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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

[ x ]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

Commission File Number: 0-22879

BIORELIANCE CORPORATION

(Registrant’s Telephone Number, Including Area Code): (301) 738-1000

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

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

Common Stock, $0.01 par value

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes      [X]      No      [  ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

     Indicate by check mark whether registrant is an accelerated filer (as defined in Rule 12b- of the Exchange Act).   Yes      [X]      No      [  ]

     The aggregate market value of the voting stock held by nonaffiliates of the registrant (based on the closing price of $24.80 as reported on June 28, 2002 on the Nasdaq Stock Market) was approximately $88,279,766. There were 8,442,268 shares of common stock, $ 0.01 par value per share, outstanding as of June 28, 2002. There were 8,503,712 shares of common stock, $0.01 par value per share, outstanding as of March 3, 2003.

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DOCUMENTS INCORPORATED BY REFERENCE:

     Portions of the registrant’s definitive proxy statement, which the Corporation expects to file with the Securities and Exchange Commission within 120 days after the end of its fiscal year, are incorporated by reference into Part III, Items 10, 11, 12 and 13 of this Report.

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PART I

ITEM 1. BUSINESS

Overview

     BioReliance Corporation (BioReliance or the Corporation) is a leading contract service organization (CSO) that provides testing and development, and manufacturing services for biologics and other biomedical products to biotechnology and pharmaceutical companies worldwide. Through its testing and development business segment, the Corporation evaluates products to ensure that they are free of disease-causing agents or do not cause adverse effects, characterizes products’ chemical structures, develops formulations for long-term stability and validates purification processes under regulatory guidelines. The Corporation has more than 135 families of testing assays. In its manufacturing business segment, BioReliance develops unique production processes and manufactures biologics on behalf of clients both for use in clinical trials and for the worldwide commercial market.

     The Corporation was founded in 1947 as Microbiological Associates, Inc. It reincorporated in Delaware and changed its name to BioReliance in connection with the initial public offering of its stock in 1997.

Available Information

     BioReliance makes available free of charge on its website at www.bioreliance.com, its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K (including exhibits and supplementary schedules) and amendments to those reports, filed or furnished under Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after these reports are electronically filed with, or furnished to, the SEC.

CSO Industry Overview

     The CSO industry provides outsourced product development and licensed product support services on a contract basis to pharmaceutical and biotechnology companies. The CSO industry has evolved from providing primarily preclinical services in the 1970s to being a full service industry today consisting of many small, limited-service providers and a small number of larger companies in four broad service sectors: (i) nonclinical laboratory testing focused on product characterization and identification of potential contaminants; (ii) in vitro (test tube) and in vivo (animal-based) toxicology studies; (iii) contract manufacturing for clinical trials and commercial purposes; and (iv) human clinical trials management. BioReliance provides services in the first three of these categories, primarily for biologics and other biomedical products.

Biologics Development Process

     Under the regulatory system of the United States, the product cycle for new pharmaceuticals is divided into three distinct stages: preclinical development, clinical development and licensed product. The preclinical development stage involves the discovery, characterization, appropriate toxicity studies, product formulation and biological trials necessary to prepare an Investigational New Drug (IND) exemption application for submission to the FDA. The IND must be acceptable to the FDA before either a biologic or chemical drug can be tested in humans. The second, or clinical stage, of development follows a successful IND submission and involves the activities necessary to demonstrate the safety, tolerability, efficacy and dosage of the active substance in humans, as well as the ability to manufacture the substance in accordance

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with the FDA’s Good Manufacturing Practices (GMP) regulations. For biologics, data from these activities are compiled in a Product License Application or, if for a specified biologic, in a Biologic License Application, and submitted to the FDA requesting approval to market the product. The third stage, or licensed product (approved product or commercial product) stage, follows FDA approval of the Product License Application or Biologics License Application, and involves the manufacture, distribution and clinical monitoring of the product. The licensed product stage, during which the biologic can be marketed as a product, also involves the development and regulatory approval of product modifications and line extensions of the original product. Until recently, all Biologics were regulated by the Center for Biologics Evaluation and Research (CBER) of the FDA. However, FDA recently announced that the Center for Drug Evaluation and Research (CDER) will assume responsibility for the regulation of Biologics commencing June 30, 2003. Blood and plasma derived products and Vaccines will remain within CBER.

Services

     BioReliance provides two broad types of contract services: testing and development services and manufacturing services, each of which spans the product cycle from early preclinical development through licensed production. The only significant CSO services not provided by BioReliance are chronic toxicology studies and human clinical trials management.

     Compared to CSOs specializing in human clinical trials management, BioReliance’s involvement with clients begins at a much earlier stage of product development, most often well before any clinical trials are initiated. In the Corporation’s experience, preclinical services lead to increased business for later stage services, including lot release testing and manufacturing, by providing an entry at the earliest stage of product development. The Corporation provides these services to clients at every stage of product development and manufacture, including in-process testing and final testing of licensed biologics.

Testing and Development Services

     BioReliance provides a broad range of testing and development services. Testing services represent the more mature parts of its business, while development services are a more recent outgrowth of the core testing business.

Testing Services. The Corporation’s testing services include virus and microbial safety assessments of cell banks used to manufacture biologics, validation of purification processes for clearance of adventitious agents such as viruses, and testing of in-process and final products. The Corporation pioneered biologics testing during the development of the first biologic products, including Genentech’s Activase^® and Ortho Pharmaceutical’s Orthoclone OKT^®3, in the early 1980s. The Corporation believes that it has a significant share of the current outsourced international market for these services and seeks to increase its market share in this rapidly expanding field.

Cell Bank Characterization. The starting point for manufacture of a biologic is a cell bank, consisting of a large number of vials of cryopreserved cells. Each bank must be free of any detectable biologic contaminants. BioReliance performs all the FDA-required tests to characterize cell banks with respect to the presence of biologic agents such as viruses, mycoplasma and bacteria. The Corporation also confirms the species and identity of cell lines. A biologic may not proceed to human clinical trials without satisfactory results from these tests.

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In-Process and Final Product Testing. The Corporation tests the biologic during intermediate states of manufacture (i.e., before purification) and as a final purified product. Each production lot must be tested for the presence of specified biological agents both before and after the purification process. In addition, the Corporation tests the final purified (and vialed) product on a lot-by-lot basis to detect the presence of microbial and other agents. This FDA-required testing currently must be compliant with Good Laboratory Practices (GLPs). The Corporation, however, as a leader in ensuring the quality of biologics, holds itself to the more stringent GMP requirements in its lot release testing, which are the same requirements that must be met in manufacturing processes. Tests are performed on each lot of a manufactured product throughout its clinical development and commercial marketing phases.

     For over twenty years, BioReliance has provided both in vitro and in vivo testing services to assess the genetic safety of pharmaceutical and chemical products. With the advent of biotechnology, BioReliance has developed specialized assays to assess the safety of a variety of biologic products, from genetically engineered proteins to DNA plasmids used in gene therapy clinical trials. The Corporation believes that the greatest future growth in in vivo services will come from the application of molecular biological techniques.

In Vitro Studies. BioReliance conducts a wide array of preclinical biological tests employing primarily in vitro (test tube) approaches to assess toxicological effects of candidate pharmaceuticals. These studies include genetic toxicology assays for the detection of gene mutations, chromosome damage, primary DNA damage and cell transformation. The Corporation is well positioned to provide these services with its experienced scientific staff and state-of-the-art laboratory facilities. BioReliance custom designs its testing batteries and GLP compliant protocols to comply with international guidelines. An additional in vitro service provided by the Corporation is the detection of infectious agents, primarily viral, in laboratory animals used for research purposes by clients worldwide.

In Vivo and Molecular Studies. BioReliance currently offers several types of in vivo (animal-based) studies, primarily designed to assess product safety during the preclinical stage of product development. A particular area of interest involves the use of transgenic mice to assess potential carcinogenicity of a drug or chemical.

     BioReliance is engaged in a contract sponsored by the National Institute of Environmental Health Sciences (NIEHS) to determine whether tumor formation can be induced by known carcinogens in certain strains of transgenic mice. The advantage of such an approach is to shorten the “in life” portion of long-term carcinogenicity studies from two years to six months.

     Employing its molecular biology expertise from the emerging gene therapy sector, the Corporation has developed a unique assay system in which specialized small animal models are coupled with advanced polymerase chain reaction (PCR) techniques to detect the presence of therapeutic DNA distributed in tissues and organs throughout the body. This specialized biodistribution study is important for gene therapy and other DNA-based products because the “active ingredient” is a genetic element that may have side effects if delivered to sites outside the target area within the body. For developers of DNA-based products, these studies now are required by the FDA prior to the first administration to humans in clinical trials.

Development Services. In 1995, the Corporation expanded its capabilities to better characterize biologics in anticipation of new FDA regulations and guidelines. These regulations, published in 1996, permit the development and manufacturing processes for specified biologics to be streamlined. This expansion into development services was an outgrowth of the Corporation’s testing business and includes the analytical services and validation services described below.

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Product Testing and Methods Validation. These services focus on protein product testing to show that a product meets predefined criteria for identity, purity, strength and quality. The Corporation routinely uses methods based on SDS PAGE, isoelectric focusing, N-terminal sequencing, high performance liquid chromatography (HPLC), peptide mapping, amino acid analysis, LC-electrospray mass spectrometry (LC-MS), and matrix assisted laser desorption/ionization time-of-flight (MALDI-TOF) mass spectrometry for clients in a GMP environment.

     Each biologic product presents a unique set of analytical challenges. The size, shape and internal structure of the molecule determine the methods employed to fully characterize it in a manner suitable for regulatory submission. Generally, several different methods are required to fully characterize a biologic molecule. For a product license submission, it also is necessary to develop and rigorously validate each analytical method.

Formulation Development, Product Stability and Consistency Testing. The Corporation’s development services include the full spectrum of formulation development, stability testing and consistency testing services. Biologics are extremely sensitive to their immediate environment, and a suitable, stable formulation must be developed so that the product can be administered in active form to patients. The structural uniqueness of each product demands its own formulation — a poor formulation can reduce therapeutic effect during clinical trials. The formulation also plays a key role in the stability of the product. Typically, several candidate formulations are developed and the relative product stability is compared for each formulation over an extended period of time (usually months to years) under a variety of conditions (temperature and humidity, for example). The product’s stability is measured by the same validated analytical techniques that are used to assess the product’s structural integrity on a lot-by-lot basis. The goal is a formulation in which the product remains active through final packaging, inventory storage, distribution to clinical or pharmaceutical sites and administration to patients. One of the major impacts of a successful formulation will be to extend the shelf-life of a biologic — an extended shelf-life can have a significantly positive economic impact for the client. Finally, the FDA requires that the product maintain its structural identity and activity from lot-to-lot throughout the product’s commercial lifetime.

Purification Process Validation. BioReliance validates client purification processes to determine the capability of the process for clearance (removal or inactivation) of certain biological agents and impurities such as viruses, mycoplasma, DNA and TSE agents such as BSE. The client typically conducts a small-scale version of its purification process at the Corporation’s facilities. A biologic product will not be licensed if these studies are not performed. BioReliance has the capacity to perform large studies (for example, studies involving multiple purification steps and simultaneous testing with multiple biological agents), and the Corporation has dedicated laboratory suites for the performance of these studies in the United States and Europe.

BioRepository: The BioRepository program at BioReliance is an ultra low temperature storage facility. Approximately 80% of revenues derive from a single cost-plus-fixed-fee contract with the National Cancer Institute, a branch of the federal government. Under this 5-year, contract, BioReliance receives, stores and distributes biological samples used in bioepidemiological studies related primarily to cancer causation and prevention.

Manufacturing Services

     BioReliance’s manufacturing services currently include both viral production and microbial fermentation. The Corporation has been providing services in viral production since 1993 when it formed its Phase I/II manufacturing department in the United States. The rapid progress of gene therapy products into Phase I/II human clinical trials, the emergence of viral cancer therapies and a need for viral vaccines

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have fueled the growth of manufacturing revenue for the Corporation from viral production services from 1993 to the present. The Corporation began manufacturing microbial products in 1996 with its acquisition of BIOMEVA GmbH (BIOMEVA, now known as BioReliance Manufacturing GmbH), a contract manufacturer of microbial products located in Heidelberg, Germany.

Cell Banking. A cell bank is a collection of cryopreserved vials, usually several hundred in number, which is held in a frozen state (at liquid nitrogen temperatures). Each vial contains genetically altered cells that are used for production of the biologic product. Typically, each biologic product will have both a Master Cell Bank (MCB) and a Working Cell Bank (WCB). As the name implies, the WCB is the bank from which frozen vials are withdrawn, the cryopreserved cells are thawed, and the resulting live cells are used to seed a bioreactor vessel for culture and production of the biologic product. The MCB is the bank from which additional WCBs are manufactured, if needed. The MCB and WCB must be created in compliance with GMPs. BioReliance offers this capability in both the United States and Europe. A long-term storage facility for such vials is called a biorepository, which also must be maintained under strict GMP guidelines.

Production and Production Development. Generally, biologics are manufactured either by genetically altered mammalian cells (if the molecular structure is complex) or genetically altered microbial cells (if the molecular structure is relatively less complex). BioReliance offers mammalian cell culture services to developers of viral-based products, particularly viral vaccines, gene therapies and cancer oncolytics. In 1988, the Corporation began pioneering assays to support the development of gene therapy products. Building on this early testing capability, in 1993 the Corporation established an independent contract manufacturing service for companies and research institutes developing gene therapies, which it believes was the first of its kind. This expanded manufacturing service drew upon the Corporation’s many years of experience in viral testing and small scale manufacturing. BioReliance now has GMP-compliant manufacturing laboratories in Rockville, Maryland and Stirling, Scotland (U.K.). Combined, these facilities have manufactured more than 140 lots of human clinical trial material for clinical investigation in the United States, Europe and Japan. The Corporation has specific experience in manufacturing adenoviruses, adeno-associated viruses, herpes viruses, other viruses and cells as tumor vaccines and, to a lesser extent, retroviruses. The early-stage nature of these therapies demands that specific production techniques are developed for each product, much the same as with other biologic products. BioReliance offers these production development services individually or as part of its manufacturing “package” to clients.

     In late 2000, the Corporation began operations its large-scale manufacturing facility located in Rockville, Maryland in the same life science park as its other U.S. operations. The operation of this facility supports the development and manufacture of products derived from mammalian cell culture. The facility is staffed by qualified scientific and management employees involved in process development, manufacturing and quality oversight. The facility contains qualified biopharmaceutical systems and equipment used to support large-scale manufacture of biologics for clinical trials. These systems include those designed to supply high purity steam, water and air for product manufacture.

     Currently, the Corporation’s manufacturing clients in the most advanced stage of clinical development are engaged in Phase II clinical trials. However, the Corporation’s manufacturing capacities are at the 100 liter per lot size — more than sufficient for many Phase II or III viral therapy trials. As more gene therapy and other viral products reach Phase III and the market, and their manufacturing requires scales beyond 100 liters, the Corporation may expand its internal capabilities according to market demand.

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     The Corporation has a manufacturing operation in Heidelberg, Germany. The Corporation acquired this operation in 1996, and it offers GMP-compliant contract fermentation services for recombinant and natural microorganisms, with bioreactor working volumes up to 1,000 liters. These microbial fermentation capabilities allow BioReliance to provide manufacturing services to companies developing therapeutic protein or protein fragments expressed in non-pathogenic bacterial systems. Besides manufacturing, this division offers scale-up and development for production processes and provides analytical testing of proteins and other biologics.

Purification and Purification Development. Both U.S. and German operations provide purification services for production clients. Similar to production services, purification techniques must be developed on a product-by-product basis. BioReliance has developed GMP-compliant chromatographic-based techniques for the large-scale purification of viruses that will be necessary as emerging gene therapy and other viral products progress to Phase III clinical trials.

Final Formulation and Filling. BioReliance offers aseptic final formulation and filling services for its viral production clients and others. Filling involves dispensing the final purified product into individual containers suitable for shipment to the client for further processing or into formulated, individual dosage forms suitable for administration to individual patients in a human clinical trial. For its microbial-based production clients, the Corporation does not currently offer final filling services.

Backlog

     The Corporation’s backlog was approximately $19.8 million as of December 31, 2002, of which approximately $13.0 million related to the testing and development segment and $6.8 million related to the manufacturing segment. Backlog consists of anticipated revenue from signed agreements for orders with a readily ascertainable price that are not anticipated to be performed immediately upon receipt. Orders can be cancelled, reduced in scope or delayed at any time by the client before any revenue is recorded due to changes in the client’s development and regulatory plans. Delayed contracts remain in our backlog until the client decides whether to continue, modify or cancel the project. Moreover, the scope of a contract can change over the course of a project. In addition, some orders are for work to be performed weeks or months in the future and revenue from such orders may not be recorded until a year or more after the order is received, particularly orders for manufacturing services. Conversely, due to the nature of some of our biologic testing contracts, a substantial portion of the Corporation’s revenue is derived from work performed immediately upon receipt of the order and the related test articles and, therefore, is not included in backlog. For these reasons, management believes that backlog is not a meaningful indicator of the Corporation’s future results. We cannot provide assurance that we will be able to realize all or any part of the revenue included in the Corporation’s backlog.

Customers

     The Corporation’s customers are primarily large biotechnology and pharmaceutical companies and agencies, principally of the United States government. The Corporation has derived its revenues from commercial and government customers as follows:

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     During 2002, no one customer (other than the U.S. government) accounted for more than 10% of the Corporation’s total revenues. One customer, a government contractor, accounted for 18% of the revenue of the Corporation’s manufacturing segment during 2002. The work performed for this customer was under a government subcontract. No one customer accounted for more than 10% of the revenue of the Corporation’s testing and development segment during 2002. Before 2002, the Corporation derived a significant portion of its government contracts revenue from contracts that had been set aside for award to small businesses as defined under government regulations. The Corporation is no longer eligible for small business set-aside contracts and grants.

Government Regulation

     During 1996, the FDA introduced new approaches to the regulation of biologics that benefit BioReliance and many of its clients. The FDA has published a list of “specified” biologic products that are eligible for new guidelines reducing the complexity of the licensing process. The list of specified products includes most of the biologics now under development by pharmaceutical and biotechnology companies; namely, therapeutic monoclonal antibodies, therapeutic recombinant DNA (protein) products, synthetic therapeutic peptides of 40 or fewer amino acids, and synthetic plasmid nucleic acid therapeutics. The FDA recognizes that reliable bioanalytical techniques now are available that enable accurate characterization of these structurally complex products. Specified biologics for which bioanalytical techniques have been developed, validated and accepted by the FDA are often termed “well-characterized” products.

     Since 1996, biologics developers have had more flexibility to engage independent contract suppliers for each portion of the manufacturing process, so long as they ensure that each contract manufacturer employed meets manufacturing compliance requirements. In addition, the FDA no longer requires an “Establishment License” for a facility designated for the production of a specified product. Under prior regulations, the large-scale facility necessary for licensed production was needed prior to product approval. The current approach enables the use of a smaller, pilot-scale facility owned by the developer or a contract manufacturer for the production of clinical trials materials, including those for pivotal Phase III trials and for licensed products. BioReliance believes that developers of biologics will pursue CSOs that understand these new guidelines and can provide the full range of services to support the proper characterization and documentation for biologics.

     The services performed by BioReliance are subject to various regulatory requirements designed to ensure the safety, effectiveness, quality and integrity of pharmaceutical products, primarily under the Federal Food, Drug and Cosmetic Act and associated GLP and GMP regulations which are administered by the FDA in accordance with current industry standards. These regulations apply to all phases of drug development, testing, manufacturing and record keeping, including personnel, facilities, equipment, control of materials, processes and laboratories, packaging, labeling, storage and distribution. Noncompliance with GLPs or GMPs by the Corporation in a project could result in disqualification of data collected by the Corporation in the project. Material violation of GLP or GMP requirements could result in additional regulatory sanctions, imposition of fines, and in severe cases could result in a mandated closing of the Corporation’s facilities, which could have a material adverse effect on the Corporation’s business, financial condition and results of operations.

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     To help assure compliance with applicable regulations, BioReliance has established quality assurance units at its facilities that monitor ongoing compliance by auditing test data and regularly inspecting facilities, procedures and other GLP and GMP compliance parameters. In addition, FDA regulations and guidelines, serve as a basis for the Corporation’s standard operating procedures. Despite these efforts, the nature and extensive scope of the applicable regulatory requirements mean that the risk of regulatory citation or action by the FDA cannot be eliminated. In addition, the Corporation’s facilities are inspected from time to time by the FDA or other governmental agencies, and operations at these facilities could be interrupted or halted for lengthy periods of time if such inspections prove unsatisfactory.

     Certain of the Corporation’s development and testing activities are subject to the Controlled Substances Act, administered by the Drug Enforcement Agency (DEA), which regulates strictly all narcotic and habit-forming substances. The Corporation maintains restricted-access facilities and heightened control procedures for projects involving such substances due to the level of security and other controls required by the DEA.

     Additionally, the Corporation’s business involves the controlled storage, use and disposal of hazardous chemicals, radioactive materials, and biological hazards, and is therefore subject to numerous federal, state, local and foreign environmental regulations governing the use, storage, handling and disposal of these materials. Although the Corporation believes that its safety procedures for handling and disposing of these hazardous materials comply in all material respects with the standards prescribed by law and regulation, the risk of accidental contamination or injury from hazardous materials cannot be eliminated. BioReliance maintains liability insurance for some environmental risks that management believes to be appropriate and in accordance with industry practice. However, the Corporation may not be able to maintain this insurance in the future on acceptable terms. In the event of an accident, the Corporation could be held liable for damages that are in excess or outside of the scope of our insurance coverage.

     The BioReliance laboratory animal program and testing facilities comply with existing government and industry standards for the care and use of laboratory animals. We are registered with the United States Department of Agriculture as a Research Facility (Registration No. 51-R-0003), meeting requirements of the USDA Animal Welfare Act, as determined by the March 13, 2003, site visit during which there were no non-compliant findings. This business is accredited by the Association for the Assessment and Accreditation of Laboratory Animal Care International (AAALAC), which is considered to be the industry standard. Our program was most recently granted full continued accreditation by the AAALAC on March 5, 2003. Additionally, BioReliance holds Public Health Service Animal Welfare Assurance No. A3144-01, most recently granted by the NIH Office for Laboratory Animal Welfare (OLAW), on June 4, 2001.

     The use of controlled substances in testing for drugs with a potential for abuse is regulated in the United States by the U.S. Drug Enforcement Administration. All BioReliance laboratories using controlled substances for testing purposes are licensed by the U.S. Drug Enforcement Administration.

Competition

     The CSO industry is highly fragmented, with many providers ranging in size from one person consulting firms to full-service global drug development corporations. BioReliance primarily competes with in-house research and development departments of biopharmaceutical companies, universities and medical centers, in addition to other CSOs. Some of these organizations possess substantially greater

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capital and technical resources than the Corporation. The Corporation’s primary service competitors are different in each of its service areas. For testing and development services its primary competitors are aaiPharma Inc., Charles River Laboratories, Inc., Covance Inc., Inveresk Research International Ltd., Q-One Biotech Ltd. and SRI International; and, for manufacturing services, its primary competitors are DSM Biologics Holding Inc., Molecular Medicine, Inc., Charles River Laboratories, Inc. and Excel BioTech.

     The industry has been consolidating as a result of competitive pressures. This trend is likely to produce increased competition among the larger competitors for both clients and acquisition candidates. In addition, the service industry has attracted the attention of the investment community, which could lead to heightened competition by increasing the availability of financial resources. Increased consolidation may lead to price and other forms of competition, which may affect the Corporation’s margins. The Corporation believes the principal competitive factors in its business are scientific expertise, technological advancements, reputation, regulatory experience, international presence and the ability to offer a comprehensive range of biologics testing, development and manufacturing services.

Information Systems

     Digital information systems are an important component of the Corporation’s technological leadership. The Corporation believes that superior information systems are essential to expanding its operations and to providing innovative services to clients, for timely, accurate reporting and project monitoring.

     BioReliance has made significant investments in its information systems and personnel, in both the United States and Europe, to maximize its relationships with its clients. Those investments have included state-of-the-art hardware and software that maximize compatibility and integration internally and with the Corporation’s clients, and an Oracle enterprise application suite of modules as the software foundation for its business.

     The FDA has become increasingly sophisticated with respect to information systems and the integrity of all forms of data incorporated into regulatory submissions. Correspondingly, BioReliance strives to be at the forefront of nonclinical testing laboratories in validation of hardware and software systems.

Insurance

     BioReliance maintains product liability and professional errors and omissions liability insurance, providing $15 million in coverage on a claims-made basis. There are significant limitations and exclusions to these coverages. In addition, in certain circumstances the Corporation seeks to manage its liability risk through contractual provisions with clients requiring the Corporation to be indemnified by the client or covered by clients’ product liability insurance. In addition, in certain types of engagements, the Corporation seeks to limit contractual liability to its clients, most commonly to the amount of fees received by the Corporation. The contractual arrangements are subject to negotiation with clients and the terms and scope of such indemnification, liability limitation and insurance coverage vary from client to client and from project to project. Although many of the Corporation’s clients are large, well-capitalized companies, the financial performance of their indemnities, if any, is not secured. Therefore, BioReliance bears the risk that the indemnifying party may not have the financial ability to fulfill its indemnification obligations or that liability would exceed the amount of applicable insurance. In addition, the Corporation could be held liable for errors and omissions in connection with the services it performs.

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Employees

     At December 31, 2002 the Corporation had 638 full-time equivalent employees, of whom 356 were employed in testing and development services and 90 were employed in manufacturing services, with the remainder employed in general and administrative roles. The Corporation believes that its relations with its employees are good. None of the Corporation’s employees is represented by a collective bargaining agreement.

ITEM 2. PROPERTIES

     BioReliance’s corporate headquarters are located in Rockville, Maryland. In addition to its headquarters building, the Corporation occupies six other facilities in Rockville, Maryland, providing approximately 215,000 square feet of operational, manufacturing and administrative space. BioReliance uses its headquarters facility and five of its other buildings for testing, development, certain small scale manufacturing, warehousing, archives and administrative space. The seventh facility, which became operational during 2000, is a Phase III and commercial manufacturing services facility with approximately 58,000 square feet of production and administrative space. To date, 35,000 square feet of this facility are completed and in service. Of the Corporation’s six facilities, one facility is owned, four are leased under operating leases, and the sixth facility is leased under a capital lease.

     The Corporation also leases approximately 28,000 square feet of laboratory, manufacturing and administrative space in Stirling, Scotland (U.K.), and approximately 18,000 square feet of administrative and manufacturing space in Heidelberg, Germany. See Notes 4 and 9 of Notes to Consolidated Financial Statements for information concerning lease obligations.

     The Corporation believes that its existing facilities are adequate to meet its current requirements and that suitable space will be available as needed.

ITEM 3. LEGAL PROCEEDINGS

     The Corporation from time to time may be involved in various claims and legal proceedings arising in the ordinary course of business. The Corporation does not believe that any such claims or proceedings, individually or in the aggregate, would have a material adverse effect on the Corporation’s financial condition or results of operations.

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

     There were no matters submitted to a vote of the stockholders of the Corporation during the quarter ended December 31, 2002.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Price

     The Corporation’s common stock is traded on the Nasdaq Stock Market under the symbol “BREL”. The following table presents, for the periods indicated, the high and low sale prices per share of common stock as reported by the Nasdaq Stock Market.

Number of Stockholders

     As of March 3, 2003, there were approximately 241 holders of record of the Corporation’s common stock. Based on a review of its nominee account listings, the Corporation estimates that there are approximately 2,650 beneficial owners of the Corporation’s common stock.

Dividends

     The Corporation has never declared or paid any cash dividends on its common stock, and the Corporation’s existing credit facility prohibits the payment of dividends without the prior consent of the lender. The Corporation does not anticipate paying any cash dividends in the foreseeable future and intends to retain future earnings for the development and expansion of its business.

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Use of Proceeds – Initial Public Offering

     During 1997, the Corporation received $32.2 million net proceeds from the initial public offering. The common stock sold in the initial public offering was registered on registration statement no. 333-25071, which became effective on July 28, 1997. As of December 31, 2002, the Corporation had used approximately $21.3 million of the net proceeds from the Corporation’s initial public offering toward planning and construction for manufacturing expansion, purchases of laboratory equipment and information systems hardware and software, and debt repayment.

     At December 31, 2002, $10.9 million of the net proceeds from the initial public offering was invested in money market funds.

ITEM 6. SELECTED FINANCIAL DATA

     The selected consolidated financial data set forth below for the five years ended December 31, 2002 have been derived from the Corporation’s consolidated financial statements audited by PricewaterhouseCoopers LLP, independent accountants. The selected consolidated financial data set forth below should be read in conjunction with, and are qualified by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Corporation’s audited consolidated financial statements and related notes appearing elsewhere in this Report on Form 10-K.

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

     Certain statements made in this Annual Report on Form 10-K are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, which generally are not historical in nature, and may contain the words “believe”, “anticipate”, “expect”, “estimate”, “project”, “will be”, “will continue”, “will likely result”, or similar words or phrases. Forward-looking statements in this Annual Report on Form 10-K include, among others, statements regarding:

	•		the anticipated growth of revenue and improvement in profit margins,
	•		the Corporation’s ability to use additional capacity in its manufacturing facility, or to expand its manufacturing capacity,
	•		the anticipated increase in selling, general and administrative expenses and hiring of new employees,
	•		the Corporation’s ability to maintain selling, general and administrative expenses as a percentage of revenue relatively constant,
	•		the Corporation’s ability to maintain research and development expenses and tax rates at constant levels,
	•		the Corporation’s ability to fund its operations, capital expenditures, planned stock repurchase and interest and principal payments on debt for 2003 with existing cash and cash equivalents, cash flows from operations and its line of credit, and
	•		the Corporation’s expansion plans.

     Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. The risks and uncertainties are detailed from time to time in reports filed by BioReliance with the Securities and Exchange Commission, including in its previously-filed Forms 10-K and 10-Q, and include, but are not limited to, those included in the section entitled “Risk Factors”, which begins below at page 36.

     As and when made, management believes that these forward-looking statements are reasonable. The Corporation undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements. Therefore, readers are cautioned not to place undue reliance on these forward-looking statements since new risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on the Corporation’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

     The following discussion and analysis of the Corporation’s financial condition and results of operations should be read in conjunction with the Corporation’s consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K.

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Overview

     The Corporation is a leading contract service organization (CSO) that provides testing and development, and manufacturing services for biologics and other biomedical products to biotechnology and pharmaceutical companies worldwide.

     BioReliance Corporation is a leading contract service organization providing, testing, development and manufacturing services for biologics and other biomedical products to pharmaceutical companies worldwide. The Corporation believes that it is the largest provider of outsourcing services focused on the expanding biologics sector of the pharmaceutical industry. During 2002, the Corporation believes it realized a significant return on investments in capacity and client service programs which were designed to meet higher goals for timeliness and quality. During 2002, the Corporation focused a concerted effort to hold discussions with major biopharmaceutical companies with the goal of entering into expanded corporate relationships such as those announced in 2002. The Corporation also continued to contribute to bioterrorism defense through the work performed in both operating segments on the smallpox vaccine contracts. The Corporation believes that the services provided under some of its key relationships, the benefits that have been provided by what the Corporation believes is a growing market, and the increasing recognition of BioReliance as a service provider of choice have had a positive effect on the Corporation’s results of operations.

     The Corporation follows Statement of Financial Accounting Standards No. 131 (SFAS 131), “Disclosures About Segments of an Enterprise and Related Information”. Under SFAS 131, the Corporation reports the results of two operating segments: (1) testing and development services and (2) manufacturing services. The Corporation evaluates the performance of these operating segments based on revenue and gross profit. The Corporation also reports separately the results of its U.S. operations and European operations.

     BioReliance enters into several different types of contractual relationships with its clients. Contracts in the testing and development business can be: (1) quotations, based upon established price lists for individual services, (2) work proposals, most often for larger studies composed of a variety of services, and (3) long-term master agreements between the parties. A majority of testing and development contracts range in length from a few weeks to several months; however, some master agreements involving largely stability testing and lot release testing contracts may be one to three years in length. Manufacturing contracts tend to be relatively long because of the length of time required to create and characterize cell banks, perform pilot production runs, and produce and test the products. These contracts require a formal statement of work and range in length from six months to over two years. Government contracts, usually multi-year, are consistent with the requirements of the particular granting agencies.

     Clients generally are invoiced as work is completed. For contracts in excess of $70,000, clients are often invoiced at the commencement of the services and for progress payments based on defined milestones. Contracts may be terminated for a variety of reasons, including the client’s decision to forego a particular study or to cancel or delay a particular product development program, the failure of a clinical trial or unexpected or undesired results of product testing, or by the government for convenience. Generally, service contracts may be canceled by the client upon notice, with a partial charge commensurate with the percentage of work completed at the time of cancellation.

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     For both testing and development services and manufacturing services, the major components of cost of sales are labor and related fringe benefits; facilities, primarily rent or depreciation, utilities and maintenance; direct materials; overhead costs, such as travel, office expenses and employee-related expenses; consulting costs and subcontracted costs. Cost of sales includes these expenses for laboratories directly providing the services and for supporting services departments, principally purchasing, quality assurance and quality control. In relative proportion to the total cost of sales, labor and materials costs are greater and facilities costs are less for testing and development services than for manufacturing services.

     Selling, general and administrative expense consists primarily of labor and related fringe benefits; administrative materials, travel, legal, accounting and consulting services, costs related to managing investor relations, and bad debt expense. In addition, a portion of facilities and information systems costs are allocated to general and administrative departments. Research and development expense consists primarily of labor and related fringe benefits, materials, travel, and a portion of facilities cost.

Critical Accounting Policies

     The Corporation’s critical accounting policies are listed below. These policies are particularly important to the portrayal of the Corporation’s financial position and its results of operations and require management’s significant judgment. As a result, they are subject to an inherent degree of uncertainty.

		Revenue Recognition
		We recognize revenue from commercial contracts, which are principally fixed-price or fixed-rate, and record it predominantly using a percentage-of-completion method, except for services that are generally completed within three days which are accounted for using the completed-contract method. We determine percentage-of-completion over time using estimated total project costs as a cost input measure. The percentage of completion may be affected by future events, including delays caused by laboratory interruptions, client-mandated changes and the unpredictability of biological processes. Accordingly, for each reporting period the Corporation undertakes a review process to determine that recorded revenue represents the actual percentage of completion in all material respects.
		Revenue recorded under the percentage of completion method for projects in process is not intended to and does not necessarily represent the amount of revenue that could be recovered from the client if any project were cancelled or failed. The Corporation undertakes a review of unbilled accounts receivable from customers to determine that such amounts are expected to become billable and collectible in all material respects.
		Revenue recognized from government contracts, which are principally cost-plus-fixed-fee, is recognized in an amount equal to reimbursable costs plus a pro-rata portion of the earned fee. Losses are provided for at the time at which they become known.
		In estimating revenue, we make assumptions about the completion of projects and client mandated changes in the scope of timing of the project. If any of these uncertainties occur, then our estimates surrounding the percentage of completion method may prove to be incorrect. The unexpected termination of a large study or