10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2005

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 0-23223

CURAGEN CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	06-1331400
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

555 Long Wharf Drive, 11th Floor, New Haven, Connecticut 06511

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (203) 401-3330

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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)    Yes  x    No  ¨

The number of shares outstanding of the Registrant’s common stock as of April 29, 2005 was 50,760,142.

CURAGEN CORPORATION AND SUBSIDIARY

FORM 10-Q

INDEX

			Page
PART I. Financial Information
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets, March 31, 2005 (unaudited) and December 31, 2004	3
		Condensed Consolidated Statements of Operations, for the Three Months Ended March 31, 2005 and 2004 (unaudited)	4
		Condensed Consolidated Statements of Cash Flows, for the Three Months Ended March 31, 2005 and 2004 (unaudited)	5
		Notes to Condensed Consolidated Financial Statements (unaudited)	6 - 9
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10 - 33
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
	Item 4.	Controls and Procedures	34
PART II. Other Information
	Item 6.	Exhibits	35
Signatures			36
Exhibit Index			37

2

CURAGEN CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value and share data)

	March 31, 2005			December 31, 2004
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	26,317		$	23,849
Short-term investments		59,323			83,921
Marketable securities		217,767			220,350
Cash and investments		303,407			328,120
Income taxes receivable		902			829
Inventory		1,429			—
Accounts receivable		1,330			234
Other current assets		3			64
Prepaid expenses		1,516			1,499
Total current assets		308,587			330,746
Property and equipment, net		26,343			24,132
Intangible and other assets, net		13,817			14,334
Total assets	$	348,747		$	369,212
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,764		$	1,840
Accrued expenses		6,408			4,143
Accrued payroll and related items		1,245			2,075
Interest payable		1,850			4,900
Deferred revenue		5,030			4,244
Other current liabilities		1,053			1,520
Total current liabilities		19,350			18,722
Long-term liabilities:
Convertible subordinated debt		240,000			240,000
Accrued long-term liabilities		1,000			1,000
Total long-term liabilities		241,000			241,000
Commitments and contingencies
Minority interest in subsidiary		1,726			2,593
Stockholders’ equity:
Common Stock; $.01 par value, issued and outstanding 50,740,534 shares at March 31, 2005, and 50,646,538 shares at December 31, 2004		507			506
Additional paid-in capital		490,009			489,725
Accumulated other comprehensive loss		(2,632	)		(1,114	)
Accumulated deficit		(399,288	)		(379,889	)
Unamortized stock-based compensation		(1,925	)		(2,331	)
Total stockholders’ equity		86,671			106,897
Total liabilities and stockholders’ equity	$	348,747		$	369,212

See accompanying notes to condensed consolidated financial statements

3

CURAGEN CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three Months Ended March 31,
	2005			2004
Revenue:
Grant revenue	$	719			—
Instrument and reagent sales		1,082			—
Collaboration revenue		1,629		$	1,615
Total revenue		3,430			1,615
Operating expenses:
Grant research		421			—
Cost of instrument and reagent sales		207			—
Research and development		17,576			15,141
General and administrative		4,351			4,857
Total operating expenses		22,555			19,998
Loss from operations		(19,125	)		(18,383	)
Interest income		2,107			2,036
Interest expense		(3,361	)		(2,877	)
Loss on extinguishment of debt		—			(294	)
Loss before income taxes and minority interest in subsidiary loss		(20,379	)		(19,518	)
Income tax benefit		73			94
Minority interest in subsidiary loss		907			1,385
Net loss	$	(19,399	)	$	(18,039	)
Basic and diluted net loss per share	$	(0.39	)	$	(0.36	)
Weighted average number of shares used in computing basic and diluted net loss per share		50,272			49,803

See accompanying notes to condensed consolidated financial statements

4

CURAGEN CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Three Months Ended March 31,
	2005			2004
Cash flows from operating activities:
Net loss	$	(19,399	)	$	(18,039	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,000			2,583
Non-monetary compensation		318			123
Stock-based 401(k) employer plan match		170			244
Loss on extinguishment of debt		—			294
Minority interest		(907	)		(1,385	)
Changes in assets and liabilities:
Income taxes receivable		(73	)		(94	)
Inventory		(873	)		—
Accounts receivable		(1,096	)		—
Other current assets		61			(12	)
Prepaid expenses		(17	)		(614	)
Intangible and other assets, net		(78	)		(22	)
Accounts payable		1,924			(2,088	)
Accrued expenses		2,265			192
Accrued payroll and related items		(830	)		(429	)
Interest payable		(3,050	)		(1,901	)
Deferred revenue		786			(538	)
Other current liabilities		(452	)		(251	)
Net cash used in operating activities		(19,251	)		(21,937	)
Cash flows from investing activities:
Acquisitions of property and equipment		(4,281	)		(999	)
Proceeds from sale of fixed assets		114			—
Payments for intangible assets		(5	)		(140	)
Loans to employees, net of repayments		—			(42	)
Net inflows from purchases and maturities of short-term investments		24,579			42,206
Net inflows from purchases and maturities of marketable securities		1,084			5,053
Net cash provided by investing activities		21,491			46,078
Cash flows from financing activities:
Payments on capital lease obligations		—			(147	)
Proceeds from exercise of stock options		228			210
Proceeds from issuance of convertible debt		—			110,000
Payment for extinguishment of debt		—			(20,000	)
Payment of financing costs		—			(3,719	)
Net cash provided by financing activities		228			86,344
Net increase in cash and cash equivalents		2,468			110,485
Cash and cash equivalents, beginning of period		23,849			42,843
Cash and cash equivalents, end of period	$	26,317		$	153,328
Supplemental cash flow information:
Interest paid	$	6,116		$	4,561

See accompanying notes to condensed consolidated financial statements

5

CURAGEN CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of our management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of only normal recurring accruals, necessary to present fairly our consolidated financial position, results of operations and cash flows. Interim results are not necessarily indicative of the results that may be expected for the entire year. The condensed consolidated financial statements of CuraGen Corporation and subsidiary (the “Company”) include CuraGen Corporation (“CuraGen”) and its majority-owned subsidiary, 454 Life Sciences Corporation (“454”), and accordingly, all material intercompany balances and transactions have been eliminated.

The December 31, 2004 condensed consolidated financial statements have been reclassified to conform to the classifications used in 2005. All dollar amounts are shown in thousands, except par value and per share data.

The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2004.

2. Significant Accounting Policy

Due to the commercialization of 454’s novel nanoscale instrumentation and reagent products for whole genome sequencing during the quarter ended March 31, 2005, 454 adopted the following significant accounting policy:

Revenue Recognition, Instrument and Reagent Sales—454 recognizes revenue when (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the price is fixed or determinable and, (4) the collectibility is reasonably assured, in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 104, “Revenue Recognition”. Instrument sales are recognized upon the completion of installation of the equipment and training of customer personnel. However, certain customers have required that an instrument be tested prior to accepting the instrument. For those customers, revenue is recognized upon acknowledgement of acceptance from the customer. Reagent sales are recognized upon shipment of the products under FOB shipping or FOB destination based upon terms and conditions outlined in 454 customers’ purchase orders.

3. Comprehensive Loss

Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income” (“SFAS 130”), requires reporting and displaying of comprehensive income and its components. In accordance with SFAS 130, the accumulated balance of other comprehensive loss is disclosed as a separate component of stockholders’ equity and is comprised of unrealized gains and losses on short-term investments and marketable securities. A summary of total comprehensive loss is as follows:

	Three Months Ended March 31,
	2005			2004
Net loss	$	(19,399	)	$	(18,039	)
Other comprehensive loss:
Unrealized (losses) gains on securities:
Unrealized holding (losses) gains arising during period		(1,549	)		865
Reclassification adjustment for losses included in net loss		31			138
Net unrealized (losses) gains on securities		(1,518	)		727
Total comprehensive loss	$	(20,917	)	$	(17,312	)

6

The Company periodically reviews its investment portfolio to determine if there is an impairment that is other than temporary, and to date, has not experienced any impairments in its investments that were other than temporary. The Company’s investment objectives for cash equivalents, short term investments and marketable securities (the “investment portfolio”) is to preserve capital while maintaining liquidity and generating favorable yields within the limitations of the investment guidelines outlined in the Company’s and 454’s investment policies. These investment policies provide guidelines for sector diversification, maximum maturity and duration, concentration limits and credit quality. These policies also outline unacceptable investments.

In evaluating whether the individual investments in the investment portfolio are not other than temporarily impaired, the Company considered the credit rating of the individual securities, the cause of the impairment of the individual securities which are primarily related to interest rate increases and the severity of the impairment of the individual securities which are all less than 5% of the book value of the security.

4. Stock-Based Compensation

Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), requires expanded disclosures of stock-based compensation arrangements with employees and non-employees and encourages (but does not require) compensation cost to be measured based on the fair value of the equity instruments awarded to employees. Companies are permitted to continue to apply Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), which recognizes compensation cost based on the intrinsic value of the equity instruments awarded. The Company will continue to apply APB 25 to its stock-based compensation awards to employees through December 31, 2005. Effective January 1, 2006, the Company will apply the provisions of Statement of Financial Accounting Standards No. 123R “Share-Based Payment” (“SFAS 123R”) issued in December 2004.

Had compensation cost for the Company’s stock option plans been determined in accordance with SFAS 123, the Company’s net loss and net loss per share would have approximated the pro forma amounts shown below for each of the three month periods ended March 31, 2005 and 2004. The pro forma disclosure may not be indicative of pro forma results in future periods, because of the fact that options vest over several years, pro forma compensation expense is recognized as the options vest and additional awards may also be granted. The three month period ended March 31, 2004 pro forma expense and net loss disclosures below have been adjusted to reflect differences discovered during the preparation of the 2004 pro forma disclosures.

	Three Months Ended March 31,
	2005			2004
Net loss, as reported	$	(19,399	)	$	(18,039	)
Stock-based employee compensation expense included in net loss		313			97
Total stock-based employee compensation expense determined under Black-Scholes option pricing model		(1,255	)		(759	)
Pro forma net loss	$	(20,341	)	$	(18,701	)
Basic and diluted net loss per share:
As reported	$	(0.39	)	$	(0.36	)
Pro forma	$	(0.40	)	$	(0.38	)

The fair value of options granted during the three months ended March 31, 2005 and 2004 was estimated as of the grant date using the Black-Scholes option-pricing model with the following assumptions:

	Three Months Ended March 31,
	2005		2004
Expected dividend yield	0	%	0	%
Expected stock price volatility - CuraGen	82	%	82	%
Expected stock price volatility - 454	.10	%	.10	%
Risk-free interest rate - CuraGen	3.43	%	3.65	%
Risk-free interest rate - 454	3.87	%	3.65	%
Expected option term in years - CuraGen	4.6		6.1
Expected option term in years - 454	7.8		8.0

7

5. Restructuring and Related Charges

In June 2003, the Company announced a restructuring plan intended to focus resources on continuing to advance its pipeline of protein, antibody, and small molecule therapeutics into preclinical and clinical development. In connection with this restructuring plan, a charge of $2,888 was recorded in the second quarter of 2003, including $1,742 related to employee separation costs, $1,046 of operating lease obligations and $100 of asset impairment costs. The cash requirements under the June 2003 restructuring plan were $2,681, of which $2,227 was paid prior to March 31, 2005. The remaining cash requirements of $454 will be paid through 2006.

In October 2004, the Company announced a corporate restructuring to focus on advancing its therapeutic pipeline through clinical development. In connection with the October 2004 restructuring plan, a charge of $4,000 was recorded in the fourth quarter of 2004, including $2,968 related to employee separation costs, and $1,032 of asset impairment costs. The cash requirements under the October 2004 restructuring plan were $2,750, of which $2,561 was paid prior to March 31, 2005. The remaining cash requirements of $189 will be paid through June 2005.

6. Segment Reporting

The Company currently operates in two business segments: CuraGen and 454. CuraGen is a genomics-based pharmaceutical development company dedicated to improving the lives of patients by developing novel protein, antibody and small molecule therapeutics in the areas of oncology, inflammatory diseases, and diabetes. 454, the Company’s majority-owned subsidiary, is commercializing novel nanoscale instrumentation and technologies for rapidly and comprehensively determining the nucleotide sequence of entire genomes (“whole genome sequencing”). The operations of 454 are run by a separate management team and governed by a separate Board of Directors made up of members of CuraGen’s management team and Board of Directors. The Company currently exceeds the quantitative thresholds governing segment reporting, and as a result, the financial information disclosed herein represents all of the material financial information related to the Company’s reportable business segments. All of the Company’s revenues are generated in the United States and all assets are located in the United States.

	March 31, 2005			December 31, 2004
Cash and investments:
CuraGen	$	298,521		$	320,296
454		4,886			7,824
Total	$	303,407		$	328,120
Total assets:
CuraGen	$	343,416		$	364,385
454		14,903			16,231
Intercompany eliminations		(9,572	)		(11,404	)
Total	$	348,747		$	369,212
	Three Months Ended March 31,
	2005			2004
Revenues:
CuraGen	$	1,384		$	1,512
454		2,162			108
Intercompany eliminations		(116	)		(5	)
Total	$	3,430		$	1,615
Operating expenses:
CuraGen	$	17,831		$	15,767
454		4,840			4,231
Intercompany eliminations		(116	)		—
Total	$	22,555		$	19,998
Net loss:
CuraGen	$	17,660		$	15,384
454		2,646			4,040
Minority interest in subsidiary loss		(907	)		(1,385	)
Total	$	19,399		$	18,039
Capital expenditures:
CuraGen	$	4,050		$	728
454		233			286
Intercompany eliminations		(2	)		(15	)
Total	$	4,281		$	999
Depreciation and amortization:
CuraGen	$	1,401		$	1,991
454		599			592
Total	$	2,000		$	2,583

8

7. Inventory

Effective February 1, 2005, the date on which 454 successfully completed the installation of its first sequencing instrument at a customer site, 454 began to capitalize, in inventory, the costs of manufacturing instrumentation and reagents for commercial sale. Direct labor and manufacturing overhead costs incurred after February 1, 2005 are included in cost of instrument and reagent sales.

454’s inventory is recorded at the lower of cost or market on the first-in-first-out basis for non-lot controlled items, and on a specific identification basis for lot controlled items. A summary of inventory is as follows:

	March 31, 2005
Finished goods	$	156
Work in process		363
Raw materials		910
Total	$	1,429

9

CURAGEN CORPORATION AND SUBSIDIARY

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations as of March 31, 2005 and for the three month periods ended March 31, 2005 and 2004 should be read in conjunction with the sections of our audited condensed consolidated financial statements and notes thereto as well as our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are included in our Annual Report on Form 10-K for the year ended December 31, 2004.

Overview

We are a genomics-based pharmaceutical development company dedicated to improving the lives of patients by developing novel protein, antibody and small molecule therapeutics in the areas of oncology, inflammatory diseases, and diabetes. Our pipeline of therapeutics is based on targets from the human genome that we believe play a role in important mechanisms underlying disease.

We have taken a systematic approach to identifying and validating the most promising therapeutic targets from the human genome that are both applicable and amenable to drug development. We use internal resources to develop our potential protein therapeutics and have established development alliances with Abgenix, Inc. (“Abgenix”) to support our antibody projects, Bayer AG (“Bayer”) to support small molecule projects for diabetes, TopoTarget A/S (“TopoTarget”) to support small molecule histone deacetylase (“HDAC”) inhibitor projects for oncology and inflammatory diseases, and Seattle Genetics, Inc. (“Seattle Genetics”) to support antibody-drug conjugate projects.

As our pipeline has matured over the past few years, we have decreased our early-stage target discovery efforts and focused our resources on the advancement of our pipeline of potential protein, antibody and small molecule therapeutics through clinical development.

Pipeline

CG53135

CG53135, also referred to as fibroblast growth factor – 20 (“FGF-20”), is a protein therapeutic discovered by CuraGen that is being investigated as a potential protein therapeutic for the prevention and treatment of oral mucositis (“OM”) in cancer patients that are receiving chemotherapy with or without radiotherapy for the treatment of their underlying disease. CG53135 is a growth factor that is believed to play a role in maintaining the integrity of the gastrointestinal tract by causing regeneration of epithelial and mesenchymal cells, enabling repopulation of the layers of the gastrointestinal tract damaged by chemotherapy and radiotherapy. In 2003, we initiated our first Phase I trial on CG53135 for the prevention of OM. During 2004, we continued to make progress on the development of CG53135 for the prevention of OM, including the initiation of an additional Phase I trial in cancer patients undergoing bone marrow transplantation. In October 2004, we announced the initiation of a Phase II trial on CG53135 enrolling patients in a randomized, placebo-controlled, multi-center study to determine the safety and efficacy of a single-dose of CG53135 for the prevention of OM. Approximately 200 patients will be randomized to receive a single administration of either placebo or one of three dosages of CG53135 immediately after bone marrow transplantation. In December 2004, data from our Phase I trial on CG53135 for cancer patients undergoing bone marrow transplantation was presented in the form of a poster at the 46^th Annual Meeting of the American Society of Hematology. Of the 22 patients presented in this poster, no serious drug-related adverse events were noted following treatment with CG53135, and a total of 18 of 22 patients (81.8%) did not develop severe grade 3 or 4 OM.

In addition, in January 2005, we initiated a Phase I clinical trial on CG53135 to explore its role for the treatment of OM, as opposed to the prevention strategy discussed above. This Phase I trial will evaluate the safety and tolerability of intravenously administered CG53135 on cancer patients who develop OM as a consequence of the chemotherapy they received for the treatment of their underlying disease. We anticipate completing this Phase I study by the end of 2005.

In February 2004, we received orphan drug designation from the Food and Drug Administration (“FDA”) for CG53135 in OM, which we believe will help to strengthen the program by offering important clinical development and commercialization benefits. The Orphan Drug Act of 1983 is intended to encourage companies to develop therapies for the treatment of diseases that affect fewer than 200,000 individuals in the United States at the time of application. Further criteria include the ability of the product to address an unmet medical need where no approved treatment option exists or to provide significant benefit over available treatments. Orphan drug designation may result in seven years of market exclusivity in the United States upon FDA product approval, provided that the sponsor company continues to meet certain conditions established by the FDA. Upon marketing authorization and during the period of market exclusivity, the FDA does not accept or approve other applications to market the same drug for the

10

same therapeutic indication. Other incentives provided by orphan designation include protocol assistance and eligibility for research and development support. Protocol assistance includes regulatory assistance and reduced filing fees, as well as advice on the conduct of clinical trials.

In December 2004, we received Fast Track status from the FDA to investigate CG53135 for the prevention of OM in patients receiving hematopoietic stem cell transplantation following myeloablative chemotherapy with or without total body irradiation. The Fast Track program enables a company to file a New Drug Application (“NDA”) on a rolling basis as data becomes available and permits the FDA to review the filing as it is received, rather than waiting for the entire document prior to commencing the review process. With a Fast Track designation, there is an opportunity for more frequent interactions with the FDA and the possibility of a priority review, which could decrease the typical review period.

PXD101

In June 2004, we added PXD101, a novel HDAC inhibitor, to our pipeline through a license and collaboration agreement with TopoTarget. PXD101 is one of the most advanced HDAC inhibitors in development and will be investigated as a potential treatment for both solid and hematologic cancers either alone, or in combination with other cancer drugs. The collaboration with TopoTarget also provides us with access to their extensive library of HDAC inhibitor candidates. HDAC inhibitors represent a new mechanistic class of anti-cancer therapeutics that target HDAC enzymes, and have been shown to: arrest growth of cancer cells; induce apoptosis, or programmed cell death; promote differentiation; inhibit angiogenesis; and sensitize cancer cells to overcome drug resistance. In August 2004, we signed a clinical trials agreement with the National Cancer Institute (“NCI”) that provides us with access to the expertise at the NCI for the design, implementation, and monitoring of clinical trials with PXD101. Under the agreement, the NCI will sponsor several clinical trials evaluating the activity of PXD101, either alone or in combination with other anti-cancer therapies, for the treatment of solid and hematologic malignancies. NCI-sponsored clinical trials will occur in parallel to those sponsored by CuraGen with all data generated available for use in future product registration.

Data generated from two Phase I clinical trials evaluating PXD101 in patients with solid tumors and hematologic cancers enabled us to initiate in January 2005 a Phase II clinical trial on PXD101 for patients with advanced multiple myeloma. Data from our Phase I trial with PXD101 will be presented at the American Society of Clinical Oncology 46^th Annual Meeting in Orlando, Florida, occurring May 14-17, 2005.

In April 2005, a poster reporting preclinical data on PXD101 was presented at the 96^th Annual Meeting of the American Association for Cancer Research (“AACR”). The data demonstrated that PXD101 down-regulates, or diminishes, the amount of thymidylate synthase (“TS”) in cancer cells. Some cancer cells overexpress TS as a mechanism to enable them to become resistant to the killing effects of 5-fluorouracil (“5-FU”), thus limiting the anti-tumor activity of this drug. Additional data reported on animal models of cancer demonstrated prolonged survival in animals treated with PXD101 and 5-FU in combination, compared to those animals treated with either drug alone. Anti-tumor activity was also noted in xenograft models where animals treated with a combination of PXD101 followed by 5-FU had significantly higher tumor growth inhibition compared to either drug used alone.

Based on these preclinical results, we anticipate initiating a Phase Ib clinical trial to evaluate combination chemotherapy, consisting of PXD101 and 5-FU, on patients with solid tumors. Patient enrollment is expected to commence by the third quarter of 2005. After the maximum tolerated dose of PXD101 and 5-FU is defined, the study will expand and enroll up to 20 additional patients diagnosed with advanced colorectal cancer and further investigate the safety, change in expression of thymidylate synthase and anti-tumor activity of this combination.

CR002

In October 2004, we announced that CR002, our most advanced fully-human monoclonal antibody stemming from our collaboration with Abgenix, received clearance from the FDA to be investigated as a potential treatment for IgA nephropathy. CR002 is a novel fully-human monoclonal antibody with the potential to treat forms of kidney inflammation, such as IgA nephropathy, that, if left untreated, could progress to kidney failure. A Phase I trial with CR002 began in November 2004 to determine the maximum tolerated dose in healthy male volunteers.

In November 2004, we received orphan drug designation from the FDA for CR002 as a potential treatment to slow the progression of IgA nephropathy and delay kidney failure in patients affected by the disease, which we believe will help to strengthen the program by offering important clinical development and commercialization benefits.

11

CR011

In October 2004, we announced the advancement of CR011, a fully-human monoclonal antibody-drug conjugate, which we are investigating as a potential treatment for metastatic melanoma. CR011 is the second fully-human monoclonal antibody stemming from our collaboration with Abgenix, and applies antibody-drug conjugate technology that we licensed from Seattle Genetics. In April 2005, a poster on CR011 was presented at the AACR 96th Annual Meeting. Scientists from the Company reported data demonstrating that CR011 selectively binds to GPNMB, a protein highly expressed on the surface of melanoma cells. Furthermore, in xenograft models of melanoma, treatment with CR011 caused significant improvements in survival, including complete and durable tumor regression, without any notable toxicity or weight loss. We anticipate that CR011 will enter clinical trials during the first half of 2006.

CT052

In October 2004, we also announced the advancement of CT052, an investigational small molecule drug for the potential management of adult-onset (type 2) diabetes, which will be co-developed with Bayer. This compound represents the first drug candidate to enter preclinical development from our ongoing collaboration with Bayer that was established to identify and develop promising drugs for the treatment of diabetes based upon targets we discovered. We anticipate that CT052 will enter clinical trials during the first half of 2006.

Other

In addition to CG53135, PXD101, CR002, CR011, and CT052 we have several potential protein, antibody and small molecule therapeutics currently being evaluated in animal studies or being prepared for animal studies. These programs may lead to the filing of investigational new drug applications (“INDs”) in the future.

454 Life Sciences

To enable us to focus on our pipeline, we announced the formation of 454 Life Sciences Corporation (“454”) in 2000. This majority-owned subsidiary is commercializing novel nanoscale instrumentation and technologies for rapidly and comprehensively determining the nucleotide sequence of entire genomes—“whole genome sequencing.” 454’s proprietary technology is expected to have widespread applications in industrial processes, agriculture, animal health, biodefense, and human health care, including drug discovery and development, and disease diagnosis. Scientists, using the 454 technology platform, will be able to generate whole genome sequences for a wide variety of viral, bacterial and small fungi organisms. In 2005, 454 began offering instrument systems and reagents to customers for high-throughput sequencing without the need and complexity of large-scale robotics. In March 2005, 454 announced the sale and installation of the first 454 Genome Sequencing System to the Broad Institute of MIT and Harvard, a research collaboration of the Massachusetts Institute of Technology, Harvard University and its hospitals and the Whitehead Institute for Biomedical Research. 454 will continue scaling its technology to analyze larger model organisms, including human DNA, and to develop other genomic applications.

Summary

We expect to generate value for our shareholders by developing therapeutics. We expect to become profitable by commercializing a subset of therapeutics stemming from our development pipeline, and establishing partnerships with pharmaceutical and biotechnology companies for the co-development and co-commercialization of other therapeutics from our development pipeline. Our failure to successfully develop pharmaceutical products that we can commercialize would materially adversely affect our business, financial condition and results of operations. Royalties or other revenue generated from commercial sales of products developed through the application of our technologies and expertise are not expected for several years, if at all. We expect that our revenue or income sources for at least the next several years may be limited to: payments under various collaboration agreements to the extent milestones are met; 454 grant, service and product revenue; and interest income.

We expect to continue incurring substantial expenses relating to our research and development efforts, as we focus on: preclinical studies and clinical trials required for the development of therapeutic protein, antibody and small molecule product candidates; external programs identified by our platform as being promising and synergistic with our products and expertise; and 454, as it continues work on the development and commercialization of its technology for whole genome analysis. Conducting clinical trials is a lengthy, time-consuming and expensive process. We will incur substantial expenses for, and devote a significant amount of time to, these studies. As a result, we expect to incur

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continued losses over the next several years, unless we are able to realize additional revenues under existing or new collaboration agreements or through 454’s sales of genomic analysis services and/or complete genomic analysis systems. The timing and amounts of such revenues, if any, cannot be predicted with certainty and may fluctuate. Results of operations for any period may be unrelated to the results of operations for any other period. In addition, historical results should not be viewed as indicative of future operating results.

The 2004 consolidated financial statements have been reclassified to conform to the classifications used in 2005. All dollar amounts in Item 2 are shown in millions, unless otherwise noted.

Critical Accounting Policies and Use of Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses and as such, actual results may differ from our estimates under different assumptions or conditions. Our significant accounting policies are fully described in Note 1 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2004 and Note 2 to our condensed consolidated financial statements included in this Form 10-Q.

Results of Operations

The following table sets forth a comparison of the components of our net loss for the three month periods ended March 31, 2005 and 2004:

	2005		2004		$ Change			% Change
Grant revenue	$	0.7		—	$	0.7		100	%
Instrument and reagent sales		1.1		—		1.1		100	%
Collaboration revenue		1.6	$	1.6		—		—
Grant research expenses		0.4		—		0.4		100	%
Cost of instrument and reagent sales		0.2				0.2		100	%
Research and development expenses		17.6		15.1		2.5		17	%
General and administrative expenses		4.3		4.8		(0.5	)	(10	)%
Interest income		2.1		2.0		0.1		5	%
Interest expense		3.4		2.9		0.5		17	%
Loss on extinguishment of debt		—		0.3		(0.3	)	(100	)%
Income tax benefit		0.1		0.1		—		—
Minority interest in subsidiary loss		0.9		1.4		(0.5	)	(36	)%
Net loss	$	19.4	$	18.0

The following table sets forth a comparison of revenue by segment, for the three month periods ended March 31, 2005 and 2004:

	2005		2004		$ Change			% Change
Grant revenue:
454	$	0.7	$	—	$	0.7		100	%
Total	$	0.7	$	—
Instrument and reagent sales
454	$	1.1	$	—	$	1.1		100	%
Total	$	1.1	$	—
Collaboration revenue:
CuraGen	$	1.4	$	1.6	$	(0.2	)	(13	)%
454		0.2		—		0.2		100	%
Total	$	1.6	$	1.6

Grant revenue. The increase in grant revenue for the period ended March 31, 2005 was a result of two federal grants awarded to 454 in May 2004 and September 2004 from the National Human Genome Research Institute, one of the National Institutes of Health (“NIH”). These grants will partially fund the continued scale up of 454’s technology toward sequencing larger genomes. We expect 2005 grant revenue to increase in comparison to 2004, as the research outlined in these two grants will be conducted for the entire fiscal year.

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Instrument and reagent sales. During the three month period ended March 31, 2005, 454 commercialized its novel nanoscale instruments and reagents and recognized $1.1 million in revenue related to sales to its customers. We expect instrument and reagent revenues during the remaining quarters of 2005 to continue to increase through sales to existing and new customers, as 454’s technology is adopted in the market place. Instrument sales are recognized upon the completion of installation of the equipment and training of customer personnel. However, certain customers have required that 454’s instrument be tested prior to accepting the instrument. For those customers, revenue is recognized upon acknowledgement of acceptance from the customer. Reagent sales are recognized upon shipment of the products under FOB shipping or FOB destination based upon terms and conditions outlined in 454 customers’ purchase orders.

Collaboration revenue. The decrease in CuraGen’s collaboration revenue for the period ended March 31, 2005 was primarily related to a decline in revenue recognized from various strategic alliances and in the volume of projects related to the Bayer alliance. We expect that 2005 collaboration revenue will remain fairly constant as compared to 2004, reflecting continued progress on the Bayer alliance.

The increase in 454’s collaboration revenue for the period ended March 31, 2005 was related to the sales of genomic analysis services as 454 continued to commercialize its sequencing platform. We expect 454’s 2005 collaboration revenue to continue to increase during the remaining quarters of 2005 as 454 continues to commercialize its platform.

Grant research expenses. The increase in grant research expenses for the period ended March 31, 2005 was a result of two federal grants awarded to 454 in May 2004 and September 2004 from the NIH, which will partially fund the scale up of 454’s technology toward sequencing larger genomes. Grant research expenses for the first grant were recorded beginning in mid-May 2004 and for the second grant beginning at the end of September 2004. The expenses included personnel costs and lab supplies that were directly related to the research outlined in the grant award. We expect 2005 grant expenses to increase in comparison to 2004, as the research outlined in these two grants will be conducted for the entire fiscal year.

Cost of instrument and reagent sales. Effective February 1, 2005, the date on which 454 successfully completed the installation of its first sequencing instrument at a customer site, 454 began to capitalize, in inventory, the costs of manufacturing instrumentation and reagents for commercial sale. Included in cost of instrument and reagent sales is (1) raw material, which was previously capitalized as a fixed asset, valued at the net book value on February 1, 2005 and (2) raw material purchased, and direct labor and manufacturing overhead costs incurred, after February 1, 2005. 454’s cost of instrument and reagent sales are recorded at the lower of cost or market on the first-in-first-out basis for non-lot controlled items and on a specific identification basis for lot controlled items. We anticipate that 454’s gross margins on sales of instruments and reagents will fluctuate from quarter to quarter during 2005.

Research and development expenses. The following table sets forth a comparison of research and development expenses by segment, for the three month periods ended March 31, 2005 and 2004:

	2005		2004		$ Change			% Change
Research and development expenses:
CuraGen	$	14.9	$	12.0	$	2.9		24	%
454		2.7		3.1		(0.4	)	(13	)%
Total	$	17.6	$	15.1

Research and development expenses consist primarily of: salary and benefits; supplies and reagents; contractual and manufacturing costs; perpetual license fees; depreciation and amortization; and allocated facility costs. Our research and development efforts are concentrated on four major project areas: collaborations; preclinical drug candidates; clinical trials; and our majority-owned subsidiary, 454. With the exception of 454, we budget and monitor our research and development costs by expense category, rather than by project, because these costs often benefit multiple projects and/or our technology platform.

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Below is a summary that reconciles our total research and development expenses for the three month periods ended March 31, 2005 and 2004 by the major categories mentioned above:

	2005		2004		$ Change			% Change
Salary and benefits	$	4.6	$	6.0	$	(1.4	)	(23	)%
Supplies and reagents		1.6		2.9		(1.3	)	(45	)%
Contractual and manufacturing costs		4.4		2.5		1.9		76	%
Perpetual license fees		4.0		—		4.0		100	%
Depreciation and amortization		1.2		1.6		(0.4	)	(25	)%
Allocated facility costs		1.8		2.1		(0.3	)	(14	)%
Total research and development expenses	$	17.6	$	15.1

The increase in research and development expenses for CuraGen for the three months ended March 31, 2005 was primarily due to: an increase in contractual and manufacturing costs related to our preclinical studies and clinical trials, and perpetual license fee payments of approximately $4.0 million (primarily related to the TopoTarget and Seattle Genetics collaborations); offset by a reduction in salary and benefits, and supplies and reagents, in connection with the October 2004 restructuring plan. We anticipate slight increases in research and development expenses during 2005 as compared to 2004, primarily due to contractual services related to clinical trials and manufacturing; perpetual licensing fees; and milestone payments, primarily to TopoTarget.

The decrease in research and development expenses for 454 for the three months ended March 31, 2005 was primarily due to decreased salary and benefits, supplies and reagents, contractual and manufacturing costs and depreciation and amortization.

As soon as we start to conduct a Phase I clinical trial for a potential clinical candidate, we begin to track the direct research and development expenses associated with that clinical candidate. The following table shows cumulative direct research and development expenses associated with each clinical candidate as of March 31, 2005:

		Cumulative Clinical Trial Costs
Therapeutic Area and         Clinical Candidate	Class	March 31, 2005		Indication	Trial Status
Cancer Supportive Care CG53135	Protein	$	18.6	Oral Mucositis - Prevention Oral Mucositis - Treatment	Phase II Phase I
Oncology PXD101	Small Molecule	$	7.5	Multiple Myeloma Solid Tumors Hematological Malignancies	Phase II Phase I Phase I
Kidney Inflammation CR002	Antibody	$	1.0	IgA Nephropathy	Phase I

Currently, our potential pharmaceutical products require significant research and development efforts and preclinical testing, and will require extensive clinical trials prior to submitting an application to regulatory agencies for their commercial use. Although we are conducting human studies with respect to CG53135, PXD101, and CR002, we may not be successful in developing or commercializing these or other products. Our product candidates are subject to the risks of failure inherent in the development and commercialization of pharmaceutical products and we cannot currently reliably estimate when, if ever, our product candidates will generate revenue and cash flows.

Completion of research and development, preclinical testing and clinical trials may take many years. Estimates of completion periods for any of our major research and development projects are highly speculative and variable, depending on the nature of the disease indication, how common it is among the general populace, and the results of the research. For example, preclinical testing and clinical trials can often go on for an indeterminate period of time since the results of tests are continually monitored, with each test considered “complete” only when sufficient data has been accumulated to assess whether the next phases are warranted or whether the effort should be abandoned. Typically, Phase I clinical trials are expected to last between 12 and 24 months, Phase II clinical trials are expected to last between 24 and 36 months and Phase III clinical trials are expected to last between 24 and 60 months. The most significant time and costs associated with clinical development are the Phase III trials as they tend to be the longest and most comprehensive studies conducted during the drug development process.

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In addition, many factors may delay the commencement and speed of completion of preclinical testing and clinical trials, including the number of patients participating in the trial, the duration of patient follow-up required, the number of clinical sites at which the trials are conducted, and the length of time required to locate and enroll suitable patient subjects. The successful completion of our development programs and the successful development of our product candidates are highly uncertain and are subject to numerous challenges and risks. Therefore, we cannot presently estimate anticipated completion dates for any of our projects, as described more fully in the Risk Factors section under the heading “Risks Related to Our Business.”

Due to the variability in the length of time necessary to develop a product candidate, the uncertainties related to the cost of projects and the need to obtain governmental approval for commercialization, accurate and meaningful estimates of the ultimate costs to bring our product candidates to market are not available. If our major research and development projects are delayed, then we can expect to incur additional costs in conducting our preclinical testing and clinical trials and a longer period of time before we become profitable from our operating activities, as described more fully in the Risk Factors section under the headings “We have a history of operating losses and expect to incur losses in the future” and “We may need to raise additional funding, which may not be available on favorable terms, if at all.” Accordingly, the timing of the potential market approvals for our existing product candidates, CG53135, PXD101, CR002, and future product development candidates, may have a significant impact on our capital requirements.

General and administrative expenses. General and administrative expenses for the three months ended March 31, 2005 decreased slightly as compared to the same period in 2004 as a result of careful control over expenses. General and administrative expenses are expected to decrease slightly during 2005 as compared to 2004, as a result of the recent corporate restructuring and lower legal patent costs.

Interest income. Interest income for the three months ended March 31, 2005 increased slightly compared to the same period in 2004 primarily due to higher yields in our investment portfolio, offset by lower cash and investment balances. We earned an average yield of 2.5% in the first quarter of 2005 as compared to 2.0% in the first quarter of 2004. During 2005, we expect the yields in our investment portfolio to continue to be slightly higher than 2004. However, due to the utilization of cash and investments balances in the normal course of operations, we anticipate interest income to decrease in 2005. In the event that during 2005 we use cash to repurchase a portion of our remaining existing debt due in 2007, our estimate of the size of anticipated decrease in interest income for 2005 will differ accordingly.

Interest expense. We expect interest expense, including interest paid to debt holders as well as amortization of deferred financing costs, to increase marginally during 2005, primarily attributable to the interest paid semi-annually to the holders of our $130.0 million 6% convertible subordinated debentures due in 2007, and our $110.0 million 4% convertible subordinated notes due in 2011. In the event that during 2005 we use cash to repurchase a portion of our remaining existing debt due in 2007, our estimate of 2005 interest expense will differ accordingly.

Income tax benefit. We recorded an income tax benefit during the first quarter of 2005 as a result of Connecticut legislation, which allows companies to obtain cash refunds from the State of Connecticut at a rate of 65% of their annual research and development expense credit, in exchange for forgoing carryforward of the research and development credit. For the year ended December 31, 2004, the income tax benefit included the resulting expiration of the State of Connecticut statute, as it relates to the Year 2000 income tax benefit. We expect the 2005 income tax benefit to be consistent with 2004 (before adjustments to reflect statute expirations), as 2005 qualified expenses are expected to remain relatively constant as compared to 2004.

Minority interest in subsidiary loss. Minority interest in subsidiary loss for the three months ended March 31, 2005 (which is the portion of 454’s loss attributable to shareholders of 454 other than us) decreased during the first quarter of 2005 as compared to the same period in 2004 due to 454 revenue recognized during this period, from the sales of instruments and reagents as well as sales of genomic analysis services. During 2005, losses attributed to the minority ownership in 454 are expected to decrease, as 454 increases sales of instruments and reagents as well as sequencing services. In the event that during 2005 the cumulative losses applicable to the minority interest in subsidiary exceed the minority interest in the equity capital of 454, all further losses applicable to the minority interest will be charged to CuraGen.

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Liquidity and Capital Resources

Since our inception, we have financed our operations and met our capital expenditure requirements primarily through convertible subordinated debt offerings, public equity offerings, private placements of equity securities, revenues received under our collaborative research agreements and government grants, and exercises of stock options. As of March 31, 2005, we had recognized $114.8 million of cumulative sponsored research revenues from collaborative research agreements and government grants. At March 31, 2005, our gross investment in lab and office equipment, computers, land and leasehold improvements was $52.6 million. Since inception, we have not had any off-balance sheet arrangements. To date, inflation has not had a material effect on our business.

454 received two federal grants during 2004, for specific purposes that are subject to review and audit by the grantor agencies. Such audits could lead to requests for reimbursement by the grantor agency for any expenditures disallowed under the terms of the grant. Additionally, any noncompliance with the terms of the grant could lead to loss of current or future awards.

Cash and investments. The following table depicts the components of our operating, investing and financing activities for the three months ended March 31, 2005, using the direct cash flow method:

Cash received from collaborators	$	2.3
Cash received from customers		0.6
Cash received from grantor		0.3
Cash paid to suppliers and employees		(17.8	)
Restructuring and related charges paid		(0.5	)
Interest income received		2.0
Interest expense paid		(6.1	)
Net cash and investments used in operating activities		(19.2	)
Cash paid to acquire property and equipment, net of sales proceeds		(4.2	)
Net cash and investments used in investing activities		(4.2	)
Cash received from employee stock option exercises		0.2
Net cash and investments provided by financing activities		0.2
Unrealized loss on marketable securities		(1.5	)
Net decrease in cash and investments		(24.7	)
Cash and investments, beginning of period		328.1
Cash and investments, end of period	$	303.4

In accordance with our investment policy, we are utilizing the following investment objectives for cash and investments: (1) investment decisions are made with the expectation of minimum risk of principal loss, even with a modest penalty in yield; (2) appropriate cash balances and related short-term funds are maintained for immediate liquidity needs, and appropriate liquidity is available for medium-term cash needs; and (3) maximum yield is achieved.

Future Liquidity. During the next twelve months, we expect to continue to fund our operations through a combination of the following sources: cash and investment balances; interest income; instrument and reagent sales; collaboration revenue; grant revenue; potential public securities offerings; and/or private strategic-driven common stock offerings. We also plan to continue making substantial investments to advance our preclinical and clinical drug pipeline, as well as commercializing 454’s genomic analysis technology. In that regard, we foresee the following as significant uses of liquidity: salary and benefits; supplies and reagents; contractual services related to clinical trials and manufacturing; perpetual license fees; potential milestone payments; legal expenses in support of the continued protection of our intellectual property portfolio; costs related to 454, as it continues to commercialize and develop new technologies for whole genome analysis; external programs identified by our platform as being promising and synergistic with our products and expertise; cost-sharing of expenses with Bayer related to CT052 preclinical development, in which both parties will jointly fund the relevant preclinical research, development and commercialization activities; and capital expenditures during the second quarter of 2005, primarily for the expansion of our existing protein production laboratory facilities. In addition, we expect the payments of interest to the holders of our convertible subordinated debt due in 2007 and in 2011 to be a continued significant use of liquidity.

Depending on market and other conditions, from time to time, we may repurchase a portion of the existing 6% convertible subordinated debentures due 2007 in open market purchases, in privately negotiated transactions, or

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otherwise. In addition, we also may use sources of liquidity for working capital, general corporate purposes and potentially for future acquisitions of complementary businesses or technologies. The amounts and timing of our actual expenditures will depend upon numerous factors, including the amount and extent of our acquisitions, our product development activities, and our investments in technology and the amount of cash generated by our operations. Actual expenditures may vary substantially from our estimates. Our failure to use sources of liquidity effectively could have a material adverse effect on our business, results of operations and financial condition.

We believe that our existing cash and investment balances and other sources of liquidity will be sufficient to meet our requirements for the next twenty-four months. Our operating and capital expenditures are considered to be crucial to our future success, and by continuing to make strategic investments in our preclinical and clinical drug pipeline, we believe that we are building substantial value for our shareholders. The adequacy of our available funds to meet our future operating and capital requirements, including the repayment of our remaining $130.0 million of 6% convertible subordinated debentures due February 2, 2007 and our $110.0 million of 4% convertible subordinated notes due February 15, 2011, will depend on many factors. These factors include: the number, breadth and progress of our research, product development and clinical programs; the costs and timing of obtaining regulatory approvals for any of our products; potential future acquisitions of complementary businesses or technologies; in-licensing of pharmaceutical products; and costs incurred in enforcing and defending our patent claims and other intellectual property rights.

While we will continue to explore alternative sources for financing our business activities, including the possibility of public securities offerings and/or private strategic-driven common stock offerings, we cannot be certain that in the future these sources of liquidity will be available when needed or that our actual cash requirements will not be greater than anticipated. In appropriate strategic situations, we may seek financial assistance from other sources, including contributions by others to joint ventures and other collaborative or licensing arrangements for the development and testing of products under development. However, should we be unable to obtain future financing either through the methods described above or through other means, we may be unable to meet the critical objective of our long-term business plan, which is to successfully develop and market pharmaceutical products, and may be unable to continue operations. This result could cause our shareholders to lose all or a substantial portion of their investment.

Recently Enacted Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (“SFAS 123R”) which is a revision of FASB Statement 123, “Accounting for Stock-Based Compensation”. Statement 123, as originally issued, is effective until the provisions of SFAS 123R are fully adopted. SFAS 123R is effective for public entities that do not file as a small business issuer, as of the beginning of the first fiscal year beginning after June 15, 2005, and therefore, we will be required to adopt SFAS 123R on January 1, 2006. The proforma disclosures previously permitted under SFAS 123 will no longer be an alternative to financial statement recognition. SFAS 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. Under SFAS 123R, we must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The transition methods include modified prospective and retroactive adoption options. We anticipate utilizing the modified prospective method which requires that compensation expense be recorded for all unvested stock options at the beginning of the first quarter of adoption of SFAS 123R, while the retroactive methods would record compensation expense for all unvested stock options beginning with the first period restated. We are evaluating the requirements of SFAS 123R and expect that the adoption of SFAS 123R will have a material impact on our consolidated results of operations. We have not yet determined the effect of adopting SFAS 123R, nor have we determined whether the adoption will result in amounts that are similar to the current pro forma disclosures under SFAS 123.

In November 2004, the FASB issued Statement of Financial Accounting No. 151, “Inventory Costs-an amendment of ARB No. 43, Chapter 4” (“SFAS 151”). SFAS 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight handling costs, and wasted material (spoilage). SFAS 151 requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, SFAS 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for inventory cost incurred during fiscal years beginning after June 15, 2005. Earlier application is permitted for inventory costs incurred during fiscal years beginning after November 24, 2004. The provisions of SFAS 151 should be applied prospectively. We have evaluated and recorded inventory costs under the provisions of SFAS 151 and there was no material effect.

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In December 2004, the FASB issued Statement of Financial Accounting No. 153, “Exchanges of Nonmonetary Assets-an amendment of APB Opinion No. 29” (SFAS 153”). SFAS 153 amends APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. The provisions of SFAS 153 are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges occurring in fiscal periods beginning after December 16, 2004. The provisions of SFAS 153 should be applied prospectively. We have evaluated the provisions of SFAS 153, and we do not believe its adoption will have an impact on our financial statements.

In March 2004, the FASB issued Emerging Issues Task Force (“EITF”) Issue No. 03-1 “Other-Than-Temporary Impairments and Its Application of Certain Investments.” This statement provides guidance for assessing impairment losses on debt and equity investments. EITF Issue No. 03-1 also requires additional disclosures in the footnotes to the financial statements for investments that are deemed to be temporarily impaired. In September 2004, the FASB delayed the accounting provisions of EITF Issue No. 03-1; however, the disclosure requirements remain effective and have been adopted. We will evaluate the effect, if any, of EITF 03-1 when final guidance is released.

Certain Factors That May Affect Results of Operations

This report contains certain forward-looking statements that are subject to certain risks and uncertainties. Generally, these statements can be identified by the use of terms such as “estimate,” “project,” “plan,” “intend,” “expect,” “believe,” “anticipate,” “should,” “may,” “will,” and similar expressions. Forward-looking statements may include statements about: (i) our expectation that we will enroll approximately 200 patients for our Phase II trial on CG53135; (ii) our expectation that we will complete a CG53135 Phase I trial for the treatment of OM by the end of 2005; (iii) our belief that the FDA’s orphan drug designation for CG53135 and CR002 will help strengthen the programs by offering important clinical development and commercialization benefits; (iv) our expectation that we will investigate PXD101 as a potential treatment for both solid and hematologic cancers either alone, or in combination with other cancer drugs; (v) our expectation that NCI-sponsored clinical trials will occur in parallel to those we sponsor, with all data generated available for use in future product registration; (vi) the expectation to initiate a Phase Ib clinical trial to evaluate combination chemotherapy, consisting of PXD101 and 5-FU, on patients with solid tumors with patient enrollment to commence by the third quarter of 2005; (vii) our expectation that our Phase Ib clinical trial of PXD101 and 5-FU will expand and enroll up to 20 additional patients and further investigate the safety, change in expression of thymidylate synthase and anti-tumor activity of this combination; (viii) our expectation that CR011 and CT052 will enter clinical trials during the first half of 2006; (ix) our expectation that many of the INDs that we anticipate filing in the future will be from our pipeline, and have been or are ready to be evaluated in animal studies; (x) the expectation that 454’s proprietary technology will have widespread applications in industrial processes, agriculture, animal health, biodefense, human health care, including drug discovery and development, and disease diagnosis; (xi) the ability of 454 to generate whole genome sequences for a wide variety of viral, bacterial and small fungi organisms; (xii) the ability of 454 to continue scaling its technology to analyze larger model organisms, including human DNA, and develop other genomic applications; (xiii) our expectation that we will generate value for our shareholders by developing therapeutics; (xiv) our expectation to become profitable by commercializing a subset of therapeutics stemming from our development pipeline, and establishing partnerships with pharmaceutical and biotechnology companies for the co-development and co-commercialization of therapeutics from our development pipeline; (xv) our expectation that our revenue or income sources for at least the next several years may be limited to: payments under various collaboration agreements to the extent milestones are met; 454 grant, service and product revenue; and interest income; (xvi) our expectation to continue incurring substantial expenses relating to our research and development efforts; (xvii) our expectation to incur continued losses over the next several years; (xviii) that NIH grants will partially fund the continued scale up of 454’s technology toward sequencing larger genomes; (xix) our expectation that grant revenue will increase in comparison to 2004; (xx) our expectation that revenue recognized will continue to increase for 454 in 2005 from the sale of instrument systems and reagents; (xxi) our expectation that 2005 collaboration revenue will remain fairly constant as compared to 2004; (xxii) our expectation that 454’s 2005 collaboration revenue will increase; (xxiii) our expectation that grant research expenses will increase in comparison to 2004; (xxiv) our expectation that gross margins on sales of instruments and reagents will fluctuate from quarter to quarter during 2005; (xxv) our anticipation that research and development expenses during 2005 will increase slightly as compared to 2004; (xxvi) our expectation that general and administrative expenses will decrease slightly during 2005 as compared to 2004; (xxvii) our plans to pay the remaining cash requirements of $0.5 million through the end of 2006, as part of our June 2003 restructuring plan; (xxviii) our plans to pay the remaining cash requirements of $0.2 through June 2005, as part of our October 2004 restructuring plan; (xxix) our expectation that during 2005, the yields in our investment portfolio will be slightly higher than 2004; (xxx) our anticipation that interest income will decrease in 2005; (xxxi) our expectation that interest expense, including interest paid to debt holders as well as amortization of deferred financing costs, will increase marginally during 2005; (xxxii) our expectation that the 2005 income tax benefit will be consistent with 2004 (before adjustments to reflect statute expirations); (xxxiii) our expectation that during 2005 the losses attributed to the minority ownership in 454 will decrease; (xxxiv) our expectation that during the next twelve months, we will continue to fund our operations through a combination of the following sources: cash and investment balances; interest income; instrument and reagent sales; collaboration revenue; grant revenue; potential public securities offerings; and/or private strategic-driven common stock offerings; (xxxv) our plan to continue making substantial investments to advance our preclinical and clinical drug pipeline, as well as commercializing 454’s genomic analysis technology; (xxxvi) our belief that the following will be significant uses of liquidity: salary and benefits; supplies and reagents; contractual services related to clinical trials and manufacturing; perpetual license fees; potential milestone payments; legal expenses in support of the continued protection of our intellectual property portfolio; costs related to 454, as it continues to commercialize and develop new technologies for whole genome analysis; external programs identified by our platform as being promising and synergistic with our products and expertise; cost-sharing of expenses with Bayer related to CT052 preclinical development, in which both parties will jointly fund the relevant preclinical research, development and commercialization activities; capital expenditures during the second quarter of 2005, primarily for the expansion of our existing protein production laboratory facilities; and payments of interest to the holders of our convertible subordinated debt due in 2007 and 2011; (xxxvii) the possibility that we may repurchase a portion of the existing 6% convertible subordinated debentures due 2007 in open market purchases, in privately negotiated transactions, or otherwise; (xxxviii) our belief that our existing cash and investment balances and other sources of liquidity will be sufficient to meet our requirements for the next twenty-four months; and (xxxix) that we will continue to explore alternative sources for financing our business activities, including the possibility of public securities offerings, private strategic-driven common stock offerings, financial assistance from other sources.

These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Forward-looking statements, therefore, should be considered in light of all of the information included or referred to in this report, including the cautionary information set forth under the heading Risk Factors below. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, unless required by law.

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Risk Factors

Risks Related to Our Business

Because our business strategy is still largely untested, we do not know whether we will be able to commercialize any of our products or to what extent we will generate revenue or become profitable.

We do not know whether we can implement our business strategy successfully because we are in the early stages of development. Initially, we set out to find as many genes and their related functions as possible and are now using that information to develop our own therapeutic products. This strategy is largely untested. Other companies first target particular diseases and try to find cures for them, have a limited number of genes and proteins of potential therapeutic interest, or rely on other more proven strategies. If our strategy does not result in the development of products that we can commercialize, we will be unable to generate revenue. We have not completed development of any product based on our genomics research. Although we have three products being investigated in clinical trials, we cannot be certain that these or any future products will receive marketing approval. If we are unable to commercialize products, we may not be able to recover our investment in our product development efforts.

Because clinical trials for our products will be expensive and protracted and their outcome is uncertain, we must invest substantial amounts of time and money that may not yield viable products.

Conducting clinical trials is a lengthy, time-consuming and expensive process. Before obtaining regulatory approvals for the commercial sale of any product, we must demonstrate through laboratory, animal and human studies that such product is both effective and safe for use in humans. We will incur substantial expense for, and devote a significant amount of time to, these studies.

Completion of clinical trials may take many years. The length of time required varies substantially according to the type, complexity, novelty and intended use of the product candidate. The FDA monitors the progress of each phase of testing, and may require the modification, suspension, or termination of a trial if it is determined to present excessive risks to patients. Our rate of commencement and completion of clinical trials may be delayed by many factors, including:

• our inability to manufacture sufficient quantities of materials for use in clinical trials;

• our inability to identify, enroll and initiate sites to conduct clinical trials;

• variability in the number and types of patients available for each study, as well as the difficulty in enrolling patients in each study;

• difficulty in maintaining contact with patients after treatment, resulting in incomplete data;

• unforeseen safety issues or side effects;

• poor efficacy or unanticipated adverse effects of products during the clinical trials;

• institutional review board delays at institutions assisting us with our clinical trials; and

• government or regulatory delays.

Studies that we conduct, or studies which third parties conduct on our behalf, may not demonstrate sufficient effectiveness and safety to obtain the requisite regulatory approvals for these or any other potential products. Regulatory authorities may not permit us to undertake any additional clinical trials. The clinical trial process may be accompanied by substantial delay and expense and there can be no assurance that the data generated in these studies ultimately will be sufficient for marketing approval by the FDA.

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We have three products in clinical development and our other products are in preclinical development. None of these products may demonstrate sufficient effectiveness or safety to obtain the requisite regulatory approvals required for initiation or continuation of clinical studies or obtaining marketing approval.

Because we have limited experience in developing, commercializing and marketing products, we may be unsuccessful in our efforts to do so.

Currently, we are developing several potential pharmaceutical products, and such products will require significant research and development and preclinical testing, and will require extensive clinical testing prior to our submitting any regulatory application for their commercial use. Although we are conducting human studies with respect to three products, we have limited experience with these activities and may not be successful in developing or commercializing these or other products. These activities, if undertaken without the collaboration of others, will require the expenditure of significant funds. Such potential pharmaceutical products will be subject to the risks of failure inherent in the development of pharmaceutical products based on new technologies. Before we can commercialize a product, we must rigorously test the product in the laboratory and complete extensive human studies. Even if we complete such studies, our ability to develop and commercialize products will depend on our ability to:

• complete laboratory testing and human studies;

• obtain and maintain necessary intellectual property rights to our products;

• obtain and maintain necessary regulatory approvals related to the efficacy and safety of our products;

• enter into arrangements with third parties to manufacture our products on our behalf; and

• deploy sales and marketing resources effectively or enter into arrangements with third parties to provide these functions.

As a result of these possibilities, we may not be able to develop through our research and development activities any commercially viable products. We cannot be certain that expenses for testing and study will yield profitable products or even products approved for marketing by the FDA. If we are not successful in identifying products that we can develop commercially, we may be unable to recover the large investment we have made in research, development and manufacturing. In addition, should we choose to develop pharmaceutical products internally, we will have to make significant investments in pharmaceutical product development, marketing, sales and regulatory compliance resources, and we will have to establish or contract for the manufacture of products under the current good manufacturing practices (“cGMPs”) of the FDA. Any potential products developed by our licensees will be subject to the same risks.

We do not have any marketed products. If we develop products that can be marketed, we intend to market the products either independently or together with collaborators or strategic partners. If we decide to market any products independently, we will incur significant additional expenditures and commit significant additional management resources to establish a sales force. For any products that we market together with partners, we will rely, in whole or in part, on the marketing capabilities of those parties. We may also contract with third parties to market certain of our products. Ultimately, we and our partners may not be successful in marketing our products.

We depend on a limited number of suppliers to manufacture and supply critical components of our development and clinical programs.

Currently, we contract with third-party manufacturers or develop products with partners and use the partners’ manufacturing capabilities. As we use others to manufacture our products, we depend on those parties to comply with cGMPs, and other regulatory requirements and to deliver materials on a timely basis. These parties may not perform adequately. Any failures by these third parties may delay our development of products or the submission of these products for regulatory approval.

We depend on third-party research organizations to design and conduct our laboratory testing and human studies. If we are unable to obtain any necessary services on acceptable terms, we may not complete our product development efforts in a timely manner. As we rely on third parties for laboratory testing and human studies, we may lose some control over these activities and become too dependent upon these parties. These third parties may not complete testing activities or human studies on schedule or when we request.

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Because neither we nor any of our collaborative partners have received marketing approval for any product resulting from our research and development efforts, and may never be able to obtain any such approval, we may not be able to generate any product revenue.

All the products being developed by our collaborative partners will require additional research and development, extensive preclinical studies and clinical trials and regulatory approval prior to any commercial sales. In some cases, the length of time that it takes for our collaborative partners to achieve various regulatory approval milestones may affect the payments that we are eligible to receive under our collaboration agreements. We and our collaborative partners may need to address a number of technical challenges successfully in order to complete development of our products. Moreover, these products may not be effective in treating any disease or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining regulatory approval or prevent or limit commercial use.

We may be unable to manufacture or obtain sufficient quantities of our products and ensure their proper performance and quality.

Biopharmaceuticals must be produced under the cGMPs of the FDA. We do not have facilities capable of manufacturing drug products under cGMPs and must outsource any such production. We are devoting resources to establishing our own manufacturing capabilities to support development and preclinical activities and are contracting with third-party vendors for the manufacture of materials for use in humans. We may be unable to contract successfully for cGMPs manufacture of any products and may be unable to obtain required quantities of our products economically. We may not be able to obtain capacity to produce a sufficient amount of commercial product to meet our clinical development and commercial needs. Failure to meet the demand for product may adversely affect our ability to continue to market the product.

Compliance with government regulation is critical to our business and failure to satisfy regulatory requirements could impair our business.

Prior to the marketing of any new drug developed by us, or by our collaborators, that new drug must undergo an extensive regulatory review process in the United States and other countries. This regulatory process, which includes preclinical and clinical studies, as well as post-marketing surveillance to establish a compound’s safety and efficacy, can take many years and require the expenditure of substantial resources. Data obtained from such studies are susceptible to varying interpretations that could delay, limit or prevent regulatory approval. Even if the FDA allows clinical testing of our products, we will still need to obtain institutional review board approval for each site participating in a clinical study, which may involve additional delays. The rate of completion of clinical trials depends upon, among other factors, the enrollment of patients. Patient enrollment is a function of many factors, including:

• availability of FDA approved therapies or interventions;

• timing and restriction of institutional review board approval;

• the size of the patient population;

• proximity of patients to clinical sites;

• eligibility criteria for the study;

• time commitment of a patient to the study; and

• existence of competitive clinical trials.

We have not had any of our product candidates receive approval for commercialization in the United States or elsewhere. Neither we nor our collaborators may be able to conduct clinical testing or obtain the necessary approvals from the FDA or other regulatory authorities for any products. Failure by us or our collaborators to obtain required governmental approvals will delay or preclude our collaborators or us from marketing drugs developed with us or limit the commercial use of such products and could have a material adverse effect on our business, financial condition and results of operations. Even where a product is exempted from FDA clearance or approval, the FDA may impose restrictions as to the types of customers to which we can market and sell our products. Such restrictions may materially and adversely affect our business, financial condition and results of operations.

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In addition, the FDA may condition marketing approval on the conduct of specific post-marketing studies to further evaluate safety and efficacy. Rigorous and extensive FDA regulation of pharmaceutical products continues after approval, particularly with respect to compliance with cGMPs reporting of adverse effects, advertising, promotion and marketing. Discovery of previously unknown problems or failure to comply with the applicable regulatory requirements may result in restrictions on the marketing of a product or withdrawal of the product from the market as well as possible civil or criminal sanctions, any of which could materially adversely affect our business.

We must obtain regulatory approval by governmental agencies in other countries prior to commercialization of our products in those countries. Foreign regulatory systems may be just as rigorous, costly and uncertain as in the United States.

We rely significantly on our collaborative partners, and our business could be harmed if we are unable to maintain strategic alliances.

As part of our business strategy, we have strategic research and development alliances with companies to gain access to specific technologies. These alliances with other pharmaceutical and biotechnology companies may provide us with access to unique technologies, access to capital, near-term revenues, milestone and/or royalty payments, and potential profit sharing arrangements. In return, we provide access to unique technologies, expertise in genomics, and information on the molecular basis of disease, drug targets, and drug candidates. To date, we have entered into significant strategic alliances with Abgenix, Bayer, TopoTarget and Seattle Genetics, in addition to numerous smaller agreements to facilitate these efforts. In these strategic alliances, either party can terminate the agreement at any time the alliance permits them to or if either party materially breaches the contract. We may not be able to maintain or expand existing alliances or establish any additional alliances. If any of our existing collaborators were to breach or terminate their agreements with us or otherwise fail to conduct activities successfully and in a timely manner, the preclinical or clinical development or commercialization of product candidates or research programs may be delayed or terminated.

We depend on attracting and retaining key employees.

We are highly dependent on the principal members of our management and scientific staff, including David M. Wurzer, Executive Vice President and Chief Financial Officer; Christopher K. McLeod, Executive Vice President and interim Chief Executive Officer and President at 454; and Timothy M. Shannon, M.D., Executive Vice President and Chief Medical Officer. The loss of services of any of these personnel could materially adversely affect our business, financial condition and results of operations. We entered into employment agreements with all of the principal members of our management team. Our future success also will depend in part on the continued services of our key scientific and management personnel and our ability to attract, hire and retain additional personnel. There is intense competition for such qualified personnel and there can be no assurance that we will be able to continue to attract and retain such personnel. Failure to attract and retain key personnel could materially, adversely affect our business, financial condition and results of operations.

We depend on academic collaborators, consultants and scientific advisors.

We have relationships with collaborators and consultants at academic and other institutions who conduct research at our request. These collaborators and consultants are not our employees. Substantially all of our collaborators and consultants are employed by employers other than us and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us. As a result, we have limited control over their activities and, except as otherwise required by our collaboration and consulting agreements, can expect only limited amounts of their time to be dedicated to our activities. Our ability to discover genes and biological pathways involved in human disease, explore and validate biological activity of therapeutic candidates and commercialize products based on those discoveries may depend in part on continued collaborations with researchers at academic and other institutions. We may not be able to negotiate additional acceptable collaborations with collaborators or consultants at academic and other institutions.

Our academic collaborators, consultants and scientific advisors may have relationships with other commercial entities, some of which could compete with us. Our academic collaborators, consultants and scientific advisors sign agreements which provide for confidentiality of our proprietary information and of the results of studies. We may not be able to maintain the confidentiality of our technology and other confidential information in connection with every academic collaboration or advisory arrangement, and any unauthorized dissemination of our confidential information could materially adversely affect our business, financial condition and results of operations. Further, any such collaborator, consultant or advisor may enter into an employment agreement or consulting arrangement with one of our competitors.

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Competition in our field is intense and likely to increase.

We are subject to significant competition from organizations that are pursuing strategies, approaches, technologies and products that are similar to our own. Many of the organizations competing with us have greater capital resources, research and development staffs and facilities and marketing capabilities. In addition, research in the field of drug development is highly competitive. Our competitors include:

• biotechnology companies;

• pharmaceutical companies;

• academic and research institutions; and

• government agencies.

We compete with biotechnology and pharmaceutical companies that develop, produce and market therapeutic compounds in the U.S., Europe and elsewhere. We face competition from a number of biotechnology and pharmaceutical companies with products in preclinical development, clinical trials or approved for conditions identical or similar to the ones we are pursuing. Other companies engaged in research and development we face intense competition from include:

• Amgen, Inc.;

• Genentech, Inc.;

• Gloucester Pharmaceuticals, Inc.;

• Human Genome Sciences, Inc.;

• Merck & Co., Inc.;

• Millennium Pharmaceuticals, Inc.;

• Novartis, Inc.;

• Nuvelo, Inc.;

• major biotechnology and pharmaceutical companies; and

• universities and other research institutions.

The competition listed above was selected based upon identifying those companies that we feel have business models, are developing drugs or have drugs approved for therapeutic indications that are similar to the ones we are pursuing.

A number of organizations are attempting to rapidly identify and patent genes and gene fragments sequenced at random, typically without specific knowledge of the function of such genes or gene fragments. If our competitors discover or characterize important genes or gene fragments before we do, it could adversely affect our ability to commercialize our products. We expect that competition in genomics research, protein therapeutics, and therapeutic antibodies will intensify as technical advances are made and become more widely known. In addition, a number of competitors are producing proteins from genes and claiming both the proteins as potential therapeutics as well as claiming antibodies against these proteins. In many cases generic antibody claims are being issued by the United States Patent and Trademark Office (“USPTO”) even though competitors have not actually made antibodies against the protein of interest, or do not have cellular, animal, or human data to support the use of these antibodies as therapeutics. These claims on proteins as therapeutics and these claims covering all antibodies against the proteins and

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methods of use in broad human indications are being filed at a rapid rate, and some number of these claims have issued and may continue to issue. In addition, purified proteins, therapeutic data, and antibodies, including polyclonal antibodies, mouse monoclonal antibodies and, in some cases, fully-human monoclonal antibodies, are being generated against a large number of targets within the human genome. All of these activities may make it difficult to commercialize products, or, if licenses are made available, may make the royalty burden on these products so high as to prevent commercial success.

We may engage in acquisitions that are unsuccessful.

In the future, we may engage in acquisitions in order to exploit technology or market opportunities. We are not experienced in acquiring and integrating new businesses. If we acquire another company, we may not be able to integrate the acquired business successfully into our existing business in a timely and non-disruptive manner or at all. Furthermore, an acquisition may not produce the revenues, earnings or business synergies that we anticipate. If we fail to integrate the acquired business effectively or if key employees of that business leave, the anticipated benefits of the acquisition would be jeopardized. The time, capital management and other resources spent on an acquisition that fails to meet our expectations could cause our business and financial condition to be materially and adversely affected. In addition, acquisitions can involve material non-recurring charges and amortization of significant amounts of non-cash acquisition costs that could adversely affect our results of operations.

If our patent applications do not result in issued patents, then our competitors may obtain rights to commercialize our discoveries.

Our business and competitive position depends on our ability to protect our products, processes and technologies. We continually file patent applications for our proprietary methods, novel uses of genes, and our development products. As of the date of this report, we had been issued approximately 79 patents with respect to aspects of our gene portfolio, products, processes and technologies.

Our commercial success also depends in part on obtaining patent protection on genes and proteins for which we or our collaborators discover utility and on products, methods and services based on such discoveries. We have applied for patent protection on novel genes and proteins, novel mutants of known genes and their uses, partial sequences of novel proteins and their gene sequences and uses, and novel uses for previously identified genes discovered by third parties. We have applied for patents on antibodies against the proteins we have discovered, as well as seek or have our partners seek patent protection on the antibodies we produce against these proteins. We have sought and intend to continue to seek patent protection for novel uses for genes and proteins and therapeutic antibodies that may have been patented by third parties. In such cases, we would need a license from the holder of the patent with respect to such gene or protein in order to make, use or sell such gene or protein for such use. We may not be able to acquire such licenses on commercially reasonable terms, if at all. Our patent application filings that result from the identification of genes associated with the cause or effect of a particular disease generally seek to protect the genes and the proteins encoded by such genes as well as antibodies raised against these gene products. We also seek patent protection for our therapeutic, diagnostic and drug screening methods and products.

In 2001, the USPTO issued new guidelines for patent applications reflecting the USPTO’s current policy regarding statutory written description and utility requirements for patentability. The implementation of these new guidelines may cause the USPTO initially to reject some of our pending new gene and protein patent applications. There is no guarantee that the USPTO will approve them. We strive especially to gain issued patents for our commercially important genes and proteins.

The patent positions of pharmaceutical, biopharmaceutical and biotechnology companies, including us, are generally uncertain and involve complex legal and factual questions. Our patent applications may not protect our products, processes and technologies because of the following reasons:

• there is no guarantee that any of our pending patent applications will result in additional issued patents;

• we may develop additional proprietary technologies that are not patentable;

• there is no guarantee that any patents issued to us or our collaborative customers will provide a basis for commercially viable products;

• there is no guarantee that any patents issued to us or our collaborative customers will provide us with any competitive advantages;

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• there is no guarantee that any patents issued to us or our collaborative customers will not be challenged or circumvented or invalidated by third parties; and

• there is no guarantee that any patents issued to others will not have an adverse effect on our ability to do business.

In addition, patent law relating to the scope of claims in the technology fields in which we operate is still evolving. The degree of future protection for our proprietary rights is uncertain. Furthermore, there can be no assurance that others will not independently develop similar or alternative technologies, duplicate any of our technologies, or, if patents are issued to us, design around the patented technologies developed by us. In addition, we could incur substantial costs in litigation if we are required to defend ourselves in patent suits brought by third parties or if we initiate such suits.

The issuance of patents may not provide us with sufficient protection.

We may not be able to obtain further patents for our products, processes and technologies, or, if we are able to obtain further patents, these patents may not provide us with substantial protection or be commercially beneficial. The issuance of a patent is not conclusive as to its validity or enforceability, nor does it provide the patent holder with freedom to operate without infringing the patent rights of others. A patent could be challenged by litigation and, if the outcome of such litigation were adverse to the patent holder, competitors could be free to use the subject matter covered by the patent, or the patent holder may license the technology to others in settlement of such litigation. The invalidation of key patents owned by or licensed to us or non-approval of pending patent applications could increase competition, and materially adversely affect our business, financial condition and results of operations. In addition, any application or exploitation of our technology could infringe patents or proprietary rights of others and any licenses that we might need as a result of such infringement might not be available to us on commercially reasonable terms, if at all. Third parties have indicated to us that they believe we may be required to obtain a license in order to perform certain processes that we use in the conduct of our business or in order to market potential drugs we have in development.

We cannot predict whether our or our competitors’ pending patent applications will result in the issuance of valid patents. Litigation, which could result in substantial cost to us, also may be necessary to enforce our patent and proprietary rights and/or to determine the scope and validity of others’ proprietary rights. We may participate in interference proceedings that may in the future be declared by the USPTO to determine priority of invention, which could result in substantial cost to us. The outcome of any such litigation or interference proceeding might not be favorable to us, and we might not be able to obtain licenses to technology that we require or that, if obtainable, we could license such technology at a reasonable cost.

The public availability of genomic sequence information or other sequence information prior to the time we apply for patent protection on a corresponding full-length or partial gene could adversely affect our ability to obtain patent protection with respect to such gene or gene sequences. In addition, certain other groups are attempting to rapidly identify and characterize genes through the use of gene expression analysis and other technologies. To the extent any patents issue to other parties on such partial or full-length genes or uses for such genes, the risk increases that the sale of potential products, including therapeutics, or processes developed by us or our collaborators may give rise to claims of patent infringement. Others may have filed and in the future are likely to file patent applications covering genes or gene products or antibodies against the gene products that are similar or identical to our products. Any such patent application may have priority over our patent applications. Any legal action against us or our collaborators claiming damages and seeking to enjoin commercial activities relating to the affected products and processes could, in addition to subjecting us to potential liability for damages, require us or our collaborators to obtain a license in order to continue to manufacture or market the affected products and processes or could enjoin us from continuing to manufacture or market the affected products and processes. There can be no assurance that we or our collaborators would prevail in any such action or that any license required under any such patent would be made available on commercially acceptable terms, if at all. We believe that there may be significant litigation in the industry regarding patent and other intellectual property rights. If we become involved in such litigation, it could consume a substantial portion of our managerial and financial resources.

There is substantial uncertainty concerning the extent to which supportive data will be required for issuance of patents for human therapeutics. If data additional to that available to us is required, our ability to obtain patent protection could be delayed or otherwise adversely affected. Although the USPTO issued new utility guidelines in 1995 that address the requirements for demonstrating utility for biotechnology inventions, particularly for inventions

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relating to human therapeutics, there can be no assurance that the USPTO examiners will follow such guidelines or that the USPTO’s position will not change with respect to what is required to establish utility for gene sequences and products and methods based on such sequences.

We cannot be certain that our security measures will protect our proprietary technologies.

We also rely upon trade secret protection for some of our confidential and proprietary information that is not subject matter for which patent protection is being sought. We have developed a database of proprietary gene expression patterns and biological pathways which we update on an ongoing basis and which can be accessed over the Internet. We have taken security measures to protect our proprietary technologies, processes, information systems and data and continue to explore ways to enhance such security. Such measures, however, may not provide adequate protection for our trade secrets or other proprietary information. While we require employees, academic collaborators and consultants to enter into confidentiality and/or non-disclosure agreements where appropriate, any of the following could still occur:

• proprietary information could be disclosed;

• others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose such technology; or

• we may not be able to meaningfully protect our trade secrets.

We depend upon our ability to license technologies.

We may have to acquire or license certain components of our technologies or products from third parties. We may not be able to acquire from third parties or develop new technologies, either alone or with others. Failure to license or otherwise acquire necessary technologies could materially adversely affect our business, financial condition and results of operations.

The 454 Life Sciences technology platform is in development and the initial stages of commercialization.

The technology platform of 454, our majority-owned subsidiary, is still in development and 454 has not had significant sales of its services or products. 454 may not be able to continue to successfully develop or commercialize the 454 technology platform. The success of commercialization of the 454 technology platform depends on many factors, including:

• the acceptance of 454’s technology in the market place;

• technical performance of 454’s platform in relation to existing technologies; and

• 454’s ability to obtain from suppliers key components for the manufacture of the 454 instrument and reagents.

454 is subject to competition from organizations that have developed or are developing technologies and products to service 454’s potential customers.

Many of the organizations competing with 454 potentially have greater capital resources, research and development staffs and facilities and marketing capabilities. 454’s potential competitors include:

• Applera Corporation - Applied Biosystems;

• Affymetrix, Inc.;

• GE Healthcare;

• Perlegen Sciences, Inc.; and

• other companies recently formed or soon to be funded to develop whole genome sequencing technologies.

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We believe that the future success of 454 will depend in large part on our ability to maintain a competitive position in instruments for the high throughput nucleic acid sequencing field. Before we recover development expenses for our products or technologies, such products or technologies may become obsolete as a result of technological developments by us or others. Our products could also be made obsolete by new technologies which are less expensive or more effective. We may not be able to make the enhancements to our technology necessary to compete successfully with newly emerging technologies. A market for the high throughput nucleic acid sequencing field may not be sufficient to generate revenues significant enough for 454 to achieve profitability.

Patents may not provide sufficient protection for the 454 technology.

454’s products and services are based on the combination of several complex technologies. 454 has developed some of these technologies internally and has pursued patent protection in the U.S. and other countries for certain developments, improvements, and inventions it has developed that are incorporated into 454’s products or that fall within its fields of interest. Other of the technologies of interest to 454 are owned by third parties and are used by 454 under license. There are relatively few decided court cases interpreting the scope of patent claims in these technologies, and 454 believes that its products and services do not infringe the technology covered by valid and enforceable patents. This belief could be successfully challenged by third parties. 454’s patent applications may not protect its products, processes and technologies because of the following reasons:

• there is no guarantee that any of 454’s pending patent applications will result in additional issued patents;

• 454 may develop additional proprietary technologies that are not patentable;

• there is no guarantee that any patents issued to 454 or its collaborative customers will provide a basis for commercially viable products;

• there is no guarantee that any patents issued to 454 or its collaborative customers will provide 454 with any competitive advantages;

• there is no guarantee that any patents issued to 454 or its collaborative customers will not be challenged or circumvented or invalidated by third parties; and

• there is no guarantee that any patents issued to others will not have an adverse effect on 454’s ability to do business.

454 could be subject to claims for infringing on patents of other intellectual property rights.

In addition, patent law relating to the scope of claims in the technology fields in which 454 operates is still evolving. Due to the fact that 454’s business depends in large part on advancements made in genomic sequencing technology, there remains a constant risk of intellectual property litigation affecting the company. The patent positions of organizations developing these products, services and technology, including 454, are generally uncertain and could involve complex legal and factual questions. The degree of future protection for 454’s proprietary rights is uncertain. Furthermore, there can be no assurance that others will not independently develop similar or alternative technologies, duplicate any of 454’s technologies, or, if patents are issued to 454, design around the patented technologies developed by 454. In addition, 454 could incur substantial costs in litigation if they are required to defend themselves in patent lawsuits brought by third parties, or if 454 initiates such lawsuits.

From time to time, third parties may assert that 454 is infringing patents owned by such third parties. 454 will endeavor to settle such claims by mutual agreement on a satisfactory basis, which would result in withdrawal of the claim and/or result in the granting of licenses to 454. However, 454 cannot make any assurances as to the outcome of any future claims.

We could be liable for any failure to comply with hazardous product regulations.

Our research and development activities involve the controlled use of hazardous materials and chemicals. We are subject to federal, state and local laws and regulations governing the use, storage, handling and disposal of such materials and certain waste products. Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by federal, state and local laws and regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, we could be held liable for any damages that result and any liability could exceed our resources.

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Risks Related to Our Financial Results

We have a history of operating losses and expect to incur losses in the future.

We have incurred losses since inception, principally as a result of research and development and general and administrative expenses in support of our operations. We anticipate incurring additional losses over the next several years as we focus our resources on prioritizing, selecting and advancing our most promising drug candidates. We may never be profitable or achieve significant revenues. For example, we experienced net losses of $90.3 million in 2004, $74.5 million in 2003 and $90.4 million in 2002, and as of March 31, 2005 had an accumulated deficit of $399.3 million.

Our quarterly operating results have fluctuated greatly and may continue to do so.

Our operating results have fluctuated on a quarterly basis. We expect that losses will continue to fluctuate from quarter to quarter and that these fluctuations may be substantial. Our results of operations are difficult to predict and may fluctuate significantly from period to period, which may cause our stock price to decline and result in losses to investors. Some of the factors that could cause our operating results to fluctuate include:

• changes in the demand for our services;

• the nature, pricing and timing of products and services provided to our collaborators;

• our ability to compete effectively in our therapeutic discovery and development efforts against competitors that have greater financial or other resources or drug candidates that are in further stages of development;

• acquisition, licensing and other costs related to the expansion of our operations;

• losses and expenses related to our investments;

• regulatory developments or changes in public perceptions relating to the use of genetic information and the diagnosis and treatment of disease based on genetic information;

• regulatory actions and changes related to the development of drugs;

• changes in intellectual property laws that affect our patent rights;

• payments of milestones, license fees or research payments under the terms of our external alliances and collaborations and our ability to monitor and enforce such payments; and

• the timing of intellectual property licenses that we may enter into.

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We believe that quarterly comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of future performance. In addition, fluctuations in quarterly results could affect the market price of our common stock in a manner unrelated to our long-term operating performance.

The market price of our common stock is highly volatile.

The market price of our common stock has fluctuated widely and may continue to do so. For example, during the first quarter of 2005, the closing sale price of our stock ranged from a high of $7.28 per share to a low of $3.80 per share. Many factors could cause the market price of our common stock to rise and fall. These factors include:

• variations in our quarterly operating results;

• announcements of technological innovations, clinical results, or new products by us or our competitors;

• introduction of new products or new pricing policies by us or our competitors;

• acquisitions or strategic alliances by us or others in our industry;

• announcement by the government or other agencies regarding the economic health of the United States and the rest of the world;

• the hiring or departure of key personnel;

• changes in market valuations of companies within the biotechnology industry; and

• changes in estimates of our performance or recommendations by financial analysts.

We have a large amount of debt and our debt service obligations may prevent us from taking actions that we would otherwise consider to be in our best interests.

As of March 31, 2005, we had total consolidated debt of $240.0 million; and for the year ended December 31, 2004, we had a deficiency of earnings available to cover fixed charges of $97.2 million. A variety of uncertainties and contingencies will affect our future performance, many of which are beyond our control. We may not generate sufficient cash flow in the future to enable us to meet our anticipated fixed charges, including our debt service requirements with respect to our notes due in 2007 and in 2011. At March 31, 2005, $240.0 million of those notes remained outstanding.

The following table shows, as of March 31, 2005, the remaining aggregate amount of our interest payments due in each of the years listed (in millions):

Year	Aggregate Interest
2005	$	6.1
2006		12.2
2007		8.3
2008		4.4
2009		4.4
Thereafter		6.6
Total	$	42.0

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Our substantial leverage could have significant negative consequences for our future operations, including:

• increasing our vulnerability to general adverse economic and industry conditions;

• limiting our ability to obtain additional financing;

• requiring the dedication of a substantial portion of our expected cash flow to service our indebtedness, thereby reducing the amount of our expected cash flow available for other purposes, including working capital and capital expenditures;

• limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; or

• placing us at a possible competitive disadvantage compared to less leveraged competitors and competitors that have better access to capital resources.

Our debt investments are impacted by the financial viability of the underlying companies.

We have a diversified portfolio of investments of which $158.3 million at March 31, 2005 were invested in U.S. Treasuries and debt investments that are sponsored by the U.S. Government. Our corporate fixed-rate debt investments comply with our policy of investing in only investment-grade debt instruments. The ability for the debt to be repaid upon maturity or to have a viable resale market is dependent, in part, on the financial success of the underlying company. Should the underlying company suffer significant financial difficulty, the debt instrument could either be downgraded or, in the worst case, our investment could be worthless. This would result in our losing the cash value of the investment and incurring a charge to our statement of operations.

We may need to raise additional funding, which may not be available on favorable terms, if at all.

We believe that we have sufficient capital to satisfy our capital needs for at least the next twenty-four months. However, our future funding requirements will depend on many factors and we anticipate that, at some future point, we will need to raise additional capital to fund our business plan and research and development efforts on a going-forward basis. To the extent that we need to obtain additional funding, the amount of additional capital we would need to raise would depend on many factors, including:

• the number, breadth and progress of our research, product development and clinical programs;

• our ability to establish and maintain additional collaborations;

• the progress of our collaborators;

• our costs incurred in enforcing and defending our patent claims and other intellectual property rights; and

• the costs and timing of obtaining regulatory approvals for any of our products.

We expect that we would raise any additional capital we require through public or private equity offerings, debt financings or additional collaborations and licensing arrangements. We cannot be certain that in the future these

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sources of liquidity will be available when needed or that our actual cash requirements will not be greater than anticipated. In appropriate strategic situations, we may seek financial assistance from other sources, including contributions by others to joint ventures and other collaborative or licensing arrangements for the development and testing of products under development. If we raise additional capital by issuing equity securities, the issuance of such securities would result in ownership dilution to our shareholders. If we raise additional funds through collaborations and licensing arrangements, we may be required to relinquish rights to certain of our technologies or product candidates, or to grant licenses on unfavorable terms. The relinquishing of rights or granting of licenses on unfavorable terms could materially adversely affect our business, financial condition and results of operations. If adequate funds are not available, our business, financial condition and results of operations would be materially adversely affected. However, should we be unable to obtain future financing either through the methods described above or through other means, we may be unable to meet the critical objective of our long-term business plan, which is to successfully develop and market pharmaceutical products. If we require additional capital at a time when investment in biotechnology companies such as ours, or in the marketplace in general, is limited due to the then prevailing market or other conditions, we may not be able to raise such funds at the time that we desire or any time thereafter.

Risks Related to Our Convertible Debt and Our Common Stock into which Our Debt is Convertible

We have significant leverage as a result of the issuances of our debt in 2000 and 2004.

In February 2000, in connection with the sale of our 6% convertible subordinated debentures due in 2007, we incurred $150.0 million of indebtedness. In February 2004, we repurchased $20.0 million of these debentures, for total consideration of $20.0 million, plus accrued interest of $0.05 million to the date of repurchase. As a result of the remaining indebtedness of $130.0 million, our interest payment obligations amount to $7.8 million per year.

In February 2004, in connection with the sale of our 4% convertible subordinated notes due in 2011, we incurred an additional $100.0 million of indebtedness. In addition, in March 2004, the initial purchasers exercised their option to purchase an additional $10.0 million of 4% convertible subordinated notes due in 2011, providing us with additional net proceeds of approximately $9.7 million. As a result of this indebtedness of $110.0 million, our interest payment obligations amount to $4.4 million per year. The degree to which we are leveraged could adversely affect our ability to obtain further financing for working capital, acquisitions or other purposes and could make us more vulnerable to industry downturns and competitive pressures. Our ability to meet our debt service obligations will depend upon our future performance, which may be subject to the financial, business and other factors affecting our operations, many of which are beyond our control.

These notes, due in 2007 and in 2011, are effectively subordinated to all of our secured indebtedness and all indebtedness of our subsidiaries. These notes are our general unsecured obligations and are not guaranteed by any of our subsidiaries. Accordingly, these notes are effectively subordinated to all of our current and future secured indebtedness to the extent of the assets securing the indebtedness. Furthermore, our right to receive any distribution of assets of any subsidiary upon that subsidiary’s liquidation, reorganization or otherwise, is subject to the prior claims of creditors of that subsidiary, except to the extent we also are recognized as a creditor of that subsidiary. As a result, these notes are effectively subordinated to the claims of such creditors.

There are no restrictive covenants in our indentures relating to our ability to incur future indebtedness.

The indentures governing our notes due in 2007 and in 2011 do not contain any financial or operating covenants or restrictions on the payment of dividends, the incurrence of indebtedness, transactions with affiliates, incurrence of liens or the issuance or repurchase of securities by us or any of our subsidiaries. We may therefore incur additional debt, including secured indebtedness senior to these notes. As part of our growth strategy, we potentially may use proceeds from the 2004 offering to finance future acquisitions of complementary businesses or technologies, which may cause us or our subsidiaries to incur significant indebtedness to which these notes would be subordinate.

These notes, due in 2007 and in 2011, are obligations exclusively of CuraGen Corporation. Our subsidiaries are separate and distinct legal entities. Our subsidiaries have no obligation to pay any amounts due on these notes or to provide us with funds for our payment obligations, whether by dividends, distributions, loans or other payments. In addition, any payment of dividends, distributions, loans or advances by our subsidiaries to us could be subject to statutory or contractual restrictions. Payments to us by our subsidiaries will also be contingent upon our subsidiaries’ earnings and business considerations.

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Our debt service obligations may adversely affect our cash flow.

A higher level of indebtedness increases the risk that we may default on our debt obligations. We cannot be certain that we will be able to generate sufficient cash flow to pay the interest on our debt or that future working capital, borrowings or equity financing will be available to pay or refinance such debt. If we are unable to generate sufficient cash flow to pay the interest on our debt, we may have to delay or curtail our research and development programs.

The level of our indebtedness among other things, could:

• make it difficult for us to make payments on our notes;

• make it difficult for us to obtain any necessary financing in the future for working capital, capital expenditures, debt service requirements or other purposes;

• limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and

• make us more vulnerable in the event of a downturn in our business.

Our ability to repurchase notes, if required, with cash upon a change in control or fundamental change may be limited.

In certain circumstances involving a change in control, we may be required to repurchase some or all of the notes due in 2007. In certain circumstances involving a fundamental change, we may be required to repurchase some or all of the notes due in 2011. We cannot be certain that we will have sufficient financial resources at such time or would be able to arrange financing to pay the repurchase price of the notes. Our ability to repurchase the notes in such event may be limited by law, by the indenture and by such indebtedness and agreements as may be entered into, replaced, supplemented or amended from time to time.

Securities we issue to fund our operations could cause dilution to our shareholders’ ownership.

The conversion of our notes into shares of common stock will dilute the ownership interest of our current shareholders. We may decide to raise additional funds through a public or private debt or equity financing to fund our operations. If we raise funds by issuing equity securities, the percentage ownership of current shareholders, including the ownership that holders of the notes would have upon conversion, will be reduced, and the new equity securities may have rights prior to those of the common stock issuance upon conversion of the notes. We may not obtain sufficient financing on terms that are favorable to existing shareholders and us.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our outstanding long-term liabilities as of March 31, 2005 consisted of $130.0 million of our 6% convertible subordinated debentures due February 2, 2007, $110.0 million of our 4% convertible subordinated notes due February 15, 2011, and an accrued long-term liability of $1.0 million for the remaining future minimum payments under a license agreement (see Note 11 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2004). As the debentures and notes bear interest at a fixed rate, our results of operations would not be affected by interest rate changes. As of March 31, 2005, the market value of our $130.0 million 6% convertible subordinated debentures due 2007, based on quoted market prices, was estimated at $123.7 million, and the market value of our $110.0 million 4% convertible subordinated notes due 2011, based on quoted market prices, was estimated at $82.2 million. Although future borrowings may bear interest at a floating rate, and our result of operations would therefore be affected by interest rate changes, at this point we do not anticipate any significant future borrowings at floating interest rates, and therefore do not believe that a change of 100 basis points in interest rates would have a material effect on our financial condition.

There have been no other significant changes in our market risk compared to the disclosures in Item 7a of our Annual Report on Form 10-K for the year ended December 31, 2004.

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Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on that evaluation, the CEO and CFO have concluded that our disclosure controls and procedures were adequate and effective.

(b) Changes in Internal Controls

There have been no changes in our internal controls over financial reporting, identified in connection with the above-mentioned evaluation of such internal controls that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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Part II - Other Information

Item 6. Exhibits

Exhibit 10.1	Addendum dated February 1, 2005, to Employment Agreement, dated April 1, 2002, between the Registrant and Jonathan M. Rothberg
Exhibit 10.2	Addendum dated February 1, 2005, to Employment Agreement, dated April 1, 2002, between the Registrant and Christopher K. McLeod
Exhibit 10.3	Addendum dated February 1, 2005, to Employment Agreement, dated September 9, 2002, between the Registrant and Timothy M. Shannon
Exhibit 10.4	Addendum dated February 1, 2005, to Employment Agreement, dated April 1, 2002, between the Registrant and David M. Wurzer
Exhibit 10.5	Separation agreement, dated February 10, 2005, by and between 454 Life Sciences Corporation and Richard F. Begley
Exhibit 31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: May 5, 2005	CuraGen Corporation
	By:	/s/ Jonathan M. Rothberg, Ph.D.
		Jonathan M. Rothberg, Ph.D.
		Chief Executive Officer, President and
		Chairman of the Board (principal executive officer of
		the registrant)
	By:	/s/ David M. Wurzer
		David M. Wurzer
		Executive Vice-President, Chief Financial Officer and Treasurer (principal financial and accounting officer of the registrant)

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CURAGEN CORPORATION

EXHIBIT INDEX

No.
Exhibit 10.1	Addendum dated February 1, 2005, to Employment Agreement, dated April 1, 2002, between the Registrant and Jonathan M. Rothberg
Exhibit 10.2	Addendum dated February 1, 2005, to Employment Agreement, dated April 1, 2002, between the Registrant and Christopher K. McLeod
Exhibit 10.3	Addendum dated February 1, 2005, to Employment Agreement, dated September 9, 2002, between the Registrant and Timothy M. Shannon
Exhibit 10.4	Addendum dated February 1, 2005, to Employment Agreement, dated April 1, 2002, between the Registrant and David M. Wurzer
Exhibit 10.5	Separation agreement, dated February 10, 2005, by and between 454 Life Sciences Corporation and Richard F. Begley
Exhibit 31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code).

EX-10.1

Exhibit 10.1

Confidential

Interoffice Memorandum

To:	Personnel File
From:	Jonathan M. Rothberg, Chairman of the Board, CEO and President
Date:	February 1, 2005
Re:	Amendment to Employment Agreement dated April 1, 2002

I, Jonathan M. Rothberg, (“the Executive”) signed an Employment Agreement (“the Agreement”) with my employer, CuraGen Corporation (“the Company”), on or about April 1, 2002, and subsequently signed an Addendum to the Agreement on October 31, 2003. Exhibit A, Item 1) of the original Agreement provides that the Executive’s initial base salary shall be subject to increases by the Board of Directors, which shall review the salary periodically. Therefore, pursuant to the minutes of the January 25, 2005, Meeting of the Compensation Committee of the Board of Directors, the Executive’s 2005 base salary will be adjusted to $420,000 per year, payable in bi-weekly installments.

Unless explicitly changed in the Addendum dated October 31, 2003, all other terms of the original Agreement shall remain in full force and effect.

/s/ Jonathan M. Rothberg

Jonathan M. Rothberg

/s/ Robert E. Patricelli

Robert E. Patricelli

EX-10.2

Exhibit 10.2

Confidential

Interoffice Memorandum

To:	Personnel File
From:	Christopher K. McLeod, Interim CEO & President of 454 Life Sciences Corporation
Date:	February 1, 2005
Re:	Amendment to Employment Agreement dated April 1, 2002

I, Christopher K. McLeod, (“the Executive”) signed an Employment Agreement (“the Agreement”) with my employer, CuraGen Corporation (“the Company”), on or about April 1, 2002, and subsequently signed an Addendum to the Agreement on October 31, 2003. Exhibit A, Item 1) of the original Agreement provides that the Executive’s initial base salary shall be subject to increases by the Board of Directors, which shall review the salary periodically. Therefore, pursuant to the minutes of the January 25, 2005, Meeting of the Compensation Committee of the Board of Directors, the Executive’s 2005 base salary was adjusted to $286,000 per year, payable in bi-weekly installments. However, effective January 31, 2005, as a result of being named Interim CEO & President of 454 Life Sciences Corporation the Executive’s base salary was increased to $322,000, which is payable in bi-weekly installments.

Unless explicitly changed in the Addendum dated October 31, 2003, all other terms of the original Agreement shall remain in full force and effect.

/s/ Christopher K. McLeod

Christopher K. McLeod

/s/ Jonathan M. Rothberg

Jonathan M. Rothberg

EX-10.3

Exhibit 10.3

Confidential

Interoffice Memorandum

To:	Personnel File
From:	Timothy M. Shannon, EVP & Chief Medical Officer
Date:	February 1, 2005
Re:	Amendment to Employment Agreement dated September 9, 2002

I, Timothy M. Shannon, (“the Executive”) signed an Employment Agreement (“the Agreement”) with my employer, CuraGen Corporation (“the Company”), on or about September 9, 2002, and subsequently signed an Addendum to the Agreement on October 31, 2003. Exhibit A, Item 1) of the original Agreement provides that the Executive’s initial base salary shall be subject to increases by the Board of Directors, which shall review the salary periodically. Therefore, pursuant to the minutes of the January 25, 2005, Meeting of the Compensation Committee of the Board of Directors, the Executive’s 2005 base salary will be adjusted to $310,000 per year, payable in bi-weekly installments.

Unless explicitly changed in the Addendum dated October 31, 2003, all other terms of the original Agreement shall remain in full force and effect.

/s/ Timothy M. Shannon

Timothy M. Shannon

/s/ Jonathan M. Rothberg

Jonathan M. Rothberg

EX-10.4

Exhibit 10.4

Confidential

Interoffice Memorandum

To:	Personnel File
From:	David M. Wurzer, EVP & Chief Financial Officer
Date:	February 1, 2005
Re:	Amendment to Employment Agreement dated April 1, 2002

I, David M. Wurzer, (“the Executive”) signed an Employment Agreement (“the Agreement”) with my employer, CuraGen Corporation (“the Company”), on or about April 1, 2002, and subsequently signed an Addendum to the Agreement on October 31, 2003. Exhibit A, Item 1) of the original Agreement provides that the Executive’s initial base salary shall be subject to increases by the Board of Directors, which shall review the salary periodically. Therefore, pursuant to the minutes of the January 25, 2005, Meeting of the Compensation Committee of the Board of Directors, the Executive’s 2005 base salary will be adjusted to $286,000 per year, payable in bi-weekly installments.

Unless explicitly changed in the Addendum dated October 31, 2003, all other terms of the original Agreement shall remain in full force and effect.

/s/ David M. Wurzer

David M. Wurzer

/s/ Jonathan M. Rothberg

Jonathan M. Rothberg

EX-10.5

Exhibit 10.5

February 10, 2005

Richard F. Begley, Ph.D.

46 Dover Court

Guilford, CT 06437

Re:    Separation Agreement

Dear Dick:

The purpose of this letter agreement (the “Agreement”) is to set forth the terms of your separation from 454 Life Sciences Corporation (the “Company”), a Delaware corporation. Payment of the Separation Benefits (defined below) is contingent on your agreement to and compliance with the terms of this Agreement, as set forth below.

1. Separation of Employment. Your employment with the Company will end on February 11, 2005 (the “Separation Date”). Effective as of the Separation Date, you hereby resign from your positions as Chief Executive Officer and President of the Company, and 16(b) Officer of CuraGen Corporation. You acknowledge that from and after the Separation Date, you shall have no authority to, and shall not, represent yourself as an employee or agent of the Company or CuraGen Corporation.

2. Separation Benefits. In exchange for the mutual promises set forth in this Agreement, and beginning on the eighth (8^th) day following your execution of this Agreement (the “Effective Date”), the Company agrees to provide you with the following compensation and benefits (collectively, the “Separation Benefits”):

(a) Continuation of bi-weekly payments in an amount equal to $12,230.77 for the six (6) month period (through August 12, 2005) immediately following the Separation Date, which shall be paid in accordance with the Company’s normal payroll practices;

(b) On the Effective Date, the Company will pay to you an amount equal $75,000.00, less customary payroll withholdings, in full satisfaction of your 2004 annual bonus from the Company;

(c) Notwithstanding the terms and provisions of any stock option agreement to the contrary, but subject to Section 3(f) of this Agreement, all vested Company stock options held by you as of the Separation Date shall be modified to extend the exercise period of all such options until the second anniversary following the Separation Date, at which time all unexercised options shall immediately terminate and be forfeited by you. Except as set forth above, all of the terms, rights and conditions of the Company’s 2000 Employee, Director and Consultant Stock Plan and any stock option agreements executed by you pursuant to the issuance of any stock options under the Plan, are hereby incorporated by

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reference and shall survive the signing of this Agreement. In addition, pursuant to the Internal Revenue Code, your vested Incentive Stock Options (ISOs) may not be exercised more than three months following your Separation Date, therefore any ISO’s not exercised within this 90 day period will be treated as NQSOs at time of exercise. You acknowledge and agree that following the Separation Date, you shall not have any right to vest in any additional stock options under the Plan, or any Company stock or stock option plan (of whatever name or kind) that you may have participated in or were eligible to participate in during your employment with the Company

(d) By law, and regardless of whether you sign this Agreement, you will have the right to continue your medical and dental insurance pursuant to the provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). If COBRA is properly elected, and you accept this Agreement, the Company will pay your COBRA premiums for the six (6) month period (through August 31, 2005) immediately following the Separation Date. The COBRA qualifying event shall be deemed to have occurred on the Separation Date.

(e) You acknowledge and agree that the Separation Benefits are not otherwise due or owing to you under any employment agreement (oral or written) or Company policy or practice. You also agree that the Separation Benefits to be provided to you are not intended to and do not constitute a severance plan and do not confer a benefit on anyone other than the parties. You further acknowledge that, except for the specific financial consideration set forth in this Agreement, your final wages, and all other accrued payment obligations in connection with your employment, have been paid to you in accordance with the Company’s regular payroll practices and applicable law, and you are not now and shall not in the future be entitled to any other compensation from the Company including, without limitation, other wages, commissions, bonuses, vacation pay, holiday pay, paid time off or any other form of compensation or benefit. You hereby acknowledge receipt of all expense reimbursements due to you in connection with all services performed, and expenses incurred, prior to the Separation Date.

3. Covenants. You expressly acknowledge and agree to the following:

(a) that you promptly will return to the Company all Company documents (and any copies thereof) and property, and that you shall abide by the terms and provisions of Section 8 of the Employment Agreement dated December 20, 2002 by and between you and the Company, as amended (the “Employment Agreement”), the terms of which are hereby incorporated by reference and which shall survive the signing of this Agreement. Further, you agree that you will abide by any and all common law and/or statutory obligations relating to protection and non-disclosure of the Company’s trade secrets and/or confidential and proprietary documents and information; as per the Confidentiality Agreements which were signed on November 30, 2001 and January 7, 2002.

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(b) that the terms and provisions of Sections 7 and 9 of the Employment Agreement are hereby incorporated by reference and shall survive the signing of this Agreement, except that you and the Company agree that your obligations under Section 9(a) and (c) of the Employment Agreement shall extend for a period of two (2) years following the Separation Date.

(c) that all information relating in any way to the negotiation of this Agreement, including the terms and amount of financial consideration provided for in this Agreement, shall be held confidential by you and shall not be publicized or disclosed to any person (other than an immediate family member, legal counsel or financial advisor, provided that any such individual to whom disclosure is made agrees to be bound by these confidentiality obligations), business entity or government agency (except as mandated by state or federal law), except that nothing in this paragraph shall prohibit you from participating in an investigation with a state or federal agency if requested by the agency to do so;

(d) that you will not make any statements that are professionally or personally disparaging about, or adverse to, the interests of CuraGen Corporation (“CuraGen”) or the Company (including its CEO, officers, directors, employees and consultants) including, but not limited to, any statements that disparage any person or their conduct, management practices, product, service, finances, financial condition, capability or any other aspect of the business of CuraGen or the Company, and that you will not engage in any conduct which could reasonably be expected to harm professionally or personally the reputation of CuraGen or the Company (including its CEO, officers, directors, employees and consultants);

(e) that you will make yourself generally available to the Company either by telephone or, if the Company believes necessary, in person, to assist the Company in connection with any matter relating to services performed by you on behalf of the Company prior to the Separation Date, including, but not limited to, providing assistance to the Company in its efforts to close a “distribution agreement” during the next 90 days and, all reasonable transition assistance to the management team. You further agree that you will cooperate fully with the Company in the defense or prosecution of any claims or actions now in existence or which may be brought or threatened in the future against or on behalf of the Company, its directors, shareholders, officers, or employees. The Company shall reimburse you for reasonable documented travel expenses incurred should your presence be required in person. Your cooperation in connection with such claims or actions shall include, without limitation, your being available to meet with the Company to prepare for any proceeding (including depositions), to provide affidavits, to assist with any audit, inspection, proceeding or other inquiry, and to act as a witness in connection with any litigation or other legal proceeding affecting the Company. You further agree that should you be contacted (directly or indirectly) by any individual or any person representing an individual or entity that is or may be legally or competitively adverse to the Company in connection with any claims or legal proceedings, you will promptly notify the Chief Executive Officer of the Company or his or her designee, of that fact in writing, but in no event later than the next business day or immediately if you already have been so contacted. Such notification shall include a reasonable description of the content of the communication with the legally or competitively adverse individual or entity; and

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(f) that a breach of this Section shall constitute a material breach of this Agreement and, in addition to any other legal or equitable remedy available to the Company, shall entitle the Company to (i) recover any monies paid to you under Section 2 of this Agreement, (ii) immediately terminate any then unexercised Company stock options held by you; and (iii) as to any stock option exercised by you after the 90^th day following the Separation Date, recover the gain realized from your exercise of such options.

4. Release of Claims. In consideration of the covenants set forth herein, and more particularly the Separation Benefits provided to you, and other good and valuable consideration, you and your respective agents, heirs, legatees, successors and assigns (collectively hereinafter “you”), except as set forth below, hereby unconditionally and irrevocably release, remise, and forever discharge the Company,^1/ and all persons acting by, through, under or in concert with the Company, of and from any and all actions, causes of actions, suits, debts, charges, complaints, claims, liabilities, obligations, promises, agreements, controversies, damages, and expenses (including attorney fees and costs actually incurred), of any nature whatsoever, in law or equity (collectively “Claims”), which you had, now have, or hereafter may have against the Company from the beginning of time through the date on which you execute this Agreement (the “Execution Date”).

Without limiting the generality of the foregoing waiver and release of claims, you specifically waive and release the Company from any Claim arising from or related to your employment relationship with the Company or the termination thereof including, without limitation:

(a) Claims under any federal, state or local discrimination, fair employment practices or other employment related statute, regulation or executive order (as they may have been amended through the Execution Date) prohibiting discrimination or harassment based upon any protected status including, without limitation, age, race, national origin, gender, marital status, disability, veteran status or sexual orientation. Without limitation, specifically included in this paragraph are any Claims arising under the federal Age Discrimination in Employment Act, the Older Workers Benefit Protection Act, the Civil Rights Acts of 1866 and 1871, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Equal Pay Act, the Americans with Disabilities Act, the Worker Adjustment and Retraining Notification Act and any similar statute;

(b) Claims under any other federal, state or local employment-related statute, regulation or executive order (as they may have been amended through the Execution Date) relating to wages, hours or any other terms and conditions of employment, including, without limitation, the Fair Labor Standards Act, the Family and Medical

^1/ For purposes of this Section, the “Company” includes 454 Life Sciences Corporation, and any of its divisions, affiliates (which means all persons and entities directly or indirectly controlling, controlled by or under common control with 454 Life Sciences Corporation), parents, subsidiaries and all other related entities, and its and their directors, officers, employees, trustees, agents, successors and assigns.

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Leave Act of 1993, the National Labor Relations Act, the Employee Retirement Income Security Act of 1974, the Consolidated Omnibus Budget Reconciliation Act of 1985 and any similar statute;

(c) Claims under any federal, state or local common law theory including, without limitation, wrongful discharge, breach of express or implied contract, promissory estoppel, unjust enrichment, breach of a covenant of good faith and fair dealing, violation of public policy, defamation, interference with contractual relations, intentional or negligent infliction of emotional distress, invasion of privacy, misrepresentation, deceit, fraud or negligence;

(d) Claims under any federal, state or local securities law, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and any similar statute; and

(e) Claims arising under any other federal, state or local law.

Notwithstanding the foregoing, this Section shall not release the Company from any obligation expressly set forth in this Agreement and shall not act as a waiver or release of any Claims that you cannot by law waive or release, including, without limitation, workers’ compensation claims. You acknowledge and agree that, but for providing this waiver and release of Claims, you would not be receiving the Separation Benefits under this Agreement.

It is the Company’s desire and intent to make certain that you fully understand the provisions and effects of this Agreement. To that end, you have been encouraged and given the opportunity to consult with legal counsel for the purpose of reviewing the terms of this Agreement. Also, because you are over the age of 40, and consistent with the provisions of the Age Discrimination in Employment Act (“ADEA”), which prohibits discrimination on the basis of age, the Company is providing you with twenty-one (21) days in which to consider and accept the terms of this Agreement by signing below and returning it to David M. Wurzer, Executive Vice President and Chief Financial Officer, c/o CuraGen Corporation, 555 Long Wharf Drive, 11^th Floor, New Haven, Connecticut 06511. In addition, you may rescind your assent to this Agreement if, within seven (7) days after you sign this Agreement, you deliver by hand or send by mail (certified, return receipt and postmarked within such 7-day period) a notice of rescission to David M. Wurzer at the above-referenced address.

Also, consistent with the provisions of the ADEA and other federal discrimination laws, nothing in this release shall be deemed to prohibit you from challenging the validity of this release under the federal age or other discrimination laws (the “Federal Discrimination Laws”) or from filing a charge or complaint of age or other employment related discrimination with the Equal Employment Opportunity Commission (“EEOC”), or from participating in any investigation or proceeding conducted by the EEOC. Further, nothing in this release or Agreement shall be deemed to limit the Company’s right to seek immediate dismissal of such charge or complaint on the basis that your signing of this Agreement constitutes a full release of any individual rights under the Federal Discrimination Laws, or to seek restitution to the extent permitted by law of the economic benefits provided to you under this Agreement in the event that you successfully challenge the validity of this release and prevail in any claim under the Federal Discrimination Laws.

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5. Injunctive Relief. You acknowledge and agree that a breach or threatened breach by you of any terms of this Agreement, including, but not limited to, your covenants and/or obligations under Section 3 above, would pose the risk of irreparable harm to the Company, and that in the event of a breach or threatened breach of any of such terms, in addition to such other remedies that the Company may have at law, without posting any bond or security, the Company shall be entitled to seek and obtain equitable relief in the form of specific performance, or temporary, preliminary or permanent injunctive relief, or any other equitable remedy which then may be available, and that the seeking of such injunction or order shall not affect the Company’s right to seek and obtain damages or other equitable relief on account of any such actual or threatened breach.

6. Entire Agreement/Modification/Waiver/Choice of Law/Enforceability. You acknowledge and agree that, with the exception of Sections 7, 8 and 9 only of the Employment Agreement, the Plan and any stock option agreements executed by you and the Company, all of which, to the extent modified herein, are incorporated by reference into this Agreement, this Agreement supersedes any and all prior or contemporaneous oral and/or written agreements between you and the Company, and sets forth the entire agreement between you and the Company. No variations or modifications hereof shall be deemed valid unless reduced to writing and signed by the parties hereto. The failure of the Company to seek enforcement of any provision of this Agreement in any instance or for any period of time shall not be construed as a waiver of such provision or of the Company’s right to seek enforcement of such provision in the future. This Agreement shall be deemed to have been made in the State of Connecticut, shall take effect as an instrument under seal within the State of Connecticut, and shall be governed by and construed in accordance with the law of the State of Connecticut, without giving effect to conflict of law principles. You agree that any action, demand, claim or counterclaim relating to the terms and provisions of this Agreement, or to its breach, shall be commenced in the State of Connecticut in a court of competent jurisdiction, and you further acknowledge that venue for such actions shall lie exclusively in the State of Connecticut and that material witnesses and documents would be located in the State of Connecticut. Both parties hereby waive and renounce in advance any right to a trial by jury in connection with such legal action. The provisions of this Agreement are severable, and if for any reason any part hereof shall be found to be unenforceable, the remaining provisions shall be enforced in full.

By executing this Agreement, you are acknowledging that you have been afforded sufficient time to understand the terms and effects of this Agreement, that your agreements and obligations hereunder are made voluntarily, knowingly and without duress, and that neither the Company nor its agents or representatives have made any representations inconsistent with the provisions of this Agreement.

The parties agree that the last act necessary to render this Agreement effective is for you to sign the Agreement, and that the Agreement may be signed on one or more copies, each of which when signed will be deemed to be an original, and all of which together will constitute one and the same Agreement.

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If the foregoing correctly sets forth our understanding, please sign, date and return the enclosed copy of this Agreement to David M. Wurzer within twenty-one (21) days of the date of this letter.

Sincerely,

454 LIFE SCIENCES CORPORATION

/s/ David M. Wurzer

David M. Wurzer

Executive Vice President &

Chief Financial Officer

Confirmed, Agreed and Acknowledged:

/s/ Richard F. Begley

Richard F. Begley

Dated: 2/10/05

Cc: D. Ebsworth

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EX-31.1

EXHIBIT 31.1

CERTIFICATIONS UNDER SECTION 302

I, Jonathan M. Rothberg, certify that:

1. I have reviewed this quarterly report of CuraGen Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 5, 2005

/s/ Jonathan M. Rothberg, Ph.D.

Jonathan M. Rothberg, Ph.D.

Chief Executive Officer, President and

Chairman of the Board (principal executive officer of the registrant)

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS UNDER SECTION 302

I, David M. Wurzer, certify that:

1. I have reviewed this quarterly report of CuraGen Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 5, 2005

/s/ David M. Wurzer

David M. Wurzer

Executive Vice-President, Chief Financial Officer

and Treasurer (principal financial and accounting officer of the registrant)

EX-32

EXHIBIT 32

Certification

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of CuraGen Corporation, a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:

The Quarterly Report on Form 10-Q for the period ended March 31, 2005 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 5, 2005	By:	/s/ Jonathan M. Rothberg, Ph.D.
		Jonathan M. Rothberg, Ph.D.
		Chief Executive Officer, President and
		Chairman of the Board
		(principal executive officer of the registrant)
Dated: May 5, 2005	By:	/s/ David M. Wurzer
		David M. Wurzer
		Executive Vice-President, Chief Financial Officer
		and Treasurer
		(principal financial and accounting officer of the registrant)

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.