maximum allocation of shares would be achieved if Acambis were ranked in the upper quartile of the comparator group, being prorated down to a 30% allocation at a ranking at the median. No allocation will be made if Acambis’ ranking falls below the median. The performance condition is measured over a single three-year period. As noted in the section on long-term incentives above, from 2004 there is no retesting of performance conditions for new option grants.

     For the purposes of the TSR calculation, the Company’s TSR will be averaged over the three months preceding the commencement of the period and the three months preceding a measurement date to ensure that results are not influenced by short-term volatility. TSR calculations are performed by an independent party. Grants to Executive Directors made from 2003 are subject to an additional performance condition that requires the Committee to be satisfied that there has been improvement in the Company’s underlying financial performance over the relevant performance period.

     The Company also operates an Inland Revenue-approved savings-related scheme and, from 2003, an Employee Share Purchase Plan, which is available generally to all UK and US employees, respectively, provided they enter into savings contracts.

B) LONG-TERM INCENTIVE SHARE PLAN

The Acambis long-term share incentive plan (LTIP) has been established for Executive Directors and certain senior employees. The plan is designed to encourage participants to focus their efforts on longer-term growth in shareholder value and to encourage commitment to remain with the Acambis Group.

     Long-term incentive awards are made, upon the recommendation of the Committee, by the Trustees of the Acambis Employees’ Trust (the Trust) and comprise performance shares, being a right to acquire, at no cost, a fixed maximum number of shares in the Company that are owned by the Trust. The right to acquire shares only vests after three years and is subject to a performance target. The Trust acquires shares to satisfy LTIP awards on the open market as required.

     All outstanding awards are subject to performance conditions relating to the performance of Acambis’ TSR compared to a comparator group of other companies within the industry over a single three-year period with no opportunity for re-testing. For grants in 2005 this condition will apply and the comparator companies will be as detailed in the section on share options above. The maximum allocation of shares would be achieved if Acambis were ranked in the upper quartile of the comparator group, being prorated down to a 30% allocation at a ranking as the median. No allocation will be made if Acambis’ ranking falls below the median. The performance condition is measured over a three-year period beginning at the date of award. For the purposes of TSR calculation, the Company’s TSR will be averaged over the three months preceding the commencement of the period and the three months preceding a measurement date to ensure that results are not influenced by short-term volatility. TSR calculations are performed by an independent third party.

     From the beginning of 2003, awards to Executive Directors are subject to an additional performance condition that requires the Committee to be satisfied that there has been improvement in the Company’s underlying financial performance over the relevant performance period.

     In 2003, the Committee reviewed the operation of that part of the LTIP that allowed participants to leave vested plan shares in the Trust in order to receive a grant of a further one matching share for each four plan shares deposited following those shares having been held by the Trust for a period of two years from vesting. As a result of this review, this aspect of the LTIP has not been operated for grants made since the start of 2004.

     As Acambis offer LTIPs, Executive Directors could be entitled to capitalised dividends and consequent adjustment of their overall package. As the Company does not currently pay dividends, this is not currently relevant.

EXECUTIVE DIRECTORS’ SHARE OWNERSHIP GUIDELINES

The Remuneration Committee encourages Executive Directors to build and maintain substantial interests in Acambis shares, thereby aligning their interests with other shareholders. In 2004, both Mr Cameron and Dr Monath increased their shareholdings in the Company. The Committee has decided not to introduce formal share ownership guidelines but will continue to keep the position under review.

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DIRECTORS’ INTERESTS IN SHARES

The Directors who served during the year had the following beneficial interests in the shares of the Company:

NOTES

Individually, each of the Directors beneficially owns less than 1% of the total issued share capital. As at June 28, 2005, the Directors had no interests in shares of any other Group company.

     There have been no changes in the interests of the current Directors in the share capital of the Company since December 31, 2004 save for the transactions described above.

     The Executive Directors also have an interest as potential beneficiaries in the 84,966 ordinary shares held at May 27, 2005 by the Trustees of the Acambis Employees’ Trust.

DIRECTORS’ INTERESTS IN SHARE OPTIONS AND PERFORMANCE CONDITIONS

The Directors who held office at December 31, 2004 hold options to acquire ordinary shares of the Company under the Acambis 1996 Approved Share Option Scheme (1996 Scheme), the Acambis 1995 Savings-Related Share Option Scheme (SAYE Scheme) and the Acambis 1999 Share Option Plan (1999 Plan) as follows:

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NOTES

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All of the above options were granted for nil consideration and are held over 10p ordinary shares in the Company. The market value of the options at the time of grant are as detailed in the ‘Exercise price’ column. The market price of shares at December 31, 2004 was 251.5p and the range during the year was 244.25p to 371.0p per share.

Further information on each of the Company’s share option schemes, including the number of options outstanding, exercise prices and exercise periods, is set out in note 24 to the financial statements (In note 1c within Item 17).

LONG-TERM SHARE INCENTIVE PLAN

Awards have been made to Executive Directors of the Company under the LTIP¹ as follows: