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 June 30, 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 July 29, 2005 was 51,227,396.

CURAGEN CORPORATION AND SUBSIDIARY

FORM 10-Q

INDEX

			Page
PART I. Financial Information
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets, June 30, 2005 (unaudited) and December 31, 2004	3
		Condensed Consolidated Statements of Operations, for the Three and Six Months Ended June 30, 2005 and 2004 (unaudited)	4
		Condensed Consolidated Statements of Cash Flows, for the Six Months Ended June 30, 2005 and 2004 (unaudited)	5
		Notes to Condensed Consolidated Financial Statements (unaudited)	6 - 10
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11- 38
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
	Item 4.	Controls and Procedures	38
PART II. Other Information
	Item 4.	Submission of Matters to a Vote of Security Holders	39
	Item 5.	Other Information	39
	Item 6.	Exhibits	39
Signatures			40
Exhibit Index			41

CURAGEN CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value and share data)

	June 30, 2005			December 31, 2004
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	74,022		$	23,849
Short-term investments		10,937			83,921
Marketable securities		191,839			220,350
Cash and investments		276,798			328,120
Income taxes receivable		544			829
Inventory		2,842			—
Accounts receivable		2,225			234
Other current assets		9			64
Prepaid expenses		1,664			1,499
Total current assets		284,082			330,746
Property and equipment, net		27,463			24,132
Intangible and other assets, net		13,282			14,334
Total assets	$	324,827		$	369,212
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,092		$	1,840
Accrued expenses		7,810			4,143
Accrued payroll and related items		1,288			2,075
Interest payable		4,556			4,900
Deferred revenue		5,319			4,244
Other current liabilities		1,021			1,520
Total current liabilities		24,086			18,722
Long-term liabilities:
Convertible subordinated debt		226,050			240,000
Accrued long-term liabilities		1,000			1,000
Total long-term liabilities		227,050			241,000
Commitments and contingencies
Minority interest in subsidiary		1,107			2,593
Stockholders’ equity:
Common Stock; $.01 par value, issued and outstanding 51,165,314 shares at June 30, 2005, and 50,646,538 shares at December 31, 2004		512			506
Additional paid-in capital		491,395			489,725
Accumulated other comprehensive loss		(1,599	)		(1,114	)
Accumulated deficit		(414,968	)		(379,889	)
Unamortized stock-based compensation		(2,756	)		(2,331	)
Total stockholders’ equity		72,584			106,897
Total liabilities and stockholders’ equity	$	324,827		$	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 June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Revenue:
Grant revenue	$	617		$	358		$	1,336		$	358
Instrument and reagent sales		2,128			—			3,210			—
Collaboration revenue		1,545			916			3,174			2,531
Total revenue		4,290			1,274			7,720			2,889
Operating expenses:
Grant research		524			100			945			100
Cost of instrument and reagent sales		471			—			678			—
Research and development		15,461			24,591			33,037			39,732
General and administrative		4,603			4,946			8,954			9,803
Total operating expenses		21,059			29,637			43,614			49,635
Loss from operations		(16,769	)		(28,363	)		(35,894	)		(46,746	)
Interest income		2,207			2,016			4,314			4,052
Interest expense		(3,234	)		(3,345	)		(6,595	)		(6,222	)
Gain (loss) on extinguishment of debt		1,408			—			1,408			(294	)
Loss before income taxes and minority interest in subsidiary loss		(16,388	)		(29,692	)		(36,767	)		(49,210	)
Income tax benefit		72			90			145			184
Minority interest in subsidiary loss		636			1,410			1,543			2,795
Net loss	$	(15,680	)	$	(28,192	)	$	(35,079	)	$	(46,231	)
Basic and diluted net loss per share	$	(0.31	)	$	(0.57	)	$	(0.70	)	$	(0.93	)
Weighted average number of shares used in computing basic and diluted net loss per share		50,329			49,875			50,301			49,839

See accompanying notes to condensed consolidated financial statements

4

CURAGEN CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Six Months Ended June 30,
	2005			2004
Cash flows from operating activities:
Net loss	$	(35,079	)	$	(46,231	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		3,911			4,875
Non-monetary compensation		757			233
Stock-based 401(k) employer plan match		286			405
(Gain) loss on extinguishment of debt		(1,408	)		294
Minority interest		(1,543	)		(2,795	)
Changes in assets and liabilities:
Income taxes receivable		285			(184	)
Inventory		(2,286	)		—
Accounts receivable		(1,991	)		(86	)
Other current assets		55			8
Prepaid expenses		(165	)		(707	)
Intangible and other assets, net		(134	)		(25	)
Accounts payable		2,543			(2,660	)
Accrued expenses		3,620			1,639
Accrued payroll and related items		(787	)		(7	)
Interest payable		(344	)		1,125
Deferred revenue		1,075			(336	)
Other current liabilities		(499	)		(439	)
Accrued long-term liabilities		—			14
Net cash used in operating activities		(31,704	)		(44,877	)
Cash flows from investing activities:
Acquisitions of property and equipment		(6,971	)		(1,943	)
Payments for intangible assets		(5	)		(302	)
Loans to employees, net of repayments		—			(40	)
Convertible loan to collaborator		—			(5,000	)
Net inflows (outflows) from purchases and maturities of short-term investments		72,360			(36,918	)
Net inflows from purchases and maturities of marketable securities		28,650			14,752
Net cash provided by (used in) investing activities		94,034			(29,451	)
Cash flows from financing activities:
Payments on capital lease obligations		—			(204	)
Proceeds from exercise of stock options		265			372
Proceeds from issuance of convertible debt		—			110,000
Payment for extinguishment of debt		(12,422	)		(20,000	)
Payment of financing costs		—			(3,757	)
Net cash (used in) provided by financing activities		(12,157	)		86,411
Net increase in cash and cash equivalents		50,173			12,083
Cash and cash equivalents, beginning of period		23,849			42,843
Cash and cash equivalents, end of period	$	74,022		$	54,926
Supplemental cash flow information:
Interest paid	$	6,362		$	4,589
Income tax benefit payments received	$	523		$	—
Acquisition/construction of property, plant and equipment, unpaid at end of period	$	824		$	212

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 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. 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 June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Net loss	$	(15,680	)	$	(28,192	)	$	(35,079	)	$	(46,231	)
Other comprehensive loss:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period		1,000			(3,507	)		(548	)		(2,780	)
Reclassification adjustment for losses (gains) included in net loss		34			94			64			(37	)
Net unrealized gains (losses) on securities		1,034			(3,413	)		(484	)		(2,817	)
Total comprehensive loss	$	(14,646	)	$	(31,605	)	$	(35,563	)	$	(49,048	)

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 CuraGen’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, and the severity of the impairment of the individual securities. In order for an individual investment to be impaired, its credit rating and the cause and severity of the impairment must be equal to or more than 5% of the book value of the investment.

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3. 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. 123(R) “Share-Based Payment” (“SFAS 123(R)”) issued in December 2004. Under SFAS 123(R), the Company 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. The Company anticipates 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 123(R), while the retroactive methods would record compensation expense for all unvested stock options beginning with the first period restated. The Company is evaluating the requirements of SFAS 123(R) and expects that the adoption of SFAS 123(R) will have a material impact on its consolidated results of operations. The Company has not yet determined the method of adoption or the effect of adopting SFAS 123(R), nor has it determined whether the adoption will result in amounts that are similar to the current pro forma disclosures under SFAS 123.

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 and six month periods ended June 30, 2005 and 2004. The pro forma disclosure may not be indicative of pro forma results in future periods, because the options vest over several years, pro forma compensation expense is recognized as the options vest and additional awards may be granted. The three and six month periods ended June 30, 2004 pro forma expense and net loss disclosures below have been adjusted to reflect differences discovered during the preparation of the full year 2004 pro forma disclosures.

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Net loss, as reported	$	(15,680	)	$	(28,192	)	$	(35,079	)	$	(46,231	)
Stock-based employee compensation expense included in net loss		420			97			733			194
Total stock-based employee compensation expense determined under Black-Scholes option pricing model		(1,355	)		(838	)		(2,591	)		(1,597	)
Pro forma net loss	$	(16,615	)	$	(28,933	)	$	(36,937	)	$	(47,634	)
Basic and diluted net loss per share:
As reported	$	(0.31	)	$	(0.57	)	$	(0.70	)	$	(0.93	)
Pro forma	$	(0.33	)	$	(0.58	)	$	(0.73	)	$	(0.96	)

The fair values of options granted during the three month periods ended June 30, 2005 and 2004 were estimated as of the grant date using the Black-Scholes option-pricing model with the following assumptions:

	Three Months Ended June 30,
	2005		2004
Expected dividend yield	0	%	0	%
Expected stock price volatility - CuraGen	81	%	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	4.9		6.1
Expected option term in years - 454	7.9		8.0

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4. 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 the June 2003 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 $2,272 was paid prior to June 30, 2005. The remaining cash requirements of $409 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, all of which were paid prior to June 30, 2005.

5. Segment Reporting

The Company currently operates in two business segments: CuraGen and 454. CuraGen is a biopharmaceutical 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, has commercialized 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. All of the Company’s revenues are generated in the United States and all assets are located in the United States.

	June 30, 2005			December 31, 2004
Cash and investments:
CuraGen	$	274,429		$	320,296
454		2,369			7,824
Total	$	276,798		$	328,120
Total assets:
CuraGen	$	319,034		$	364,385
454		14,310			16,231
Intercompany eliminations		(8,517	)		(11,404	)
Total	$	324,827		$	369,212

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Revenues:
CuraGen	$	1,067		$	924		$	2,451		$	2,436
454		3,404			510			5,566			613
Intercompany eliminations		(181	)		(160	)		(297	)		(160	)
Total	$	4,290		$	1,274		$	7,720		$	2,889
Operating expenses:
CuraGen	$	15,961		$	25,111		$	33,792		$	40,877
454		5,279			4,686			10,119			8,918
Intercompany eliminations		(181	)		(160	)		(297	)		(160	)
Total	$	21,059		$	29,637		$	43,614		$	49,635
Net loss:
CuraGen	$	14,461		$	25,487		$	32,121		$	40,870
454		1,855			4,115			4,501			8,156
Minority interest in subsidiary loss		(636	)		(1,410	)		(1,543	)		(2,795	)
Total	$	15,680		$	28,192		$	35,079		$	46,231
Capital expenditures:
CuraGen	$	2,385		$	869		$	6,315		$	1,598
454		180			288			413			573
Intercompany eliminations		—			(1	)		(1	)		(15	)
Total	$	2,565		$	1,156		$	6,727		$	2,156
Depreciation and amortization:
CuraGen	$	1,316		$	1,687		$	2,718		$	3,679
454		594			604			1,193			1,196
Total	$	1,910		$	2,291		$	3,911		$	4,875

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6. Inventory

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:

	June 30, 2005
Finished goods	$	631
Work in process		609
Raw materials		1,602
Total	$	2,842

7. Extinguishment of Debt

During April and May 2005, the Company repurchased a total of $14,000 of its 6% convertible subordinated debentures due February 2007, for total consideration of $12,400, plus accrued interest of $200 to the date of repurchase. As a result of the transaction, in the second quarter of 2005, the Company recorded a gain of $1,408 in “Gain on extinguishment of debt,” which is net of the write-off of the ratable portion of unamortized deferred financing costs relating to the repurchased debt.

See Note 10 which describes the Company’s repurchase of $25,900 of its 6% convertible subordinated debentures due February 2007, during July 2005.

8. 454 License, Supply and Distribution Agreement with F. Hoffman La Roche

In May 2005, 454 entered into an exclusive five-year world-wide agreement with F. Hoffmann La Roche for the promotion, sale, and distribution of 454’s nanotechnology-based Genome Sequencing Systems, including proprietary kits and reagents, by Roche Diagnostics (“Roche”) . Under the terms of this five-year, exclusive world-wide distribution agreement, 454 will receive a margin on products manufactured for Roche, and royalties on net sales of licensed products. 454 will also receive up to $62,000 in license fees, milestones related to instrument releases, minimum royalties and research funding. As of June 30, 2005 and July 31, 2005, 454 had received $1,000, and $11,500, respectively, in milestone payments from Roche under this agreement. These milestone payments will be recognized as revenue on a pro-rated basis over the term of the agreement.

9. TopoTarget A/S Collaboration and License Agreement

In June 2004, the Company and TopoTarget A/S (“TopoTarget”) entered into a license and collaboration agreement to develop and commercialize PXD101, a novel histone deacetylase (“HDAC”) inhibitor for the treatment of solid and hematological cancers, which is currently in a Phase II clinical trial in patients with multiple myeloma, and two Phase I trials in patients with advanced solid tumors and hematological malignancies. The two companies are also working together to identify additional candidates from TopoTarget’s HDAC inhibitor library for clinical development in the treatment of cancer and inflammatory diseases. Under the terms of the agreement, the Company acquired exclusive rights to develop, and commercialize PXD101 in North America, Asia and all other markets excluding Europe. TopoTarget retained commercialization rights in Europe.

Under the financial terms of the agreement, during the second quarter of 2004, the Company made a $5,000 equity investment in TopoTarget, which was recorded as a Convertible Loan Receivable and was included in

9

Intangible and other assets, net on the December 31, 2004 balance sheet. The loan was due May 10, 2009, unless TopoTarget completed an Initial Public Offering (“IPO”), at which time the loan must convert into TopoTarget common stock at the IPO subscription price. The loan began accruing interest quarterly on June 30, 2004, at an annual rate of 6% and such interest was added to the principal amount of the loan on a quarterly basis if not paid by TopoTarget.

On June 10, 2005, TopoTarget completed an IPO of 11,500,000 shares of common stock at a per share price of DKK 22,50 ($3.698 USD). Simultaneously, on June 10, 2005, the Convertible Loan Receivable in the amount of $5,288 (including accrued interest) was automatically converted into 1,429,687 shares of TopoTarget common stock, providing the Company with an approximate 3.58% ownership in TopoTarget. In addition, the Company agreed to a six-month lock-up agreement with respect to its shares of TopoTarget common stock.

During June 2005, the Company reclassed both the Convertible Loan Receivable and the related Accrued Interest Receivable, to Investment in TopoTarget, which is classified as an available-for-sale long-term marketable security and is included in Intangible and other assets, net, on the June 30, 2005 balance sheet at a carrying value of $5,288. The Company has evaluated the fair value of the investment and determined that the fair value approximates the carrying value of $5,288.

10. Subsequent Event

During July 2005, the Company repurchased $25,900 of its 6% convertible subordinated debentures due February 2007, for total consideration of $25,300, plus accrued interest of $800 to the date of repurchase. As a result of the transaction, in the third quarter of 2005, the Company will record a gain of $400 in “Gain on extinguishment of debt,” which is offset by the write-off of the ratable portion of unamortized deferred financing costs relating to the repurchased debt.

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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 June 30, 2005 and for the three and six month periods ended June 30, 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 biopharmaceutical 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.

Using our knowledge of the human genome, we have taken a systematic approach to identifying and validating the most promising therapeutic targets of the human genome that are both applicable and amenable to drug development. We 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. We utilize partners or contract manufacturing organizations for manufacturing of our clinical development products under current good manufacturing practices.

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

Velafermin (CG53135)

Velafermin (CG53135), also referred to as recombinant human fibroblast growth factor – 20 (“rhFGF-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 who are receiving chemotherapy, with or without radiotherapy for the treatment of their underlying disease. Velafermin (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 velafermin (CG53135) for the prevention of OM. During 2004, we continued to make progress on the development of velafermin (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 velafermin (CG53135) enrolling patients in a randomized, placebo-controlled, multi-center study to determine the safety and efficacy of a single-dose of velafermin (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 velafermin (CG53135) immediately after bone marrow transplantation. We expect to complete this trial during the first half of 2006. In May 2005, the final data from our Phase I trial on velafermin (CG53135) for cancer patients undergoing bone marrow transplantation was presented in the form of a poster at the American Society of Clinical Oncology 46^th Annual Meeting in Orlando, Florida (“ASCO”). Of the 30 patients presented in this poster, no serious drug-related adverse events were noted following treatment with velafermin (CG53135), and a total of 22 of 30 patients (73%) did not develop severe (grade 3 or 4) OM.

In addition, in January 2005, we initiated a Phase I clinical trial on velafermin (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 velafermin (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.

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In February 2004, we received orphan drug designation from the Food and Drug Administration (“FDA”) for velafermin (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 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 velafermin (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 May 2005, TopoTarget announced that they signed a Cooperative Research and Development Agreement (“CRADA”) with the Division of Cancer Treatment and Diagnosis at the National Cancer Institute (“NCI”) relating to PXD101. Under the CRADA, the NCI and TopoTarget will collaborate to conduct preclinical and non-clinical research on PXD101, which may provide supporting information for clinical trials of PXD101. An additional goal of the CRADA is the identification of the next-generation of HDAC inhibitors, from TopoTarget’s library of HDAC inhibitors, to be developed as potential drug candidates. We maintain an exclusive option to in-license any next-generation HDAC inhibitors discovered under the CRADA from TopoTarget under the license and collaboration agreement signed in June 2004.

In August 2004, we signed a clinical trials agreement with the 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 has agreed to 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 by CuraGen 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 the treatment of advanced multiple myeloma. This Phase II open-label clinical trial will enroll approximately 25 to 50 patients who have failed at least two prior treatment regimens at multiple sites in Europe and the US. This trial is expected to be completed by mid-2006.

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.

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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.

In May 2005, preliminary data from our Phase I clinical trial on PXD101 for the treatment of refractory solid tumors was presented at ASCO. The Phase I open-label study was designed to determine the safety, maximum-tolerated dose (“MTD”), pharmacokinetics, and pharmacodynamics of intravenously administered PXD101, as well as initial assessment of the pharmacokinetics of orally administered PXD101. Preliminary data was reported on 28 patients and suggests that PXD101 is well-tolerated following intravenous (“IV”) and oral administration. Oral bioavailability after a single oral dose is 30-35% as compared to a single IV dose. Toxicities were described by investigators as mild, with no hematological or grade 4 toxicities observed. The most common adverse events were fatigue, nausea, vomiting and phlebitis. Histone hyperacteylation, a biomarker for the activity of PXD101, was noted to increase proportionally with dose escalation and lasted for up to 24 hours after administration. Furthermore, disease stabilization lasting four cycles or longer (range 4 to 8 cycles) was noted in 5 of 28 patients.

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. CR002 neutralizes platelet derived growth factor-D (“PDGF-D”), an autocrine growth factor, which is believed to involved in the pathogenesis of mesangioproliferative diseases including IgA nephropathy, diabetic nephropathy and, potentially, lupus nephritis.

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.

We initiated a Phase I trial with CR002 in November 2004 to determine the safety and maximum tolerated dose in healthy male volunteers. In July 2005, we announced the completion of this Phase I study and have submitted the results for anticipated presentation at a medical conference in 2005. As we continue to focus our pipeline on the treatment of cancer and on cancer supportive care, we will seek to license CR002 to a partner with the necessary resources for developing and marketing a nephrology product.

CR011

In October 2004, we announced the advancement to preclinical development 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. Our scientists 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 to preclinical development 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.

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Other

In addition to velafermin (CG53135), PXD101, CR002, CR011, and CT052 we have several potential protein, antibody and small molecule therapeutics currently being evaluated in, 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 has commercialized novel nanoscale instrumentation and technologies for rapidly and comprehensively determining the nucleotide sequence of entire genomes—”whole genome sequencing” and performing ultra-deep sequencing of, or accurate detection of rare mutations in, target genes of interest. 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 commercializing its instrument systems and reagents to customers for high-throughput sequencing without the need and complexity of large-scale robotics. As of June 2005, 454 has sold and installed five Genome Sequencing Systems at both genome sequencing centers and a research institution. 454 believes that their affordable high-throughput technology will expand the sequencing market beyond genome centers, where the majority of such sequencing services are currently performed, to research centers and academic institutions. 454 will continue scaling its technology to analyze larger model organisms, including human DNA, and to develop other sequencing applications for their technology.

In May 2005, 454 entered into an exclusive five-year world-wide agreement with F. Hoffmann-LaRoche for the promotion, sale, and distribution of 454’s high-throughput Genome Sequencing Systems, including proprietary kits and reagents with Roche Diagnostics (“Roche”). Under the terms of the agreement, 454 will receive up to $62.0 million in license fees, milestones related to instrument releases, minimum royalties and research funding, in addition to a margin on products manufactured for Roche, and royalties on net sales of licensed products. Roche will market, sell, distribute and provide technical support for 454’s products. 454 will continue to manufacture instrument systems and reagent kits, with responsibility for reagent manufacturing transferred to Roche at its option given sufficient sales volume. The agreement allows for Roche to sell 454’s products to all markets, with the exception of regulated diagnostics. Roche has the rights to negotiate distribution of 454’s products for use in the regulated diagnostic market and for renewal of the distribution agreement contingent upon meeting minimum performance criteria. As of June 30, 2005, and July 31, 2005, 454 had received $1.0 million, and $11.5 million, respectively, in milestone payments from Roche following the achievement of all initial milestones under the agreement.

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 complete clinical trials, obtain regulatory approval, and 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: 454 grant, service and product revenue and milestones; CuraGen collaboration revenues; and interest income.

We expect to continue to incur 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 and external programs identified by our platform as being promising and synergistic with our products and expertise, and as 454 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 which may not generate sufficient data to support the safety and efficacy of our products. We will incur substantial expenses for, and devote a significant amount of time to, these studies. As a result, we expect to incur continued losses over the next several years. 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.

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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 9 to our condensed consolidated financial statements included in this Form 10-Q.

Results of Operations

The following tables set forth a comparison of the components of our net loss for the three and six month periods ended June 30, 2005 and 2004:

	Three months ended June 30,
	2005		2004			$ Change			% Change
Grant revenue	$	0.7	$	0.4		$	0.3		75	%
Instrument and reagent sales		2.1		—			2.1		100	%
Collaboration revenue		1.5		0.9			0.6		67	%
Grant research expenses		0.5		0.1			0.4		400	%
Cost of instrument and reagent sales		0.5		—			0.5		100	%
Research and development expenses		15.5		24.6			(9.1	)	(37	)%
General and administrative expenses		4.6		5.0			(0.4	)	(8	)%
Interest income		2.2		2.0			0.2		10	%
Interest expense		3.2		3.3			(0.1	)	(3	)%
Gain on extinguishment of debt		1.4		—			1.4		100	%
Income tax benefit		0.1		0.1			—		—
Minority interest in subsidiary loss		0.6		1.4			(0.8	)	(57	)%
Net loss	$	15.7	$	28.2
	Six months ended June 30,
	2005		2004			$ Change			% Change
Grant revenue	$	1.4	$	0.4		$	1.0		250	%
Instrument and reagent sales		3.2		—			3.2		100	%
Collaboration revenue		3.1		2.5			0.6		24	%
Grant research expenses		0.9		0.1			0.8		800	%
Cost of instrument and reagent sales		0.7		—			0.7		100	%
Research and development expenses		33.0		39.7			(6.7	)	(17	)%
General and administrative expenses		8.9		9.8			(0.9	)	(9	)%
Interest income		4.3		4.0			0.3		8	%
Interest expense		6.6		6.2			0.4		6	%
Gain (loss) on extinguishment of debt		1.4		(0.3	)		1.7		(567	)%
Income tax benefit		0.1		0.2			(0.1	)	(50	)%
Minority interest in subsidiary loss		1.5		2.8			(1.3	)	(46	)%
Net loss	$	35.1	$	46.2

The following tables set forth a comparison of revenue by segment, for the three and six month periods ended June 30, 2005 and 2004:

	Three months ended June 30,
	2005		2004		$ Change		% Change
Grant revenue:
454	$	0.7	$	0.4	$	0.3	75	%
Total	$	0.7	$	0.4
Instrument and reagent sales
454	$	2.1	$	—	$	2.1	100	%
Total	$	2.1	$	—
Collaboration revenue:
CuraGen	$	1.0	$	0.9	$	0.1	11	%
454		0.5		—		0.5	100	%
Total	$	1.5	$	0.9

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	Six months ended June 30,
	2005		2004		$ Change			% Change
Grant revenue:
454	$	1.4	$	0.4	$	1.0		250	%
Total	$	1.4	$	0.4
Instrument and reagent sales
454	$	3.2	$	—	$	3.2		100	%
Total	$	3.2	$	—
Collaboration revenue:
CuraGen	$	2.4	$	2.5	$	(0.1	)	(4	)%
454		0.7		—		0.7		100	%
Total	$	3.1	$	2.5

Grant revenue. The increase in grant revenue for the three and six month periods ended June 30, 2005, as compared to the same period in 2004, was a result of two federal grants awarded to 454 in May 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 the full year 2005 grant revenue to increase in comparison to 2004, as the research outlined in these two grants will be conducted for the entire year.

Instrument and reagent sales. During the three and six month periods ended June 30, 2005, 454 commercialized its novel nanoscale instruments and reagents and recognized $2.1 million, and $3.2 million, respectively, in revenue related to sales to its customers. 454 sold three instrument systems during the second quarter, bringing the installed base to five customers. We expect instrument and reagent sales during the second half of 2005 to continue to increase through sales to existing and new customers and for activities related to the commercial launch of 454’s proprietary instruments and reagents by Roche. 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 instruments be tested prior to their acceptance of the instruments. 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. CuraGen’s collaboration revenue for the three and six month periods ended June 30, 2005 has remained relatively constant as compared to the same periods in 2004 and we expect that the full year 2005 collaboration revenue will continue to remain fairly constant as compared to 2004, reflecting ongoing progress on the Bayer alliance.

The increase in 454’s collaboration revenue for the three and six month periods ended June 30, 2005, as compared to the same period in 2004, 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 second half of 2005 as 454 continues to commercialize its platform.

Grant research expenses. The increase in grant research expenses for the three and six month periods ended June 30, 2005 as compared to the same period in 2004, was a result of two federal grants awarded to 454 in May 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 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.

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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 and six month periods ended June 30, 2005 and 2004:

	Three months ended June 30,
	2005		2004		$ Change			% Change
Research and development expenses:
CuraGen	$	12.6	$	21.1	$	(8.5	)	(40	)%
454		2.9		3.5		(0.6	)	(17	)%
Total	$	15.5	$	24.6
	Six months ended June 30,
	2005		2004		$ Change			% Change
Research and development expenses:
CuraGen	$	27.4	$	33.1	$	(5.7	)	(17	)%
454		5.6		6.6		(1.0	)	(15	)%
Total	$	33.0	$	39.7

Research and development expenses consist primarily of: salary and benefits; contractual and manufacturing costs; supplies and reagents; perpetual license fees and milestone payments; depreciation and amortization; and allocated facility costs. Our research and development efforts are concentrated on four major project areas: clinical candidates; our majority-owned subsidiary, 454; preclinical drug candidates; and collaborations. 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.

Below is a summary that reconciles our total research and development expenses for the three and six month periods ended June 30, 2005 and 2004 by the major categories mentioned above:

	Three months ended June 30,
	2005		2004		$ Change			% Change
Salary and benefits	$	4.3	$	5.7	$	(1.4	)	(25	)%
Contractual and manufacturing costs		4.4		4.8		(0.4	)	(8	)%
Supplies and reagents		2.7		3.3		(0.6	)	(18	)%
Perpetual license fees and milestone payments		1.0		7.2		(6.2	)	(86	)%
Depreciation and amortization		1.1		1.2		(0.1	)	(8	)%
Allocated facility costs		2.0		2.4		(0.4	)	(17	)%
Total research and development expenses	$	15.5	$	24.6
	Six months ended June 30,
	2005		2004		$ Change			% Change
Salary and benefits	$	8.8	$	11.7		(2.9	)	(25	)%
Contractual and manufacturing costs		8.9		7.2		1.7		24	%
Supplies and reagents		4.4		6.2		(1.8	)	(29	)%
Perpetual license fees and milestone payments		5.0		7.2		(2.2	)	(31	)%
Depreciation and amortization		2.1		2.8		(0.7	)	(25	)%
Allocated facility costs		3.8		4.6		(0.8	)	(17	)%
Total research and development expenses	$	33.0	$	39.7

The decrease in research and development expenses for CuraGen for the three and six month periods ended June 30, 2005, as compared to the same periods in 2004 was primarily due to the second quarter 2004 perpetual license fee payments of approximately $7.0 million related to the TopoTarget and Seattle Genetics collaborations, offset by the first quarter 2005 perpetual license fee and milestone payments of approximately $4.0 million related to the TopoTarget and Seattle Genetics collaborations; reductions in salary and benefits, and supplies and reagents, in connection with the October 2004 restructuring plan; and offset by increases in contractual service costs incurred in our metabolic disorder collaboration with Bayer. We anticipate increases in research and development expenses during the second half of 2005 as compared to the first half of 2005, primarily due to contractual services related to clinical trials and manufacturing; and anticipated milestone payments to TopoTarget. Under the terms of the license and collaboration agreement entered into with TopoTarget in June 2004, we expect to pay TopoTarget a milestone payment of approximately $4.8 million upon extension of the PXD101 Phase II program into the United States, which is expected during the second half of 2005.

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The decreases in research and development expenses for 454 for the three and six month periods ended June 30, 2005, as compared to the same period in 2004, were primarily due to certain lab supplies and reagents and contractual services recorded as grant research expenses in 2005 that were classified as research and development expenses in 2004. Additionally, various personnel that were in research and development in 2004 have been moved into instrument and reagent production in 2005, and, as such, salary and benefits, lab supplies and reagents, and allocated facility costs which were expensed as research and development in 2004 are capitalized into inventory and expensed as costs of goods sold in 2005 when the corresponding products are sold.

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 the cumulative direct research and development expenses as of June 30, 2005, which were incurred on or after we started conducting a Phase I clinical trial for a clinical candidate:

Therapeutic Area and Clinical Candidate	Class	Cumulative Costs		Indication	Trial Status
		As of June 30, 2005
Cancer Supportive Care Velafermin (CG53135)	Protein	$	20.2	Oral Mucositis	Phase II
Oncology PXD101	Small Molecule	$	9.2	Various Cancers	Phase II
Kidney Inflammation CR002	Antibody	$	1.2	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 velafermin (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 the disease 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 largest studies conducted during the drug development process.

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

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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 titled “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 clinical stage product candidates, velafermin (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 and six month periods ended June 30, 2005 decreased as compared to the same periods in 2004 as a result of careful control of expenses. General and administrative expenses are expected to decrease slightly during 2005 as compared to 2004, as a result of the 2004 corporate restructuring and lower patent prosecution costs.

Interest income. Interest income for the three and six month periods ended June 30, 2005 increased slightly compared to the same periods in 2004 primarily due to higher yields in our investment portfolio, offset by lower cash and investment balances. We earned an average yield of 2.9% in the second quarter of 2005 as compared to 2.0% in the second quarter of 2004, and earned an average yield of 2.7% in the first six months of 2005 as compared to 2.1% during the same period in 2004. During the remainder of 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, and the second and third quarter repurchases of $14.0 million, and $25.9 million, respectively, of our 6% convertible subordinated debentures due 2007, we anticipate interest income to decrease slightly in 2005 as compared to 2004.

Interest expense. We expect interest expense, including interest paid to debt holders as well as amortization of deferred financing costs, to decrease during 2005. The anticipated decrease is related to the second and third quarter repurchases of $14.0 million, and $25.9 million, respectively, of our 6% convertible subordinated debentures due 2007.

Gain on extinguishment of debt. During the second quarter of 2005, we repurchased $14.0 million of our 6% convertible subordinated debentures due February 2007, for total consideration of $12.4 million, plus accrued interest of $0.2 million to the date of repurchase. As a result of the transaction, in the second quarter of 2005, we recorded a gain of $1.4 million in “Gain on extinguishment of debt,” which is net of the write-off of the ratable portion of unamortized deferred financing costs relating to the repurchased debt.

During July 2005, we repurchased $25.9 million of our 6% convertible subordinated debentures due February 2007, for total consideration of $25.3 million, plus accrued interest of $0.8 million to the date of repurchase. As a result of the transaction, in the third quarter of 2005, we will record an additional gain of $0.4 million in “Gain on extinguishment of debt”, which is net of the write-off of the ratable portion of unamortized deferred financing costs relating to the repurchased debt.

Income tax benefit. We recorded an income tax benefit during the three and six month periods ended June 30, 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 expiration), 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 and six month periods ended June 30, 2005 (which is the portion of 454’s loss attributable to shareholders of 454 other than us) decreased as compared to the same periods in 2004 due to 454 revenue recognized during the periods, from the sales of instruments and reagents as well as sales of genomic analysis services. During the remainder of 2005, losses attributed to the minority ownership in 454 are expected to decrease, as 454 increases sales of instruments and reagents as well as genomic analysis 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 private placements of equity securities, convertible subordinated debt offerings, public equity offerings, revenues received under our collaborative research agreements and government grants, and exercises of stock options. As of June 30, 2005, we had recognized $116.8 million of cumulative sponsored research revenues from collaborative research agreements and government grants. At June 30, 2005, our gross investment in lab and office equipment, computers, land and leasehold improvements was $54.8 million. Since inception, we have not had any off-balance sheet arrangements. To date, inflation has not had a material effect on our business.

During the second quarter of 2005, we repurchased $14.0 million of our 6% convertible subordinated debentures due February 2007, for total consideration of $12.4 million, plus accrued interest of $0.2 million to the date of repurchase. Additionally, during July 2005, we repurchased $25.9 million of our 6% convertible subordinated debentures due February 2007, for total consideration of $25.3 million, plus accrued interest of $0.8 million to the date of repurchase.

In May 2005, 454 entered into an exclusive five-year world-wide agreement with F. Hoffmann-LaRoche for the promotion, sale, and distribution of 454’s high-throughput Genome Sequencing Systems, including proprietary kits and reagents with Roche. Under the terms of the agreement, 454 will receive up to $62.0 million in license fees, milestones related to instrument releases, minimum royalties and research funding, in addition to a margin on products manufactured for Roche, and royalties on net sales of licensed products. As of June 30, 2005, and July 31, 2005, 454 had received $1.0 million, and $11.5 million, respectively, in milestone payments from Roche following the achievement of all initial milestones under the agreement.

Under the financial terms of the agreement entered into with TopoTarget in June 2004, we made a $5.0 million equity investment in TopoTarget, which was recorded as a Convertible Loan Receivable. On June 10, 2005, TopoTarget completed an IPO of 11,500,000 shares of common stock at a per share price of DKK 22,50 ($3.698 USD). Simultaneously, on June 10, 2005, the Convertible Loan Receivable in the amount of $5.3 million (including accrued interest) was automatically converted into 1,429,687 shares of TopoTarget common stock, providing us with an approximate 3.58% ownership in TopoTarget. In addition, we agreed to a six-month lock-up agreement with respect to our shares of TopoTarget common stock. Under the terms of the license and collaboration agreement entered into with TopoTarget in June 2004, we expect to pay TopoTarget a milestone payment of approximately $4.8 million upon extension of the PXD101 Phase II program into the United States. Payment of this milestone is expected during the second half of 2005.

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 six months ended June 30, 2005, using the direct cash flow method:

Cash received from collaborators	$	4.0
Cash received from customers		1.6
Cash received from grantor		1.2
Cash paid to suppliers and employees		(36.3	)
Restructuring and related charges paid		(0.5	)
Interest income received		4.2
Interest expense paid		(6.4	)
Income tax benefit received		0.5
Net cash and investments used in operating activities		(31.7	)
Cash paid to acquire property and equipment, net of sales proceeds		(6.9	)
Net cash and investments used in investing activities		(6.9	)
Cash received from employee stock option exercises		0.2
Cash paid for extinguishment of debt		(12.4	)
Net cash and investments used in financing activities		(12.2	)
Unrealized loss on marketable securities		(0.5	)
Net decrease in cash and investments		(51.3	)
Cash and investments, beginning of period		328.1
Cash and investments, end of period	$	276.8

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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; instrument and reagent sales; collaboration revenue; milestone payments; interest income; 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; 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 contractual service costs 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 as we complete 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 or refinance a portion of the existing 6% convertible subordinated debentures due 2007 in open market purchases, in privately negotiated transactions, or otherwise. Such repurchases may be material and also may affect interest income and interest expense as well as gain on extinguishment of debt. 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 the July 31, 2005 remaining balance of $90.1 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.

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Contractual Obligations

In the table below, we set forth our enforceable and legally binding obligations, along with our future commitments related to all contracts that we are likely to continue, regardless of the fact that they are cancelable as of June 30, 2005. Some of the figures we include in this table are based on management’s estimates and assumptions about these obligations, including their duration, anticipated actions by third parties, progress of our clinical programs and other factors.

	Payments Due Year Ended December 31,
	Total		2005		2006		2007		2008		2009		Thereafter
Long-term debt obligations (2)	$	226.0	$	—	$	—	$	116.0	$	—	$	—	$	110.0
Interest on convertible subordinated debt (2)		40.4		5.7		11.4		7.9		4.4		4.4		6.6
Operating leases		5.0		1.5		1.9		1.2		0.3		0.1		—
Purchase commitments (1)		19.4		11.3		5.0		1.5		0.4		0.3		0.9
Other long-term liabilities		1.0		—		0.5		0.5		—		—		—
Total	$	291.8	$	18.5	$	18.8	$	127.1	$	5.1	$	4.8	$	117.5

(1) Includes commitments for capital expenditures, manufacturing costs associated with advancing our preclinical pipeline, and costs associated with clinical trial development and other supporting arrangements, which are subject to certain limitations and in certain circumstances cancellation clauses. The clinical trial commitments and supporting arrangements are for our protein therapeutic velafermin (CG53135), our novel HDAC inhibitor PXD101, and our fully-human monoclonal antibody CR002. Excludes amounts included on our balance sheet as liabilities and certain purchase obligations and potential future milestone payments as discussed below.

(2) During July 2005, we repurchased $25.9 million of our existing 6% convertible subordinated debentures due 2007.

The expected timing of payment of the obligations discussed above is estimated based on current information. Timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations.

Purchase obligations for supplies and reagents are not included in the table above, as our purchase orders typically represent authorizations to purchase rather than binding agreements. For the purposes of this table, contractual obligations for purchase of goods or services are defined as agreements that are enforceable and legally binding on us and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Our purchase orders are based on our current operating needs and are fulfilled by our vendors within short time periods. We do not have significant agreements for the purchase of supplies and reagents specifying minimum quantities or set prices.

In addition, we have committed to make potential future milestone payments to third-parties as part of in-licensing and development programs. Payments under these agreements generally become due and payable only upon achievement of certain developmental, regulatory and/or commercial milestones. Until the achievement of these milestones is both probable and reasonably estimable, such contingencies are not recorded on our consolidated balance sheet and are not included above.

Recently Enacted Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (“SFAS 123(R)”) 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 123(R) are fully adopted. SFAS 123(R) 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 123(R) on January 1, 2006. The proforma disclosures previously permitted under SFAS 123 will no longer be an alternative to financial statement recognition. SFAS 123(R) 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 123(R), 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

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adoption of SFAS 123(R), 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 123(R) and expect that the adoption of SFAS 123(R) will have a material impact on our consolidated results of operations. We have not yet determined the effect of adopting SFAS 123(R), nor have we determined whether the adoption will result in amounts that are similar to the current pro forma disclosures under SFAS 123.

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 velafermin (CG53135); (ii) our expectation that we will complete a velafermin (CG53135) Phase II trial for the treatment of OM in cancer patients undergoing bone marrow transplantation during the first half of 2006; (iii) our expectation that we will complete a velafermin (CG53135) Phase I trial for the treatment of OM by the end of 2005; (iv) our belief that the FDA’s orphan drug designation for velafermin (CG53135) and CR002 will help strengthen the programs by offering important clinical development and commercialization benefits; (v) 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; (vi) 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; (vii) our expectation that the PXD101 Phase II open-label clinical trial will enroll approximately 25 to 50 patients who have failed at least two prior treatment regimens at multiple sites in Europe and the US; (viii) our expectation that we will complete the PXD101 Phase II trial by mid-2006; (ix) our expectation that we will 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; (x) 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; (xi) our expectation that CR011 and CT052 will enter clinical trials during the first half of 2006; (xii) 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; (xiii) 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 and will expand the sequencing market beyond genome centers, to research centers and academic institutions; (xiv) the ability of 454 to generate whole genome sequences for a wide variety of viral, bacterial and small fungi organisms; (xv) the ability of 454 to continue scaling its technology to analyze larger model organisms, including human DNA, and develop other genomic applications for their technology; (xvi) our expectation that under the terms of the five-year world-wide agreement with F. Hoffmann-LaRoche, 454 will receive up to $62.0 million in license fees, milestones related to instrument releases, minimum royalties and research funding, in addition to a margin on products manufactured for Roche, and royalties on net sales of licensed products (xvii) our expectation that we will generate value for our shareholders by developing therapeutics; (xviii) 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; (xix) our expectation that our revenue or income sources for at least the next several years may be limited to 454 grant, service and product revenue and milestones; CuraGen collaboration revenues; and interest income; (xx) our expectation to continue incurring substantial expenses relating to our research and development efforts; (xxi) our expectation to incur continued losses over the next several years; (xxii) our expectation that NIH grants will partially fund the continued scale up of 454’s technology toward sequencing larger genomes; (xxiii) our expectation that grant revenue will increase in comparison to 2004; (xxiv) our expectation that instrument and reagent sales during the second half of 2005 will continue to significantly increase through sales to existing and new customers and for activities related to the commercial launch of 454’s proprietary instruments and reagents by Roche; (xxv) our expectation that CuraGen’s 2005 collaboration revenue will remain fairly constant as compared to 2004; (xxvi) our expectation that 454’s 2005 collaboration revenue will continue to increase; (xxvii) our expectation that 454’s grant research expenses will increase in comparison to 2004; (xxviii) our expectation that gross margins on sales of instruments and reagents will fluctuate from quarter to quarter during 2005; (xxix) our anticipation that CuraGen’s research and development expenses during the second half of 2005 will increase as compared to the first half of 2005; (xxx) our expectation to pay TopoTarget a milestone payment of approximately

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$4.8 million upon extension of the PXD101 Phase II program into the United States; (xxxi) our expectation that general and administrative expenses will decrease slightly during 2005 as compared to 2004; (xxxii) our expectation that during the remainder of 2005, the yields in our investment portfolio will be slightly higher than 2004; (xxxiii) our anticipation that interest income will decrease slightly in 2005; (xxxiv) our expectation that interest expense, including interest paid to debt holders as well as amortization of deferred financing costs, will decrease during 2005; (xxxv) our expectation that the 2005 income tax benefit will be consistent with 2004 (before adjustments to reflect statute expirations); (xxxvi) our expectation that during 2005 the losses attributed to the minority ownership in 454 will decrease; (xxxvii) 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; instrument and reagent sales; collaboration revenue; milestone payments; interest income; grant revenue; potential public securities offerings; and/or private strategic-driven common stock offerings; (xxxviii) our plan to continue making substantial investments to advance our preclinical and clinical drug pipeline, as well as commercializing 454’s genomic analysis technology; (xxxix) 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; 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 contractual service costs 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 as we complete the expansion of our existing protein production laboratory facilities; and payments of interest to the holders of our convertible subordinated debt due 2007 and 2011; (xl) the possibility that we may repurchase or refinance a portion of the existing 6% convertible subordinated debentures due 2007 in open market purchases, in privately negotiated transactions, or otherwise; (xli) 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 (xlii) 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, and 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 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. Even if we are able 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 Company and the FDA monitor 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;

• Scientific review board, institutional review board, or contractual 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.

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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.

We have three products in clinical development and our other products are in preclinical or earlier stages of 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 or other regulatory authorities. 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

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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.

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 a commercial product to meet our clinical development and commercial needs. Failure to meet the demand for a 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

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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.

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, Seattle Genetics and Roche, 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, which may materially and adversely affect our business, financial condition and results of operations.

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 Chief Executive Officer and President at 454; and Timothy M. Shannon, M.D., Executive Vice President and Chief Medical Officer. Our future success will depend in part on the continued services of our key scientific and management personnel. We are currently conducting a search for a permanent Chief Executive Officer. In May 2005, Patrick J. Zenner, a CuraGen board member and former President and Chief Executive Officer of Hoffmann-La Roche, Inc. was appointed by the CuraGen Board of Directors as Chairman and Chief Executive Officer of CuraGen on an interim basis, until completion of the ongoing search. Our future success will also depend in part on our ability to attract, hire and retain additional personnel. 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. 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.

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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.

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.

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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 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 86 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, and we have sought or have had 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;

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• 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;

• 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.

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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 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. 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 and new technologies;

• sufficient support and execution by Roche under the exclusive distribution agreement; 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;

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• Perlegen Sciences, Inc.; and

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

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. The market for high throughput nucleic acid sequencing 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 utilized by 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.

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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.

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 June 30, 2005 had an accumulated deficit of $415.0 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.

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 second quarter of 2005, the closing sale price of our stock ranged from a high of $5.34 per share to a low of $2.75 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;

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• 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 July 31, 2005, we had total outstanding consolidated debt of $200.1 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.

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

Year	Aggregate Interest
2005	$	4.9
2006		9.8
2007		7.1
2008		4.4
2009		4.4
Thereafter		6.6
Total	$	37.2

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 $100.5 million at June 30, 2005 were invested in U.S. Treasuries and debt investments that are sponsored by the U.S. Government. Our corporate fixed-rate debt investments

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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 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. In April and May 2005, we repurchased $14.0 million of these debentures, for total consideration of $12.4 million, plus accrued interest of $0.2 million to the date of repurchase. During July 2005, we repurchased $25.9 million of these debentures, for total consideration of $25.3 million, plus accrued interest of $0.8 million to the date of repurchase. As a result of the remaining indebtedness of $90.1 million, our interest payment obligations amount to $5.4 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

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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.

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.

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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 June 30, 2005 consisted of $116.0 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. During July 2005, we repurchased $25.9 million of our 6% convertible subordinated debentures due February 2007. As of July 29, 2005, the market value of our $90.1 million 6% convertible subordinated debentures due 2007, based on quoted market prices, was estimated at $87.7 million, and the market value of our $110.0 million 4% convertible subordinated notes due 2011, based on quoted market prices, was estimated at $94.2 million. Although future borrowings may bear interest at a floating rate, and our result of operations would therefore be affected by interest rate changes, currently 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.

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 to ensure that material information required to be included in this quarterly report relating to us, including our consolidated subsidiary, was made known to them by others.

(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.

38

Part II - Other Information

Item 4. Submission of Matters to a Vote of Security Holders

We held our annual meeting of shareholders on May 4, 2005, and the following matter was voted on at that meeting:

The election of John H. Forsgren and Robert E. Patricelli, J.D. as Class I Directors, to serve for a three-year term of office or until their respective successors have been elected. The following chart shows the number of votes cast for or withheld:

DIRECTOR	FOR	WITHHELD
John H. Forsgren	37,271,297	304,478
Robert E. Patricelli, J.D.	36,447,664	1,128,111

Our current Directors are Frank M. Armstrong, M.B., Ch.B., Michael J. Astrue, J.D., Vincent T. DeVita, Jr., M.D., David R. Ebsworth, Ph.D., John H. Forsgren, Robert E. Patricelli, J.D., Jonathan M. Rothberg, Ph.D. and Patrick J. Zenner.

Item 5. Other Information

On March 30, 2005, the CuraGen Corporation Board of Directors adopted a compensation policy for all ad hoc committees of the CuraGen Corporation Board of Directors, which provides the following compensation for members of any such committees: chairman $20,000 and members other than chairman $10,000.

Item 6. Exhibits

Exhibit 10.1	Addendum dated March 30, 2005, to CuraGen Corporation Board of Directors Compensation Policy (Filed as Exhibit 99.1 to the Company’s Current Report on 8-K filed January 20, 2005 for the event dated November 17, 2004)
Exhibit 10.2	454 Life Sciences License, Supply and Distribution Agreement with F. Hoffman La Roche Ltd, dated May 11, 2005 +
Exhibit 10.3	454 Life Sciences Research and Development Agreement with F. Hoffman La Roche Ltd, dated May 11, 2005 +
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)

+ Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Company’s application requesting confidential treatment under Rule 24b-2 of the Exchange Act.

39

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.

	CuraGen Corporation
Dated: August 5, 2005	By:	/s/ Patrick J. Zenner
		Patrick J. Zenner
		Interim Chief Executive Officer and
		Chairman of the Board (principal executive officer of
		the registrant)
Dated: August 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)

40

CURAGEN CORPORATION

EXHIBIT INDEX

No.
Exhibit 10.1	Addendum dated March 30, 2005, to CuraGen Corporation Board of Directors Compensation Policy (Filed as Exhibit 99.1 to the Company’s Current Report on 8-K filed January 20, 2005 for the event dated November 17, 2004)
Exhibit 10.2	454 Life Sciences License, Supply and Distribution Agreement with F. Hoffman La Roche Ltd, dated May 11, 2005 +
Exhibit 10.3	454 Life Sciences Research and Development Agreement with F. Hoffman La Roche Ltd, dated May 11, 2005 +
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).

+ Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the Company’s application requesting confidential treatment under Rule 24b-2 of the Exchange Act.

41

EX-10.1

Exhibit 10.1

CURAGEN CORPORATION

BOARD OF DIRECTORS COMPENSATION POLICY (ADDENDUM)

(Effective March 30, 2005)

CASH COMPENSATION – Ad Hoc Committee Fees

• On March 30, 2005, the Board of Directors adopted a compensation policy for all ad hoc Committees which are formed pursuant to Article III, Section 1 of the By-Laws of the Company. A Committee’s cash compensation will be as follows: the Chairman will receive $20,000 and the members will receive $10,000 each.

1 of 1

EX-10.2

Exhibit 10.2

LICENSE, SUPPLY AND DISTRIBUTION AGREEMENT

between
	454 Life Sciences Corporation 20 Commercial Street Branford, CT 06405 USA “454”
and
	F. Hoffmann-La Roche Ltd Grenzacherstrasse 124 CH-4070 Basel Switzerland “FHLR”

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

1

RECITALS

WHEREAS, 454 develops, manufactures and markets products related to DNA sequencing.

WHEREAS, FHLR is a company with business activities also in the life science research market and the diagnostic market.

WHEREAS, 454 and FHLR (the “Parties”) desire to have 454 manufacture and supply to FHLR certain products and to have FHLR manufacture, distribute and sell certain products under the terms and conditions stated herein.

WHEREAS, FHLR may at its sole discretion delegate to any of its Affiliates, and specifically, but not limited to, Roche Diagnostics GmbH in Mannheim (“RDG”), any rights and obligations under this Agreement.

NOW, THEREFORE, for and in consideration of the promises and the covenants contained herein, the Parties hereto do hereby agree as follows:

1. DEFINITIONS

In addition to the terms defined elsewhere in this Agreement, the following words and phrases, whenever capitalized in this Agreement, shall have the following meanings:

1.1 “Affiliate” shall mean

(a) an organization which directly or indirectly controls a Party to this Agreement;

(b) an organization which is directly or indirectly controlled by a Party to this Agreement;

(c) an organization which is controlled, directly or indirectly, by the ultimate parent company of a Party.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

2

Control as per (a) to (c) is defined as owning fifty percent or more of the voting stock of a company or having otherwise the power to govern the financial and the operating policies or to appoint the management of an organization.

With respect to FHLR the term “Affiliate” shall not include Genentech, Inc., 1 DNA Way, South San Francisco, California 94080-4990, U.S.A. (“Genentech”) nor Chugai Pharmaceutical Co., Ltd, 1-9, Kyobashi 2-chome, Chuo-ku, Tokyo, 104-8301, Japan (“Chugai”), respectively, unless the Parties agree in writing to include Genentech and/or Chugai as Affiliates hereunder.

1.2 “Application R&D Project” shall mean a project regarding the development of applications on an existing or future system (e.g., Rev 1.0, 1.1, 2.0) for the Technology, including the development of protocols, Instruments Reagents, Reagent Kits, Disposables and Software, as conducted pursuant to the R&D Agreement.

1.3 “ASP” shall mean worldwide Average Sales Price. The estimated and preliminary ASP shall be determined pursuant to Section 3.3(b) and (c) and the actual ASP shall be calculated under Section 3.3(c) for each Licensed Product by dividing Net Sales of such Licensed Product by the number of Licensed Products included in such Net Sales.

1.4 “Commercial Launch” shall mean the first commercial sale by FHLR or its Affiliates of a Licensed Product to a Third Party in any country of the Territory.

1.5 “Confidential Information” shall have the meaning set forth in Section 9.1 hereof.

1.6 “Contract Year” shall mean a period of twelve (12) consecutive months during the term of this Agreement. The first Contract Year shall commence on the first of January after the Commercial Launch of the first Licensed Product, provided such Commercial Launch will be in the year of 2005. In the event that the Commercial Launch occurs after the year of 2005, the Contract Year shall commence on the first day of the first calendar quarter after the Commercial Launch.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

3

1.7 “Disposables” shall mean PicoTiterPlates (PTPs) and any other Licensed Products identified as Disposables on Exhibit 2 and 5, as amended from time to time in accordance with the terms of Section 2.7.

1.8 “Effective Date” shall mean the date of the last signature of the Parties as set forth on the signature page hereof.

1.9 “Excess Quantity” shall mean orders in excess of [***************************] the then current binding forecast of the relevant Licensed Products for the applicable calendar quarter.

1.10 “Field” shall be any field of application of the Licensed Products in life science research, pharmaceutical research and other sequencing applications, excluding the IVD Field; provided, however, that any sequencing applications shall be limited to those sequencing applications performing more than [*******************] (or such lesser number as 454 notifies FHLR in writing that it is permitted to commercialize pursuant to its Third Party license agreements) different DNA sequencing reactions in one Process Cycle, including but not limited to the performance of any of the following activities, or any component step or process included within such activities, with respect to any or all organisms and for whatever purpose or purposes: (a) sequencing all, or substantially all, of a genome, genomic region or chromosome based on sequencing, (b) expression profiling based on cDNA/mRNA sequencing, (c) repetitive sequencing of genomic regions (e.g., genes) or specific cDNA’s, and (d) performing SNP analysis of whole genomes or of more than [*******************] SNPs in one Process Cycle.

1.11 “Forecast” shall mean a forecast delivered pursuant to Section 3.5.

1.12 “Initial Stock” shall mean the total amount of Licensed Products to be ordered in FHLR’s or its Affiliates first purchase order before Commercial Launch of such Licensed Product as determined pursuant to Section 2.7.

1.13 “Initial Term” shall have the meaning set forth in Section 11.1 hereof.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

4

1.14 “Instruments” shall mean those Licensed Products that are listed as Instruments on Exhibits 2 and 5, as amended from time to time in accordance with the terms of Section 2.7.

1.15 “IVD Field” shall mean the application of the Licensed Products in in vitro human diagnostic uses using [****************************************************] in other countries in the Territory.

1.16 “Joint Invention” shall have the meaning set forth in Section 6.1 of the R&D Agreement.

1.17 “Joint Steering Committee” shall have the meaning set forth in Section 8.3 hereof.

1.18 “Licensed Patents” shall mean those patents and patent applications with regard to nucleic acid handling, library preparation, amplification, pyrosequencing, and sequencing data analysis as listed in Exhibit 1, which is attached hereto and made a part hereof, and any new patent or patent application owned, controlled by or licensed to 454 and covering any aspects of any Licensed Products relevant to the Field during the term of this Agreement, including without limitation 454 Sole Inventions and Joint Inventions arising under this Agreement and the R&D Agreement, and any and all continuations, continuations-in-part, divisions, patents of addition, reissues, re-examinations, renewals or extensions (including any Supplemental Protection Certificates) thereof, or any patents which shall be issued based on such patent applications, and any and all foreign counterparts of the foregoing.

1.19 “Licensed Products” shall mean, unless otherwise provided herein, any product the manufacture, use or sale of which falls under a Valid Claim of a Licensed Patent and which is listed on Exhibit 2, as such Exhibit may be amended from time to time in accordance with the terms hereof. Licensed Products shall include Instruments, Reagent Kits, Software and Disposables for DNA sequencing or other applications, in each case having characteristics as defined in the Specifications in Exhibit 3 to this Agreement.

1.20 “Net Sales” shall mean, with respect to sales or other dispositions (including any leasing of Instruments) of a Licensed Product, the amount invoiced by FHLR or FHLR’s

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

5

Affiliates to end users, distributors or agents after deduction of volume discounts, sales rebates, allowances, returns, sales taxes (such as but not limited to value added taxes) and other taxes directly linked to the sales (provided that such taxes are separately invoiced to such end user, distributors or agents), and [************************************** ************************************************************************ ***************************] for:

(a) tariffs, duties and taxes imposed upon the production, sale, delivery or use of Licensed Product(s) (excluding tariffs, duties and taxes that are separately invoiced to end users, distributors or agents), and

(b) distribution and other customary expenses, such as freight, transportation and insurance expenses, and for

(c) cash discounts, retroactive price reductions or credits to customers on account of settlement of complaint.

Leasing of Instruments:

With respect to dispositions of Instruments that are financed by leasing or a similar financing model, Net Sales shall be reported according to Section 4.2 and shall include the entire principal amount (selling price) but shall not include any commercially reasonable interest charge that is associated with the financing of such Instrument.

“Combination Products”

In the event one or more Licensed Product(s) is/are sold together with one or more other product(s) (“Non-Sequencing Products”) or with one or more Licensed Product(s) to which different royalty rates apply (e.g., Disposables and Reagent Kits) at a single price (such combination is hereinafter referred to as “Combination Product”), such single price shall be allocated among the Licensed Product(s) and the other product(s) in the Combination Product based on the market price for such products when sold separately. If any such product is not being sold alone with a market price, 454 and FHLR shall agree upon a fair market price for that product. Solely this agreed upon price shall be used to calculate Net Sales in such instance.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

6

Non-Sequencing Products shall mean products that are not a functional part of a system which comprises a Licensed Product and which perform a function other than sequencing, preparation of samples for sequencing, or data recovery or management and reporting of sequence data.

1.21 “Process Cycle” shall mean the performance of sequencing on a sample or samples loaded onto a substrate at an average density greater than [******************************************************************************************

*************************************************]. A substrate is the physical entity holding the samples.

1.22 “Project” and “Projects” shall mean a System R&D Project and/or Application R&D Project.

1.23 “Proposed Licensed Product” shall mean those products listed on Exhibit 5 which are not Licensed Products as listed on Exhibit 2.

1.24 “R&D Agreement” shall mean the Research and Development Agreement executed by the Parties simultaneously with this Agreement.

1.25 “Reagent” shall mean a material consumed in operating an Instrument that is not designated as a Disposable and intended to be a part of a Reagent Kit.

1.26 “Reagent Kit” shall mean an assembly of Reagents to be used in connection with the Instrument and the Disposables (e.g., Sequencing Kits, Amplification Kits and Library Preparation Kits), and which is contained in Exhibits 2 and 5 as amended from time to time in accordance with the terms of Section 2.7.

1.27 “Reagent Supply Agreement” shall have the meaning set forth in Section 2.5(a).

1.28 “Safety Stock” shall have the meaning set forth in Section 3.7.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

7

1.29 “Software” shall mean the software required to operate an Instrument and manipulate sequence data generated in such operation, including re-sequencing alignment and de-novo sequence assembly software, as identified in Exhibit 2 and 5, as amended from time to time in accordance with the terms of Section 2.7.

1.30 “Specifications” shall mean those product specifications (including performance of the product) for each of the Licensed Products or Proposed Licensed Products, as set forth in Exhibits 3 and 8 attached hereto and made a part hereof, and as such Exhibits are amended from time to time in accordance with the terms hereof.

1.31 “Subcontractor” shall have the meaning set forth in Section 5.8.

1.32 “System R&D Project” shall mean a project for the development of the technology claimed in the Licensed Patents in general or a project to develop Instruments, system Reagents, Disposables, and/or Software to meet the Specifications for Rev. 1.0, 1.1 and 2.0 or future systems to be defined, as conducted pursuant to the R&D Agreement.

1.33 “Technology” shall mean the Licensed Products and the technology claimed in the Licensed Patents for DNA sequencing based on 454 proprietary pyrophosphate-based sequencing technology and the related know-how, protocols, processes, Instruments, machines, materials, compositions, tests procedures, manufacturing procedures, techniques, formulations, methodologies and data, inventions, observations and information.

1.34 “Territory” shall mean the entire world.

1.35 “Third Party” shall mean a party other than FHLR, 454 or their Affiliates.

1.36 “Transfer Price” shall have the meaning set forth in Section 3.3(a).

1.37 “Valid Claim” shall mean a claim of an issued Licensed Patent (including patents issued after the date hereof) which has not been disclaimed or held invalid or unenforceable by a ruling of a court or other governmental agency of competent jurisdiction from which no appeal can be or has been taken or a claim in a pending patent application within the Licensed Patents that has not otherwise finally been held un-patentable by the competent administrative agency.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

8

1.38 “Other Capitalized Terms” All capitalized terms herein that are defined in the R&D Agreement shall have the same meaning as in the R&D Agreement unless specifically defined otherwise in this Agreement.

2. LICENSE GRANT, PURCHASE, SALE AND OPTION

2.1 License Grant. 454 hereby grants to FHLR and its Affiliates an exclusive, royalty bearing, non-assignable (except as forth in Section 12.3) right and/or license under the Licensed Patents, (a) to market, distribute, sell, offer to sell or have sold Licensed Products for use in the Field and the Territory, (b) subject to Section 2.2(a), to use Licensed Products for internal research, development and/or training purposes pursuant to this Agreement and the R&D Agreement, and (c) to manufacture or have manufactured Licensed Products for such sale and distribution in limited circumstances as expressly set forth in Sections 2.5(a), 3.8, 3.9, 5.1(c) and 11.1(c). The Parties acknowledge and agree that, notwithstanding the limitation on the scope of the exclusive licenses granted to FHLR and its Affiliates hereunder to those Licensed Products which will be listed on Exhibit 2 from time to time, during the Initial Term, 454 shall have no right to market, distribute, sell, offer to sell or have sold, nor license a Third Party any such rights with respect to any product in the Field whose manufacture, use or sale falls under a Valid Claim of a Licensed Patent except as expressly permitted by Section 2.2 (b), (c) or (d) or by Section 2.7 hereof.

Under the rights granted herein, FHLR and its Affiliates will exclusively sell and distribute Licensed Products in the Field and Territory and in accordance with the labeling requirements set forth in Section 8.2 and the other terms and conditions set forth in this Agreement. Subject to Section 2.2(a), 454 acknowledges and agrees that FHLR or its Affiliates may appoint sub-distributors for the purpose of this Agreement who shall have the right to market, offer to sell and sell the Licensed Products for use in the Field to any Third Party in the Territory.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

9

2.2 License Limitations.

(a) The license granted in Section 2.1 shall not include (i) the right to make Licensed Products except as expressly set forth in Sections 2.5(a), 3.8, 3.9, 5.1(c) and 11.1 hereof, (ii) the right of FHLR or FHLR’s Affiliates (with the exception of RDG) to use Licensed Products for internal research and development purposes except as a purchaser thereof at fair market value from FHLR or its Affiliates (which limitation shall not apply to Licensed Products used by any Affiliate for reasonable and customary training purposes), (iii) the right to sublicense except for end-user label licenses and service label licenses as necessary to restrict use of Licensed Products to the Field and/or to allow a customer to use the Licensed Products in a service business with Third Parties as contemplated below, or (iv) the right to reverse engineer Licensed Products for purposes of designing new products or modifying existing products. Notwithstanding any other provision of this Agreement, use of the Licensed Products in a service business by any Third Party to whom FHLR sells Licensed Products will require a one-time payment of [*********************************] by FHLR to 454 (after FHLR has received such Third Party payment) prior to commencement of any such services by such Third Party [*******************************************************************]. For the avoidance of doubt, sale of Licensed Products through a Third Party distributor or wholesaler is hereby deemed not to be the grant of a sublicense of all or any portion of the rights licensed hereunder. The Parties hereby acknowledge and agree that Third Party purchasers of Licensed Products from FHLR or its Affiliates shall be entitled to use the Licensed Products free and clear of any claim for a royalty, or other claim of 454 arising under the Licensed Patents as long as such use is in conformity with the limitation set forth below.

FHLR shall include the following restrictive language, or language which is substantially equivalent, on all pack inserts, promotional literature and contracts for Licensed Products:

Restriction on Use. As a condition of sale of this product, purchaser agrees (i) not to use the product to perform less than ten thousand (10,000) sequencing reactions on a sample or samples on a single PicoTiterPlate, (ii) to use the product for research and general laboratory use only, and (iii) not to use the product for commercial services without purchase of a commercial services license which is available through the Licensing

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

10

Department of Roche Diagnostics GmbH. Failure to comply with these restrictions will result in an infringement of patent rights and other intellectual property rights of seller or third parties and a breach of the terms of the sale of this product.

454 may request changes to clause (i) above as necessary to comply with the laws and regulations of the place of sale of any Licensed Product provided that the resulting language is legally effective to prevent infringement by the purchaser of such Licensed Product of 454’s Third Party licensor’s rights outside of the Field. Notwithstanding any other provision hereof, FHLR shall not be liable towards 454 or any Third Party licensor of 454 for any breach by FHLR’s Licensed Product customers of such license restrictions. 454 shall defend, indemnify and hold FHLR harmless against any claims, actions, suits, proceedings, losses, damages, liabilities, costs and expenses (including reasonable attorney’s fees) (“Liability”), related to or resulting from any claims or suits brought by any Third Party licensor of 454 for breach of the above Restrictions on Use and respective patent rights or other intellectual property rights made or brought against FHLR. 454 will pay all cost of damages finally awarded in any such proceedings or any settlement with respect to any such claims.

(b) Notwithstanding any other provision hereof, 454 shall retain the right to use the Technology and the Licensed Products for the purpose of operating a service business to provide services to Third Parties in the Field, such right to be non-exclusive to the extent provided with respect to customers of FHLR in Section 2.2(a)(iii). For the avoidance of doubt, 454 shall have no rights to transfer its retained rights hereunder to any Third Party during the Initial Term other than in connection with any assignment made pursuant to Section 12.3 hereof. 454 may not utilize more than [******************] at any time to conduct such service business during the Initial Term, unless otherwise agreed by the Joint Steering Committee.

(c) Notwithstanding the exclusive license granted herein, before the Commercial Launch of any new version of a Licensed Product, 454 shall, during the term of this Agreement, have the right to test and sell a defined number of pre-launch versions of such Licensed Product to a defined number of beta sites (both to be agreed upon with RDG)

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

11

prior to Commercial Launch, such sales to be for the sole benefit of 454 without compensation to FHLR. 454 shall not sell these pre-launch versions under any FHLR or Roche label and 454 shall be responsible and liable for any and all claims of its beta site customers including also the return of any Licensed Product. FHLR shall in particular not be responsible for any customer service and/or technical support for such products.

For the avoidance of doubt, 454 shall have the right for its sole benefit to sell and deliver any Licensed Products to its customers between the Effective Date and the date of first Commercial Launch of a Licensed Product by FHLR. Until [*******************] after such First Commercial Launch, 454 may still deliver Instruments for which it has received a purchase order prior to such Commercial Launch but such right for 454 shall terminate with respect to Instruments [******************] after first Commercial Launch except as otherwise provided in subsection (d) hereof. For all customers 454 sells Licensed Products to prior to the Effective Date and between the Effective Date and FHLR´s First Commercial Launch and thereafter as permitted in this paragraph, the last two sentences of the first paragraph in this Section 2.2 (c) shall apply.

(d) Notwithstanding the exclusive license granted herein, after Commercial Launch, 454 shall have the right to sell Licensed Products to strategic partners approved by RDG for use in approved collaborative research agreements (to be approved by the Joint Steering Committee) between such strategic partners and 454 as indicated in Exhibit 4 (which Exhibit shall also list such strategic partner agreements as approved by the Joint Steering Committee). Such Exhibit shall be amended from time to time by the Joint Steering Committee. 454 shall pay FHLR a royalty of [**] of the Net Sales for any such Licensed Products sold by 454 to such strategic partners. The definition of Net Sales and the provisions of Article 4 shall apply to payment of any such royalties by 454, with the role of the Parties reversed.

2.3 License/Distribution Option. 454 and its Affiliates shall not enter into any agreement with Third Parties with respect to a license to the Technology (including Licensed Patents) for the IVD Field or a distribution arrangement for the IVD Field during the Initial Term of this Agreement without first giving FHLR and its Affiliates the right of first negotiation as set forth herein.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

12

For the IVD Field, FHLR and its Affiliates shall have an exclusive right of first negotiation to obtain an exclusive or non-exclusive license and/or distribution rights with respect to the sale of Licensed Products in the IVD Field as set forth herein. This right shall be exercisable during the Initial Term of this Agreement so long as FHLR is not in default of any provision hereof as follows:

(a) In the event FHLR or its Affiliates wish to expand the Field to include the IVD Field, the Parties agree to negotiate in good faith the terms for such rights to the extent such rights remain available subject to Section 2.3(b) below; or

(b) In the event that 454 wishes to grant any Third Party licenses or rights in any country within the Territory with respect to the distribution or sale of Licensed Products or Proposed Licensed Products or any other product falling under a Valid Claim of a Licensed Patent in the IVD Field (regardless of whether 454 desires to initiate or a Third Party has initiated discussions of such rights), 454 shall first propose to grant such rights to FHLR. Such proposal shall be in writing, be made in good faith, and provide terms no less favorable to FHLR than those to be offered to, or offered by, such Third Party. Within [**************] after receipt of any such proposal, FHLR shall notify 454 as to whether FHLR wishes to enter into negotiations for such rights. If FHLR provides timely notice that it wishes to do so, then the Parties shall conduct exclusive negotiations and use good faith efforts to conclude an agreement within [************************] thereafter. If the Parties are unable to agree upon the terms of such agreement despite the use of good faith efforts for such [********************] day period, FHLR shall put its proposal in writing (the “Last Offer”). Thereafter, 454 shall be free to grant a license or other rights to Third Parties to the rights described in such Last Offer on terms more favorable to 454 than the Last Offer made by FHLR. If, on the other hand, (i) FHLR gives 454 notice that FHLR does not wish to enter into any such negotiation, or (ii) FHLR does not respond to 454’s initial proposal within [************] after receipt thereof, then 454 shall be free to grant a license or other rights as outlined in the initial proposal to Third Parties in the IVD Field on any terms.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

13

2.4 Purchase and Sale. During the Initial Term of this Agreement and subject to the terms and conditions contained herein, FHLR shall have the right, but not the obligation (except as set forth in the binding portion of each Forecast as noted in Section 3.5, hereof) to purchase the Licensed Products from 454 and 454 shall exclusively manufacture and supply to FHLR or its Affiliates at the Transfer Price such quantities of the Licensed Products as 454 is required to supply hereunder. The Licensed Products available to FHLR for purchase from 454 are indicated in Exhibit 2 of this Agreement, which may be amended by written agreement of the Parties from time to time during the term of this Agreement in accordance with the terms of Section 2.7 hereof. FHLR and its Affiliates shall not have the right to purchase Licensed Products from a Third Party except as expressly provided under the terms of this Agreement.

2.5 Supply Options.

(a) To the extent FHLR or its Affiliates are capable of supplying components for Reagent Kits in the required volume and under specifications to be agreed by the Parties, at 454’s option, FHLR or its Affiliates shall supply to 454, on reasonable terms and conditions to be agreed upon in a separate supply agreement (the “Reagent Supply Agreement”), bulk Reagents for the assembly of Reagent Kits for as long as 454 supplies Reagent Kits to FHLR hereunder.

(b) In the event that FHLR or its Affiliates assumes sole responsibility for Reagent Kit manufacturing , as provided in Section 5.1(c) hereof, during the Initial Term, at 454’s option FHLR or its Affiliates will supply 454 with Reagent Kits at [***********] of such Reagent Kit for use in 454’s internal research, 454’s service business, and for transfer to strategic partners, including CuraGen Corporation. For the avoidance of doubt, no royalties to 454 shall be due by FHLR on any sales of Reagent Kits to 454 under this Agreement.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

14

2.6 Diligence. FHLR shall use commercially reasonable efforts to commercialize Licensed Products in the Field during the term of this Agreement. However, FHLR will commercialize the Licensed Product in phases at its reasonable commercial discretion with respect to different geographic regions starting with the United States. Such efforts shall include, without limitation, FHLR’s obligation to:

(a) Offer Licensed Products to Third Parties for sale within [***********] after the later of (i) availability of Initial Stock at FHLR or its Affiliates of all Licensed Products necessary for a system launch (e.g., Rev. 1.0, Rev.1.1, Rev 2.0) meeting the Specifications and (ii) fulfillment by 454 of the requirements of Section 5.9 (b) and (c). If FHLR or its Affiliates fails to so launch any such Licensed Product within such [***********] period, [********************************************************************** *******************************************************************************************************], such Instrument and related Software, Disposables and Reagent Kits shall no longer be subject to this Agreement and 454 shall be free to sell and distribute such Licensed Products on its own or with another Third Party;

(b) Spend [*************************************] over the Initial Term of this Agreement and at least [**********************************] per calendar year (or the respective share of such sum for incomplete calendar years during the Initial Term starting with the first day of the month following the Effective Date), with at least [***************] of such total amount being spent prior to the [**************************************], on marketing and sales promotional and support activities, such as advertising, congresses, trade shows, and other expenditures not including FHLR’s & FHLR’s Affiliate personnel costs and employment related expenditures, pursuant to a marketing plan developed by the Marketing Steering Committee (as defined in Section 8.3(c));

(c) Dedicate in a reasonable time frame after launch enough resources for local/regional marketing support [********************************************************************************************************** ******** ***********************************************************************];

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

15

(d) Devote sufficient trained personnel for customer service and technical support, such that troubleshooting and training for Licensed Products is reasonably ensured;

(e) Implement sales force incentives [*************************************** **********************]; and

(f) Not market or sell any product for sequencing applications in the Field that directly competes with a Licensed Product.

2.7 New Licensed Products. Licensed Products, and their initial estimated ASP’s and launch dates are set forth on Exhibit 2 and Specifications of such Licensed Products are described on Exhibit 3. Proposed Licensed Products (e.g., Rev 1.1 and Rev 2.0), and estimated launch dates and proposed initial estimated ASP’s are listed on Exhibit 5. Specifications for Proposed Licensed Products are listed on Exhibit 8. During the term of the R&D Agreement, other than projects with strategic partners under Exhibit 4 hereof, any applications development or product development projects to be conducted by or on behalf of 454 using the Technology in the Field must be proposed to RDG as Projects under Article 2 of the R&D Agreement at the DI milestone according to Exhibit 6 requirements. For the avoidance of doubt, 454 shall have no right to market, distribute, sell, offer to sell or have sold or to license any Third Party any such right with respect to any product falling under a Valid Claim derived from a project with a strategic partner under Exhibit 4 hereof during the Initial Term.

If RDG does not agree to approve such Project and to designate the relevant product as a Proposed Licensed Product within a period of [*************] following such proposal, FHLR and its Affiliates will have no rights to such product under this Agreement (except as set forth in Section 3.7 of the R&D Agreement) and 454 will be free to independently develop and distribute such product.

At the DI milestone according to Exhibit 6 requirements for Projects under the R&D Agreement, the Joint Steering Committee will amend Exhibits 5 and 8 to include new Proposed Licensed Products, launch dates, initial ASP and Specifications. At the DO milestone according to Exhibit 6 requirements, the Joint Steering Committee will

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

16

determine the final Specifications, ordering of Initial Stock, launch dates, and initial estimated ASPs for Proposed Licensed Products which will then be included on Exhibits 2 and 3 and at such time the Proposed Licensed Products will become Licensed Products. 454 is responsible for meeting dates and quantities of Initial Stock. All changes of Specifications, launch dates and initial estimated ASP between the DO and DI Milestones will be recorded in the minutes of the Joint Steering Committee. If at any time (i) 454 and RDG agree to completely discontinue development of a Proposed Licensed Product hereunder or (ii) FHLR or its Affiliates fails to launch any Licensed Product as required pursuant to Section 2.6(a) then such Licensed Product shall be removed from this Agreement and 454 will be free to independently develop and distribute such product.

[****************] Licensed Products are currently included in Exhibits 2, 3, 5 and 8, although no formal DI/DO Milestone according to this Section 2.7 has been completed. In the event of any changes to the Specifications or other contents of such Exhibits arising in connection with actual DI/DO Milestone completion, the respective Exhibits will be amended accordingly at the time of the respective DI/DO Milestone completion according to Exhibit 6.

3. UPFRONT PAYMENTS, TRANSFER PRICE, ROYALTIES, ORDERS, PRODUCT SUPPLY

3.1 Upfront Payments. In consideration of 454’s development of the Technology and FHLR’s exclusive access to the Technology and Licensed Products in the Field as provided herein, RDG has made a payment of [*******************************] to 454 according to the Exclusivity Agreement signed on January 21^st, 2005, and

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

17

FHLR will make to 454 the following payments:

(a)	within [*****] after the Effective Date of this Agreement:	US$ [********]
(b)	within [*****] after [*************************]
	[****************************]
	[**********************]	US$ [********]
within [*****]:
(b)	after Commercial Launch of the Rev. 1.0
	Licensed Products (Exhibit 2) by FHLR or
	its Affiliates:	US$ [********]
(c)	after FHLR and its Affiliates reaching a [**************]
	[**************]:	US$ [********]
(d)	after Commercial Launch of the Rev. 1.1
	Licensed Products (Exhibit 5) by FHLR or its
	Affiliates:	US$ [********]
(e)	after Commercial Launch of the Rev. 2.0
	Licensed Products (Exhibit 5) by FHLR
	or its Affiliates:	US$ [********]

3.2 Milestone Payments. As additional consideration for the launch of Rev. 1.0, 1.1 and 2.0 and for the access to the Technology, FHLR will make to 454 during the Initial Term milestone payments for access to the Technology at thresholds of cumulative aggregated total sales by FHLR and its Affiliates of all Licensed Products as follows:

FHLR shall pay to 454 at every [******************************] of cumulative aggregated [************************] an amount of [*********************** ************************]; provided, however, that such [******] shall be calculated at [*******************************] cumulative aggregated [***************** *******] since the last [******************************] was achieved for which a [**************] (which may have occurred in a prior quarter), and shall, [*******************************] of the end of each such calendar quarter. (Example: [********************* *************************************************************************************************** *****].

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

18

Payments as set forth above shall be stopped for the Initial Term of this Agreement after cumulative aggregate Net Sales of Licensed Products in any given calendar year have reached [*******************************************].

Until the launch of Rev. 1.1 all payments made under this Section 3.2 are related to Rev. 1.0. After the launch of Rev. 1.1 all payments made under this Section 3.2 are related to Rev. 1.1. After the launch of Rev. 2.0 all payments made under this Section 3.2 are related to Rev. 2.0.

3.3 Transfer Price.

(a) 454 shall charge FHLR, and FHLR shall purchase from 454 the quantities of Licensed Products ordered pursuant to this Agreement at a transfer price for each of the Licensed Products (the “Transfer Price”) of [****************] based on the initial estimated Average Sales Price (“ASP”) as specified in (b) below.

Notwithstanding the foregoing, (i) the payment obligations and the value of the estimated ASP shall be subject to adjustment based on the actual ASP as set forth in paragraph (c) below, (ii) the minimum Transfer Price based on the initial estimated ASP is set forth in paragraph (d) below, and (iii) the Transfer Price for Instruments and Reagent Kits ordered by FHLR for purposes covered by Section 2.1(b), as noted in the relevant purchase order, and which shall be used by FHLR only for such allowed purposes shall be [********** **********] of the applicable estimated ASP. For the avoidance of doubt, no royalties shall be payable from FHLR to 454 for Licensed Products ordered by FHLR for purposes covered by Section 2.1 (b).

(b) The initial estimated ASP for Licensed Products for Rev. 1.0 shall be as follows:

Instrument (Rev. 1.0), including Software:	US$ [*****]
Reagent Kits (Rev.1.0) for 70x75 PicoTiterPlate:	US$ [***]
Disposables (Rev.1.0) (70x75 PicoTiterPlate):	US$ [***]

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

19

The detailed initial estimated ASP for initial Licensed Products on a catalogue number basis will be detailed in Exhibit 2 which will be amended from time to time for additional Licensed Products. The initial estimated ASP for Rev 1.1 and 2.0 Licensed Products and other Licensed Products shall be agreed as set forth in Section 2.7.

(c) During the last quarter of each calendar year beginning in 2005, the applicable estimated ASP for the following calendar year and the preliminary actual ASP for the current calendar year shall be determined latest by November 30^th based on FHLR’s reporting of Net Sales of Licensed Products during the previous three quarters of such calendar year. Based on the preliminary actual ASP for the current calendar year, FHLR shall invoice 454 for any amount overpaid or pay 454 for underpaid amounts, depending on whether the preliminary actual ASP is lower or higher than the estimated ASP. The due date for any such adjustment payments shall be December 15^th of each calendar year beginning in 2005.

During the first quarter of each calendar year beginning in 2006, the applicable actual ASP for the preceding calendar year shall be determined based on FHLR’s actual Net Sales. Following the determination of the actual ASP for the preceding calendar year, FHLR shall invoice 454 for any amount overpaid or pay 454 for underpaid amounts, depending on whether the actual ASP is lower or higher than the preliminary actual ASP. The due date for any such adjustment payments shall be March 31^st of each calendar year beginning in 2006.

(d) Notwithstanding any other provision hereof, irrespective of the actual ASP, the minimum floor price to be paid as a minimum Transfer Price from FHLR to 454 during the Initial Term shall be as follows:

Instruments, Software and Disposables: [**] of initial estimated ASP as set forth in Exhibit 2.

Reagent Kits: [**] of initial estimated ASP as set forth in Exhibit 2.

The minimum Transfer Price for each Product may be re-negotiated in good faith by the Joint Steering Committee upon written request of either Party in the event that the actual

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

20

ASP falls below the threshold of [***************] of the initial estimated ASP for Instruments, Software and Disposables and [****************] of the initial estimated ASP for Reagent Kits, taking into account the changes in production costs and the changes in the end user prices in the market of the particular Licensed Product.

For the avoidance of doubt, the Parties agree that no Transfer Price payment under this Section 3.3 shall be made by FHLR or its Affiliates to 454 for any Licensed Product that is manufactured by FHLR or its Affiliates or on behalf of FHLR or its Affiliates by a party other than 454 according to the terms of this Agreement.

3.4 Royalties.

(a) FHLR will pay to 454 running royalties on Net Sales of Licensed Products in the amount of:

(i) [***********************] for Instruments, Disposables and Software manufactured by 454; and [**************] if manufactured by FHLR.

(ii) [*************************] for Reagent Kits manufactured by 454.

(iii) [********************] for Reagent Kits manufactured by FHLR until annual sales volume for Reagent Kits and Disposables in any calendar year reaches [**********************************].

(iv) On any sales of Reagent Kits manufactured by FHLR where annual sales volume for Reagent Kits and Disposables is [******************************************************************************************* *****************************************************].

(v) On any sales of Reagent Kits manufactured by FHLR where sales volume for Reagent Kits and Disposables is [************************************************************************** **************************************************************************************************].

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

21

(vi) On any sales of Reagent Kits manufactured by FHLR where annual sales volume for Reagent Kits and Disposables is [********************************************************************************************

********************************]

For the avoidance of doubt, the royalties on Disposables shall be as set forth in Section 3.4 (a) (i) of this Agreement, irrespective of whether Disposables are packaged into a Reagent Kit. In such case the Combination Product section of the Net Sales definition shall apply.

(b) If the actual ASP for Reagent Kits should drop in any given calendar year when FHLR is manufacturing Reagent Kits as provided in Section 5.1(c), such that FHLR’s fully loaded cost (which shall include all reasonable and customary direct and indirect costs of manufacturing) exceeds [*********************] of the actual ASP, the royalties due to 454 on Reagent Kits shall be reduced by [********************] of such excess. Such reduction shall be limited to a maximum of [******************************* **************] for Reagent Kits in such calendar year. The reimbursement of FHLR for reductions made under this Section 3.4 (b) shall be due with the adjustment payments due on March 31^st of each calendar year as set forth in Section 3.3 (c).

(c) In any given calendar year during the Initial Term where the total R&D investment of 454 for actual or potential Licensed Products with respect to Projects is below [******************************] (reduced by its share of any reduction in Application R&D Project funding as set out in more detail in Sections 3.3 of the R&D Agreement), or following Commercial Launch of Rev. 2.0, if 454’s total R&D investment is below [****************************] for such calendar year and such [**********************************] is lower than [******************************], the royalty to be paid by FHLR to 454 on Reagent Kits shall be reduced by [****************] (e.g., to [****************] for Reagent Kits where sales of Reagent Kits and Disposables are [***********************] according to Section 3.4 (a) (iii)-(vi)). The R&D Steering Committee (as defined in Section 8.3(c)) shall monitor such R&D investments. 454 shall keep complete and accurate books and records in accordance with established accounting practices in sufficient detail to permit ready computation of the investments required to be

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

22

made under this Agreement and the R&D Agreement. All such books and records, for a period of two (2) years, shall be open for inspection by a chartered accountant during normal business hours and provided that such inspection has been announced to 454 at least three (3) weeks in advance. The reimbursement of FHLR for reductions made under this Section 3.4 (c) shall be due with the adjustment payments due on March 31^st of each calendar year as set forth in Section 3.3 (c).

(d) During the Initial Term of this Agreement FHLR shall pay minimum royalties on the 30^th day of each Contract Year for the first four Contract Years as follows:

[*************]:	US$     [********]
[*************]:	US$     [********]
[*************]:	US$     [********]
[*************]:	US$     [********]

Such minimum royalties shall be fully applied to and deductible from royalties due for Net Sales during the relevant Contract Year provided that such minimum royalties shall be due only if Rev. 1.0 is available for Commercial Launch at FHLR [****], Rev. 1.1 is available for Commercial Launch at FHLR [****] and Rev. 2.0 is available for Commercial Launch at FHLR [****]. Otherwise and in each case the amount of minimum royalties will have to be negotiated between the Parties in good faith.

3.5 Forecasts and Orders.

(a) Starting on the Effective Date and prior to the 15^th day of each new calendar quarter during the Initial Term, FHLR or its Affiliates shall furnish to 454 a rolling Forecast in quarterly increments indicating, by calendar quarter, the quantities of the Licensed Products that FHLR and its Affiliates intend to order during each calendar quarter of the twelve (12) month period starting with the first day of the succeeding calendar quarter. The amounts set forth for the first calendar quarter included in such Forecast shall constitute a binding commitment upon FHLR and its Affiliates to purchase the Licensed Product quantities in the Forecast for such period, pursuant to purchase orders which shall be submitted by

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

23

FHLR or its Affiliates to 454 in accordance with Section 3.5(c). The binding Forecast for any such calendar quarter shall be no less than [******************] and no more than [********************************] of the previous non-binding Forecast for such calendar quarter. During the first Contract Year the binding Forecast for any such calendar quarter shall be no less than [**************] and no more than [******************* ************] of the previous non-binding forecast for such calendar quarter. The remaining nine (9) months of each such Forecast shall merely represent reasonable estimates for planning purposes only and will be good faith Forecasts but, however, shall not obligate FHLR or its Affiliates to purchase the Licensed Product quantities set forth therein.

(b) The estimated initial rolling Forecast for Licensed Products added to Exhibit 2 according to Section 2.7 after the Effective Date shall be agreed upon in writing at DO milestone until the above described rolling forecasting process begins and shall be non-binding. Thereafter, Forecasts for such added Licensed Products shall be included in each Forecast to be provided pursuant to Section 3.5(a).

(c) FHLR or its Affiliates shall place each purchase order with 454 for the Licensed Products to be delivered hereunder in writing. Each such purchase order shall constitute a binding obligation upon FHLR and its Affiliates and shall be confirmed by 454 within two (2) weeks from receipt of the purchase order, such confirmation to include information on the expected delivery date. Notwithstanding the foregoing, 454 shall not be obligated to confirm purchase orders that exceed the binding forecast for the relevant calendar quarter or that are received after the expiration or termination of the Initial Term.

454 shall use best efforts to deliver within four (4) weeks from the receipt of each purchase order such quantity of Licensed Products as is set forth in the binding Forecast for the quarter.

For Excess Quantity orders, 454 shall use its commercially reasonable efforts to meet the four (4) weeks delivery date for such purchase orders and shall reasonably adapt its production capacity accordingly. 454 may use the Safety Stock of the Licensed Products to be maintained pursuant to Section 3.7 to meet Excess Quantity orders.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

24

(d) During the Initial Term, FHLR or its Affiliates may order spare parts from 454 from time to time with prices as specified in Exhibit 7 and as further set out below. Exhibit 7 shall be amended annually by the Joint Steering Committee as proposed by the Operations Steering Committee based on the criteria set forth below. 454 shall deliver such spare parts to FHLR or its Affiliates as soon as reasonably available, but in any event within thirty (30) days of the relevant purchase order. Any such spare parts which are to be used by FHLR or its Affiliates for technical service during the warranty period shall be provided free of charge to FHLR or its Affiliates. For any such spare parts which are to be used in connection with technical service which is to occur after the warranty period, spare part prices shall be based on the Instrument Transfer Price using [***************************************** ************************************], as initially provided for Rev. 1.0 in Exhibit 7. FHLR shall provide 454 with any information reasonably requested by 454 to confirm any amounts due to 454 hereunder based on the use of spare parts and such information shall be subject to audit as provided in Article 4.

(e) FHLR’s or its Affiliates’ purchase orders may not modify any terms of this Agreement or add any terms not set forth herein. Any such additional terms or modifications shall have no effect. In the event there is any confusion as to the obligations of the Parties regarding a particular Licensed Product purchase order, the Parties agree that the resolution of such issue shall be controlled solely by the terms of this Agreement.

3.6 Delivery and Invoicing.

(a) 454 shall ship the Licensed Products which are ordered by FHLR or its Affiliates in accordance with this Agreement pursuant to confirmed purchase orders from 454’s facility on a DDU basis (Incoterms 2000) to RDG’s Germany or Roche’s Indianapolis facility or directly to an FHLR customer (as specified in the respective purchase order) in accordance with the quantities specified in FHLR’s or its Affiliates’ purchase orders and the delivery dates specified in 454’s confirmation thereof. However, FHLR shall bear the cost for freight and insurance, as indicated in the relevant invoice, provided that FHLR shall have the exclusive right to determine the freight forwarder, such determination to be made in a timely manner.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

25

(b) All deliveries shall comply with FHLR’s shipping and pallet guidelines (if applicable) as set forth in Exhibit 9.

(c) 454 shall invoice FHLR or RDG as indicated in the purchase order for the Transfer Prices of the Licensed Products supplied under such purchase orders, regardless of the point of delivery. FHLR shall pay each such invoice within [*************] net after acceptance (i.e., not having informed 454 of any non-conformity according to Section 5.5 (a)) of the Licensed Products at their destination.

All payments to 454 shall be made via wire transfer pursuant to the following information:

Bank of America

ABA# [*******]

Wire account# [*********]

For further credit to: [*************],

Account# [***************]

Attn: [**********************]

(d) Unless the Parties expressly agree in writing to use a different currency and regardless of the currency on the invoice, all invoices under this Agreement shall be paid in United States Dollars.

3.7 Safety Stock. Commencing with the Commercial Launch of the first Licensed Product and throughout the Initial Term of this Agreement, 454 shall maintain a fresh Safety Stock, either at 454 or at its suppliers, of (a) the Disposables which are Licensed Products at such time with a minimum shelf life as defined in the Specifications in Exhibit 3, in an amount equivalent to the forecasted purchases for the current calendar quarter, and (b) unless FHLR or its Affiliates is producing Reagent Kits as provided in Section 5.1(c), (i) Reagents for use in manufacturing Reagent Kits which are Licensed Products at such time with a minimum shelf life of [***************], in an amount equivalent to the forecasted purchases of Reagent Kits for the current calendar quarter, (ii) provided that if the shelf life of Reagent Kits which are Licensed Products at such time exceeds [***************],

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

26

such Reagent Kits shall instead be stocked in amounts equivalent to the forecasted purchases for the current calendar quarter. During the Initial Term, such Safety Stock shall be exclusively available to FHLR and its Affiliates. Deliveries by 454 to FHLR may be taken from 454’s inventory identified as Safety Stock; provided, however, that 454 shall replenish the Safety Stock, if necessary, as soon as reasonably practicable in order to maintain the level of Safety Stock in accordance with the preceding sentence. 454’s Safety Stock shall be rotated with its regular inventory of the Licensed Products. 454 shall keep FHLR reasonably informed of the level of inventory identified as the Safety Stock upon request of FHLR.

3.8 Failure to Supply. During the Initial Term, 454 shall inform FHLR promptly of any problems with Third Party suppliers or problems of 454, in each case with respect to the manufacture or supply of Licensed Products.

(a) In the event that 454 is unable, or notifies FHLR that it is unable, for any reason (including Force Majeure) to supply quantities of the Licensed Products pursuant to confirmed purchase orders in accordance with Section 3.5, 454 shall inform FHLR promptly.

The Joint Steering Committee (through the Operations Steering Committee if active) will develop a plan to address the supply interruption. This may include discussing with supplier(s) the supply of the components of undelivered Licensed Products, arranging alternative sources of supply and/or providing FHLR rights to manufacture components for sale in accordance with the terms of this Agreement.

(b) In the event that, during the Initial Term, 454 is unable, or notifies FHLR that it is unable, for any reason including Force Majeure, to supply a minimum of [************] of the binding forecast quantities of Licensed Products to FHLR or its Affiliates as set forth in Section 3.5, for a total period of [**********], and the Joint Steering_Committee is, despite good faith efforts, unable to reasonably agree on a plan under Section 3.8(a) above to resolve the shortage, 454 shall upon written request of FHLR, grant FHLR or its Affiliates the right to manufacture or have manufactured such Licensed Products and with respect to Instruments and Disposables if in addition the Joint Steering Committee

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

27

reasonably agrees that by so doing, FHLR or its Affiliates can eliminate the shortage sooner than 454 would be able to so do. In order to enable FHLR or its Affiliates to manufacture or have manufactured such Licensed Product for sale in accordance with the terms of this Agreement, 454 herewith agrees to grant to FHLR and its Affiliates rights under all relevant patents, know-how, or design rights or any other intellectual property rights necessary for the manufacturing of such Licensed Products for use in the Field and to provide FHLR or its Affiliates all relevant information to enable FHLR or its Affiliates to manufacture such Licensed Products for sale in accordance with the terms of this Agreement. In the event FHLR or its Affiliates is forced to undertake its own production of such Licensed Products as provided herein, 454 shall furnish FHLR or its Affiliates with all manufacturing instructions (including but not limited to all QC methods, manufacturing environment, SOPs) and know-how necessary for such production and shall supply FHLR or its Affiliates with or give FHLR or its Affiliates access to its supplies or its suppliers of raw materials needed for production as well as materials used for controls. FHLR shall pay to 454 a royalty of [************************] with respect to all Licensed Products that are Reagent Kits made by FHLR or its Affiliates pursuant to this Section 3.8, until FHLR or its Affiliates is eligible to elect according to Section 5.1 (c) to manufacture at its own facilities all Licensed Products that are Reagent Kits, at which time the royalty rates in Section 3.4(a) shall apply. FHLR and its Affiliates shall lose its right to manufacture Reagent Kits under this Section 3.8(b) within [********] after 454 notifies FHLR (following reasonable determination in the Joint Steering Committee of such capability) that 454 is capable of meeting the binding Forecast before FHLR or its Affiliates makes a written request to assume manufacturing responsibility. FHLR and its Affiliates shall lose its right to manufacture Instruments and Disposables under this Section 3.8(b) once 454 notifies FHLR that 454 is capable of meeting the binding Forecast for such Licensed Products. FHLR shall in such event be compensated for its reasonable investments regarding manufacture of Instruments at a rate [*************************].

3.9 Option for Instrument Manufacturing. The Parties agree that FHLR shall also have the right to manufacture Instruments at a second manufacturing site owned by FHLR or its Affiliates solely to the extent that the manufacturing capacity at 454 is exceeded by the demand during the Initial Term and such demand is more than [****************] Instruments per annum. FHLR shall pay to 454 royalties as specified in Section 3.4(a)(i) with respect to all Instruments made by FHLR pursuant to this Section 3.9 or 3.8.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

28

4. PAYMENTS, BOOKS AND RECORDS

4.1 Currency Conversion. All payments due under this Agreement shall be payable in United States Dollars. For the conversion of any invoices from any currency into United States Dollars the monthly average exchange rate derived from daily exchange rate figures provided by Reuters (website: www.reuters.com/financeCurrencies.jhtml) shall be used. Whenever, for the purpose of calculating royalties, conversion from any currency other than Swiss Francs (CHF) shall be required, first the monthly recorded amount of sales in reported currencies shall be converted into Swiss Francs (CHF) using the monthly average exchange rate derived from daily exchange rate figures provided by Reuters (website:www.reuters.com/financeCurrencies.jhtml) and then the Net Sales in Swiss Francs shall be converted into US Dollars, using the monthly average exchange rate derived from daily exchange rate figures provided by Reuters. Any payments by FHLR that are not paid on or before the date such payments are due under this Agreement and which are not being disputed in good faith shall bear interest, to the extent permitted by law, at one percentage point above the base prime rate of interest most recently reported by The Wall Street Journal, based on the number of weeks that payment is delinquent.

4.2 Payments and Reports. Upon the first Commercial Launch of a Licensed Product, within [**************] following each calendar quarter end, FHLR shall deliver to 454 a report containing the following information on a country-by-country basis: calculation of Net Sales together with the exchange rates used for conversion; and calculation of the amount payable to 454 under Section 3.4 for the applicable payment period. Any income from Instrument leasing shall be reported in such royalty reports under a separate catalogue number and shall include the entire principal amount (selling price) paid for the Instrument under the leasing contract but shall not include any commercially reasonable interest charge. Each such report shall also include a calculation of any payments due pursuant to Section 3.4(d). If no royalties or other payments are due to 454 for any reporting period,

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

29

the report shall so state. Concurrent with these reports, FHLR shall remit to 454 any payment due for the reporting period. Interest according to Section 4.1 shall only be charged for royalty payments made after [***********] from the end of the calendar quarter.

4.3 Record Keeping and Audits. FHLR shall keep complete and accurate books and records in accordance with established accounting practices in sufficient detail to permit ready computation of the actual ASP for each calendar year, the Transfer Price for Licensed Products and the royalty payments required to be made under this Agreement. All such books and records, for not less than three (3) years after the calendar year to which they relate, shall be open for inspection by a chartered accountant and/or employees of 454 or of its Affiliate during normal business hours and provided that such inspection has been announced to FHLR at least three (3) weeks in advance. The appointment of such chartered accountant and/or employees of 454 or of its Affiliate shall be subject to the approval of FHLR, which shall not be unreasonably withheld. The chartered accountant and/or employees of 454 or of its Affiliate shall be permitted access to FHLR’s books and records for a reasonable period of time during normal business hours and shall have the right to report to 454 the amounts due and payable to 454, the method of computation of such amounts and any other information concerning the Licensed Product as is reasonably necessary to verify the statements furnished by FHLR as required herein.

The costs and expenses of any such chartered accountant shall be borne by 454 unless any such inspection discloses an underpayment of royalties or understatement of actual ASP of [**************] or more, in which case FHLR shall promptly pay the reasonable cost of such inspection after FHLR’s receipt of the invoice for such inspection. In any event if there is any underpayment of royalties or Transfer Prices based on actual ASP, FHLR shall promptly correct the payment.

4.4 Withholding Tax. The Withholding Tax (if any) levied by a government of any country in the Territory on payments made by FHLR to 454 hereunder shall be borne by 454. FHLR shall use its commercially reasonable efforts to do all things necessary to enable 454 to claim exemption therefrom under any double taxation or similar agreement in force and shall produce to 454 proper evidence of payment of all withholding tax and other certificates that might be required by the respective double taxation agreement.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

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5. MANUFACTURE, QUALITY ASSURANCE, WARRANTY AND LIABILITY

5.1 Legal Manufacturer.

(a) 454 shall be the responsible legal manufacturer for all of the Licensed Products supplied by 454 to FHLR or its Affiliates hereunder and 454 hereby represents and warrants that it shall fully comply in all respects with such designation whether or not such Licensed Products are manufactured by 454 or a Third Party on behalf of 454. 454 represents and warrants that the manufacture of the Licensed Products for use in the Field and the manufacturing facilities and processes used in the manufacture of the Licensed Products for use in the Field will, at the time of manufacture and supply to FHLR or its Affiliates, comply with all applicable regulations and laws.

(b) In the event that any Licensed Products are manufactured by FHLR or its Affiliates as permitted herein, FHLR or its Affiliates shall be the responsible legal manufacturer for all of such Licensed Products and FHLR hereby represents and warrants that it shall fully comply in all respects with such designation. FHLR represents and warrants that any permitted manufacture of the Licensed Products for use in the Field and the manufacturing facilities and processes used in the manufacture of the Licensed Products for use in the Field will, at the time of manufacture, comply with all applicable regulations and laws.

(c) After the first to occur of (i) the last day of any twelve (12) month period during which the annual sales volume of Sequencing Reagent Kits first reaches [************** ************************] or (ii) the last day of any new calendar quarter after Commercial Launch by FHLR or its Affiliates of [******] when the aggregated sales volume of Sequencing Reagent Kits during the last [***************] period before and including such last day of any such calendar quarter reaches or exceeds [*********** ****************************], FHLR or its Affiliates may elect by providing written

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

31

notice to 454 to manufacture at its own facility all Licensed Products that are Reagent Kits. Any such transfer of Reagent Kit manufacturing and assembly responsibility shall be supported by 454 (as detailed in Section 3.8(b)) and effectuated according to a detailed transfer schedule to be agreed upon and monitored by an Operations Steering Committee. If the necessary preparations at FHLR or its Affiliates with respect to manufacturing transfer are not completed at the time of any such request, the manufacturing and assembly transfer shall occur at a later date as agreed by the Joint Steering Committee at such time. If FHLR or its Affiliates does not request such right before the last to occur of (i) or (ii) above and within the Initial Term, this Section 5.1(c) shall have no further force or effect.

5.2 Conformance, Warranty and Liability.

(a) 454 represents and warrants that all of the Licensed Products supplied by it to FHLR or its Affiliates under this Agreement shall, until the applicable expiration date, conform to the applicable regulations and conform to the Specifications in effect at the applicable time for such Licensed Products and be free from material defects in materials and workmanship. 454 represents and warrants that it has the right to manufacture, have manufactured, distribute and have sold and have distributed by FHLR or its Affiliates such Licensed Products and that such Licensed Products will fully conform to FHLR’s Design Control Guidelines as detailed in Exhibit 6. Beyond the warranties expressly stated herein, 454 shall assume no warranty, express or implied, as to the fitness of the Licensed Products for the purpose intended by FHLR. The limited warranties set forth in this Section constitute the sole and complete warranty obligation of 454 with respect to such Licensed Products.

(b) FHLR represents and warrants that all of the Licensed Products supplied by it to 454 or Third Parties under this Agreement shall, until the applicable expiration date, conform to the applicable regulations and conform to the Specifications in effect at the applicable time for such Licensed Products and be free from material defects in materials and workmanship. FHLR represents and warrants that such Licensed Products will fully conform to FHLR’s Design Control Guidelines as detailed in Exhibit 6. Beyond the warranties expressly stated herein, FHLR shall assume no warranty, express or implied, as

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

32

to the fitness of the Licensed Products for the purpose intended by 454. The limited warranties set forth in this Section constitute the sole and complete warranty obligation of FHLR with respect to such Licensed Products.

(c) THE FOREGOING WARRANTIES SHALL BE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT. IN NO CASE SHALL EITHER PARTY BE LIABLE FOR INDIRECT, CONSEQUENTIAL, INCIDENTAL OR PUNITIVE DAMAGES OR LOST PROFITS.

5.3 Testing. 454 shall test or cause to be tested each lot of Licensed Products manufactured by 454 for FHLR hereunder pursuant to the QC release specifications attached to this Agreement as Exhibit 10 before delivery to FHLR or its Affiliates. The QC test methods must be validated and approved by the Operations Steering Committee. Each such lot shall be accompanied by a Certificate of Analysis (the “CoA”). The CoA must be lot specific and reflect the FHLR lot number. The CoA shall certify the conformance to FHLR’s QC release specifications set forth in Exhibit 10 attached hereto and amended from time to time by the Parties. The Licensed Products shall be free of animal components and shall not have been exposed to or commingled with any animal raw material with the exception of [*****************************************]. 454 shall send such CoA’s to FHLR along with delivery of the Licensed Products. FHLR is entitled to rely on the CoA for all purposes of this Agreement, including with respect to FHLR’s subsequent sale and marketing of the Licensed Products to Third Parties for use in the Field. Nothing in this Agreement shall be construed to require FHLR to perform any incoming testing, analytical or otherwise, on any of the Licensed Products received from 454. However, FHLR may at its discretion perform an incoming quality control test.

454 shall provide FHLR with Quality Control (QC) Standard Operating Procedures (SOP) within [**********] of the Effective Date. FHLR shall be notified about planned updates in advance and shall be provided with such updates without undue delay.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

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5.4 Changes to the Licensed Products. 454 and FHLR or its Affiliates, as relevant, shall notify the other Party in writing of any proposed changes in the manufacturing process used by such Party which affect fit, form, or function of the Licensed Products or any components of the Licensed Products to be supplied by them hereunder, including, but not limited to, any changes that affect written quality plans for production or written quality procedures respecting same, as well as any changes outside the validated level or procedure, in manufacturing procedures, component part or raw materials manufacturer, manufacturing sites or batch sizes. Upon any such notice, the Joint Steering Committee shall confer and agree upon a reasonable time frame within which FHLR or its Affiliates or 454, as relevant, may evaluate and communicate its written approval or disapproval of such change; provided, however, that neither Party shall unreasonably withhold or delay its approval of any such change. Only upon notice of written approval of the other Party may 454 or FHLR or its Affiliates incorporate such changes into the manufacturing process for supply of Licensed Products hereunder.

5.5 Rejected Goods/Shortages.

(a) FHLR shall notify 454 if any of the Licensed Products shipped by 454 pursuant to this Agreement do not conform with FHLR’s incoming QC guidelines, (e.g., do not visually conform to the Specifications or have a shortage in quantity) within [*********** ***] of receipt of any shipment. Subject to Section 5.5(b), in the event of such rejection or shortage, 454 shall replace the Licensed Products or make up the shortage without undue delay after receiving such notice, at no additional cost to FHLR, or at FHLR’s choice refund the purchase price for the non-conforming Licensed Products and shall make arrangements with FHLR for the return or destruction of any rejected Licensed Products, such return shipping charges or costs of destruction to be paid by 454. Title to all returned Licensed Products shall belong to 454.

(b) In the event of a conflict regarding any non-conforming Licensed Products which 454 and FHLR are unable to resolve, a sample of such Licensed Products, together with mutually agreed upon testing methodologies and the QC release specifications set forth in Exhibit 10, shall be submitted by FHLR to an independent laboratory reasonably

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

34

acceptable to both Parties for testing against the release specifications and the test results obtained by such laboratory shall be final and binding upon the Parties. The fees and expenses of such laboratory testing shall be borne entirely by the Party against whom such laboratory’s findings are made. In the event the test results indicate that the Licensed Products in question do not conform to the release specifications, 454 shall replace such Licensed Products with conforming Licensed Products at no additional cost to FHLR within [***************] after receipt of such results, provided that 454 has sufficient conforming Licensed Products in its inventory to do so. If sufficient conforming Licensed Products are not available, 454 shall use commercially reasonable efforts to replace the non-conforming Licensed Products with conforming Licensed Products at no additional cost to FHLR promptly, but in no event shall the replacement time exceed [***********].

(c) For the purposes of this Section 5.5, 454 shall use the Safety Stock of Licensed Products pursuant to Section 3.7, if applicable.

5.6 Returned Licensed Products.

(a) If any customer of FHLR rejects or returns to FHLR Licensed Products manufactured by 454 and sold by FHLR or its Affiliates hereunder within the warranty period set forth in the Specifications for such Licensed Product(s) claiming the failure of such Licensed Product to meet the Specifications and if such failure can reasonably be attributed to a manufacturing defect and not to handling or storage of the Licensed Product after delivery by 454, such Licensed Products shall be replaced by 454 at 454’s expense. 454 shall in such circumstances also pay against invoice for the transportation of such rejected or returned Licensed Products from customer sites to 454. 454 is prohibited from repackaging any returned Licensed Products for sale to FHLR.

(b) In the event of a conflict regarding any returned Licensed Products manufactured by 454 which 454 and FHLR or its Affiliates are unable to resolve, a sample of such Licensed Products, together with mutually agreed upon testing methodologies and the QC release specifications set forth in Exhibit 10, shall be submitted by FHLR or FHLR’s customer to an independent laboratory reasonably acceptable to both Parties for testing against the Specifications and the test results obtained by such laboratory shall be final and

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

35

binding upon the Parties. The fees and expenses of such laboratory testing shall be borne entirely by the Party against whom such laboratory’s findings are made. In the event the test results indicate that the Licensed Products in question do not conform to the Specifications, 454 shall replace such Licensed Products with conforming Licensed Products at no additional cost to FHLR within [**********] after receipt of such results, provided that 454 has sufficient conforming Licensed Products in its inventory to do so. If sufficient conforming Licensed Products are not available, 454 shall use commercially reasonable efforts to replace the non-conforming Licensed Products with conforming Licensed Products at no additional cost to FHLR as soon as possible, but in no event shall the replacement time exceed [*************].

(c) For the purposes of this Section 5.6, 454 shall use the Safety Stock of Licensed Products pursuant to Section 3.7, if applicable.

5.7 Product Problems. 454 shall immediately notify FHLR of any lot failure, manufacturing problems or similar problems that may, in any way, impact FHLR’s ability to sell and distribute the finished Licensed Products to its customers. 454 shall also notify FHLR in the event it receives notice of any such failure from its customers (e.g., strategic partners in Exhibit 4).

Within [****************] following notice from FHLR that a problem with any of the Licensed Products has occurred, 454 shall provide a detailed written response to FHLR outlining a plan to resolve the problem, to the extent such problem is related to the manufacture of the Licensed Products.

5.8 Sub-contracting Manufacture. In the event that 454 or FHLR intends during the Initial Term to sub-contract the manufacture of the Licensed Products that it is to manufacture hereunder to a Third Party (a “Subcontractor”) it shall first notify the other Party in writing. The subcontracting Party guarantees and warrants that existing and future agreements with Subcontractors shall be in full compliance with the terms of this Agreement and in particular with all warranties and representations hereunder in respect to manufacture, regulatory and quality control, delivery times and supply according to Specifications and the like as set forth herein. The subcontracting Party shall defend,

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

36

indemnify and hold the other Party and its Affiliates harmless for any claims or losses resulting from acts, errors and omissions by any Subcontractor related to the Licensed Products. The subcontracting Party shall use commercially reasonable efforts to fully comply with the terms of its agreements with such Subcontractor. For the avoidance of doubt, the obligations of the subcontracting Party under this Agreement shall continue to apply to it whether or not it has sub-contracted manufacture.

5.9 Critical Component Supply. 454 represents and warrants that its suppliers are and shall be sufficiently qualified and that, (a) prior to the Effective Date, supply agreements with critical suppliers listed in Exhibit 14 will be in place with respect to suppliers of Group C products as noted therein, (b) within a reasonable period after the Effective Date and prior to Commercial Launch, supply agreements with critical suppliers listed in Exhibit 14 will be in place with respect to suppliers of Group B products as noted therein and (c) prior to Commercial Launch of the first Licensed Product, (i) supply agreements with all critical suppliers listed in Exhibit 14 will be in place with respect to suppliers of Group A products as noted therein, and (ii) 454 will have entered into agreements with second suppliers of Group B and C critical products as noted in Exhibit 14 or have set up a disaster recovery plan relating to supply of such Group B and C products. The Parties agree that the model agreement in Exhibit 14 shall be the basis for all negotiations of 454 with its suppliers and that during such negotiations the model agreement might be amended as necessary. All supply agreements and/or disaster recovery plans with any suppliers of Group A, B or C products entered into after the Effective Date shall be approved by RDG’s Legal Department, such approval to not be unreasonably withheld or delayed. In addition, 454 shall have the right in its reasonable discretion to replace any supplier listed in Exhibit 14 with an alternative supplier, subject to RDG’s approval, which approval shall not be unreasonably withheld or delayed.

454 shall perform appropriate incoming quality control tests of products of its suppliers to determine that the quality of such products meets the requirements of this Agreement. 454 shall review this compliance and shall maintain an appropriate system for qualifying and auditing its suppliers of products hereunder according to the Quality Management System Requirements in Exhibit 13.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

37

6. REGULATORY MATTERS, PRODUCT QUALITY, INSURANCE

6.1 Assistance and Registration; Export. Upon FHLR’s request during the Initial Term, 454 shall cooperate as necessary with, and provide appropriate data and information to, FHLR regarding the Licensed Products in order to assist FHLR in, among other items, any application for regulatory approval with any regulatory body, country product registration, governmental permits for the importation, distribution and sale of the Licensed Products in the Field in any country, and safety related requests, including hazardous material information that may be required by applicable law in any country.

Each Party acknowledges that all Licensed Products delivered under this Agreement may be subject to export control laws and export or import regulations. Each Party is responsible for and agrees to comply strictly with all such laws and regulations and acknowledges that it has the responsibility to obtain licenses to export, re-export, or import as may be required; provided, however, that in the case of imports, the importer of record agrees to assist the exporter in compliance with the laws of the importing country. 454 agrees to provide information to FHLR relating to the classification of the Licensed Products, Software and related technology/services under relevant U.S. export laws, including (a) the Export Commodity Control Numbers (ECCNs), if any, of the Licensed Products, Software or technology/services according to the EU Dual Use List and/or the US Commerce Control List or any other EU and US export control regulation (e.g., Weapons or Munitions List etc.), and (b) calculations of the percentage of U.S. content in the Licensed Products or Software or technologies/services for determinations of “de minimis” eligibility under U.S. export laws.

6.2 Regulatory Inquiries. Each Party shall keep the other Party informed of any formal or informal inquiry relating to any of the Licensed Products sold hereunder by any regulatory agency of any state or national government or supranational authority.

6.3 Inspection by FHLR or its Affiliates. Upon reasonable prior notice and at FHLR’s or its Affiliates’ costs and expense, 454 shall, from time to time during the Initial Term of this Agreement, allow or obtain allowance from any Subcontractor for representatives of FHLR or its Affiliates to audit and inspect all facilities utilized by 454 or Subcontractor in

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

38

development, manufacturing, finishing, testing, packaging, storing and shipping the Licensed Products sold to FHLR or its Affiliates under this Agreement, provide reasonable access to all development and manufacturing quality control documentation, and cooperate with such representatives in every reasonable manner. Such inspection shall also include R&D facilities. In addition, 454 shall grant or procure FHLR or its Affiliates access to all regulatory files (if applicable) relating to Licensed Products and shall supply such other technical or regulatory assistance as is reasonably requested by FHLR or its Affiliates. If there are deviations from FHLR’s Quality Management System Requirements as detailed in Exhibit 13, 454 will have to cure such deficiencies at its cost and expense without undue delay as agreed upon by 454 and RDG, and in any event within [************], unless otherwise agreed by 454 and RDG.

6.4 Compliance with Laws. In performing this Agreement, each Party shall comply with all applicable treaties, laws and regulations and shall not be required to perform or omit to perform any act required or permitted under this Agreement if such performance or omission would violate the provisions of any such treaty, law or regulation.

454 does not assume any liability that the Licensed Product shall be approved by governmental authorities or any other institution or supervisory board or similar agencies. 454, however, shall support FHLR in its efforts to obtain such approvals, by providing documentary, technical and other information already in its possession and requested by any regulatory authority, if reasonably requested to do so by FHLR.

6.5 Government Inspection. 454 shall allow and ensure that Subcontractor shall allow any authorized representatives of any regulatory authority with jurisdiction over the manufacture and/or FHLR’s marketing and distribution of the Licensed Products to tour and inspect facilities utilized in the manufacture, finishing, testing, packaging, storage, and shipment of the Licensed Products sold to FHLR or its Affiliates under this Agreement, and will cooperate with such representatives in every reasonable manner. 454 agrees to notify FHLR immediately whenever it receives notice of a pending inspection of any facility, which is used in the manufacturing, finishing, testing, packaging, storage or shipment of such Licensed Products, by any regulatory agency with jurisdiction over the manufacture of such Licensed Products, and/or FHLR’s marketing and distribution of the Licensed

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

39

Products. 454 shall provide FHLR with a copy of any notices of adverse findings, regulatory letters or similar writings it or Subcontractor receives from any governmental authority setting forth adverse findings or non-compliance with applicable laws, regulations or standards relating to the Licensed Products supplied by 454 hereunder within [****** ***] of its receipt thereof. 454 shall also provide FHLR with a copy of 454’s written response to such governmental authority within [**********] of its submission thereof. FHLR shall regard such items as “Confidential Information” under the provisions of Article 9 herein.

6.6 Support and Customer Complaints. During the Initial Term, FHLR or its Affiliates and 454 shall use commercially reasonable efforts to provide service, customer support, troubleshooting and training with respect to the Technology and Licensed Products in the Field as follows:

FHLR or its Affiliates will provide customer complaint handling organizations. In the event that FHLR or its Affiliates receives any customer complaint regarding the Licensed Products covered by this Agreement, FHLR’s or its Affiliates’ relevant local customer service groups shall attempt to resolve the problem in a timely manner. If the local customer service group has not been trained on how to resolve the problem, or is unable to resolve it in a timely manner, it will document the customer complaint in writing and forward it to RDG’s headquarters in Germany. If RDG’s headquarters cannot resolve the complaint in a timely manner, FHLR will forward the complaint in writing to 454, receipt of which will be confirmed by 454. Upon FHLR’s request, 454 shall examine the customer complaint and unless 454 can demonstrate the complaint is not related to Licensed Products supplied by 454, 454 shall assist FHLR without undue delay in troubleshooting, such assistance to be at no additional charge if it is determined that a customer problem is related to a Licensed Product failing Specifications rather than FHLR instrument handling and performance.

During the warranty period and/or shelf life of the Licensed Products manufactured by 454, 454 shall bear the cost for part or entire replacements for any malfunctioning of such Licensed Products to the extent provided in the relevant warranty and not caused by the improper handling or storage of such Licensed Product.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

40

6.7 Product Withdrawal. In the event of a product withdrawal which is caused by 454’s non-compliance with its obligations according to this Agreement, 454 shall reimburse FHLR for any resulting direct costs of such withdrawal, excluding consequential damages and any lost profits.

6.8 Insurance. During the Initial Term, 454 shall name FHLR as an additional insured under its current product liability insurance policy or enter into such agreement with an insurance company. Any such insurance shall include an endorsement for liabilities assumed by contract. Minimum coverage shall be [******************************]. As soon as practicable after the Effective Date, 454 shall provide FHLR with a certificate of insurance or equivalent, evidencing that FHLR has been added as an additional insured under such policy for the sale of the Licensed Products.

6.9 Training. 454 shall provide reasonable training of FHLR’s or its Affiliates’ customer support and technical service personnel in preparation for and within a reasonable period after the first Commercial Launch of a Licensed Product according to FHLR’s or its Affiliates’ reasonable request and scheduling. The cost of any such training shall be borne by each Party as incurred and such training shall be repeated as mutually agreed by 454 and RDG for any significant Licensed Product update and new product release.

454 will reasonably support FHLR’s marketing activities hereunder (e.g., support of seminars, congresses) and will provide reasonable support free of charge for preparation of related marketing and promotional materials.

7. INTELLECTUAL PROPERTY

7.1 Inventions. All Inventions and discoveries made solely or jointly by either Party pursuant to this Agreement shall be owned, filed and prosecuted as provided in Section 6 of the R&D Agreement.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

41

7.2 Use. 454 hereby covenants that it shall not sue nor otherwise attempt to enforce against FHLR with respect to Licensed Products sold by 454 to FHLR or manufactured by FHLR or its Affiliates in accordance with the terms hereof and, in either case, sold for use in the Field in accordance with the terms of this Agreement, any patent rights which 454 at the Effective Date holds, or which 454 may acquire thereafter under any patent encompassing any of the Licensed Products sold by 454 to FHLR or its Affiliates under this Agreement for so long as such Licensed Products remain subject to the terms of this Agreement.

7.3 Third Party Infringement. The Parties hereto shall inform each other promptly of any infringement of the Licensed Patents in the Field. 454 shall use, at its own expense, commercially reasonable efforts in its own name to restrain any Third Party infringement of any Licensed Patents (except Joint Inventions) or any misappropriation of its proprietary unpatented Licensed Product know-how. Upon 454’s request and at 454’s expense, FHLR shall have the right, but not the obligation, to be joined as a party plaintiff and shall cooperate in the pursuit thereof, as is reasonably necessary. 454 shall have the sole right to control prosecution of such action, but 454 shall keep FHLR informed on a regular basis as to the status of such proceeding. Any monetary damage that will be adjudicated in favor of 454 as a result of such infringement in the Field shall after deduction of reasonable attorney’s cost which remain uncompensated by the respective infringer [******************************************************************** *****************]. Otherwise all cost for such enforcement actions of the Licensed Patents shall be [******************* **************************].

7.4 Intellectual Property Warranty and Indemnity.

(a) As of the Effective Date, and except as otherwise previously disclosed to FHLR by 454, 454 represents and warrants that to the best of 454’s knowledge the manufacture, sale or use of any of the Licensed Products manufactured by 454 or FHLR or its Affiliates and sold by FHLR or its Affiliates hereunder will not constitute an infringement of any patent, patent application, copyright, trademark, trade secret or any other intellectual property right of any Third Party, and that no court proceeding or any other procedure for infringement of such rights is pending against 454 with respect to the Licensed Products.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

42

454 further represents and warrants that it will take all reasonably necessary measures and pay all official fees (such as annuities) reasonably necessary to maintain the Licensed Patents (including, but not limited to, Joint Inventions and 454 Sole Inventions, as defined in the R&D Agreement) needed to protect Licensed Products, as determined by 454 in its reasonable discretion, throughout the term of this Agreement.

(b) 454 shall defend, indemnify and hold harmless FHLR and its Affiliates against any and all claims, actions, suits, proceedings, losses, damages, liabilities, costs and expenses (including reasonable attorney’s fees) (“Claims”) related to or resulting from a claim that the manufacturing, marketing, sale or use of the Licensed Products in accordance with the terms of this Agreement infringes any claim of a patent or patent application listed on Exhibit 15 that was publicly accessible as of [**************************** *********] (“Patent Claim”) provided, however, that FHLR and its Affiliates shall be required to use commercially reasonable efforts to mitigate any such Claims. In the event that FHLR or 454 has to take a license after having tried to mitigate the impact of any such Patent Claim, [*************************************************], provided, however, that the provision in Section 7.7 with respect to [**********] shall apply to those patent territories where such license[*******************************

***************************], notwithstanding any language in Section 7.7 to the contrary.

(c) 454 further represents and warrants that it is not aware of any claims by any Third Party or of any prior art that would render the issued Licensed Patents invalid and that it has the right to grant the license specified under Section 2.1 to FHLR under the Licensed Patents in the Field and the Territory. 454 represents and warrants that there are no other licenses granted under the Technology in the Field to any Third Parties as of the Effective Date.

7.5 Trademarks. The Parties recognize that any existing trade names, trademarks and copyrighted materials of either Party are the exclusive property of such Party. Any unauthorized use of such trade names, trademarks and copyrighted materials by either Party

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

43

is expressly prohibited. Notwithstanding the foregoing, during the term of this Agreement, FHLR or its Affiliates may use, on a royalty-free basis, the trademarks, trade names and copyrighted materials of 454 with respect to Licensed Products as may be required in order to effect the intent of this Agreement.

7.6 Notification. During the term of the Agreement, 454 will promptly notify FHLR of (i) any claims or objections made to 454 that FHLR’s marketing, sale or use of the Licensed Products may or will infringe a patent, copyright, trademark, trade secret or other proprietary right of any Third Party, and (ii) any court proceeding or other procedure brought against 454 with respect to the Licensed Products for infringement of patent, copyright, trademark, trade secret or any other proprietary right.

7.7 Third Party Patents.

a) If it is necessary in the reasonable judgment of 454 and RDG to obtain additional licenses to certain Third Party intellectual property other than a Patent Claim as defined in Section 7.4(b) in order to exploit the Licensed Patents and manufacture, market and sell Licensed Products as provided hereunder, [***********] of any additional royalties, fees and upfront payments payable by FHLR to such Third Party according to any license agreement to be negotiated by FHLR and entered into by FHLR shall be at 454’s expense and deducted from any royalties and upfront payments owed to 454 under this Agreement. If, at FHLR´s election, the license is entered into by 454, [************] of any royalties, fees and upfront payments payable to such Third Party by 454 according to such license agreement shall be at FHLR’s expense and added to any royalties and upfront payments owed to 454 under this Agreement. Terms of any such Third Party license shall be agreed between 454 and RDG according to reasonable and customary royalty rates in the field, agreement to such terms to not be unreasonably withheld.

If the Parties do not agree on the necessity of obtaining a Third Party license, they will seek a formal opinion from an independent US and/or European law firm reasonably acceptable to both Parties. If a freedom to operate opinion cannot be provided and legal action is threatened, neither Party shall withhold its consent to obtain a license on terms and conditions that are commercially reasonable to both Parties.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

44

b) Should either FHLR or 454 be charged with the alleged infringement of Third Party rights as a result of the exploitation of the Licensed Products as permitted herein, such Party shall immediately inform the other Party about such allegation. After consultation with each other, FHLR or 454 shall either take a license as described above, the Parties shall cease the allegedly infringing activity or, subject to Section 7.4(b), the Parties shall agree to cooperate in the defense of any such infringement claim, which defense shall be primarily conducted by the Party named in the suit, unless otherwise agreed by the Parties. The Parties and their respective counsel understand that it may become necessary to exchange and discuss privileged information relating to their common interests and defenses. The Parties and their counsel desire to set forth the terms under which privileged information will be exchanged and discussed and wish to memorialize their agreement relating to such charges and the sharing of privileged information and for the protection of such exchanges and discussions in reliance upon the joint defense privilege. Accordingly, because it is in their common interests and to assist the defense of such claims, the Parties and their counsel may share documents, files, letters, plans or evidence they have in their possession whether or not same is privileged, proprietary, or confidential. In order to render legal services to the Parties and for the purposes of a joint defense, the Parties and their counsel may find it advisable and necessary to communicate with one another. These communications may include, without limitation, joint conferences of counsel, joint interviews of witnesses, deponents, experts, and consultants, and exchanges of documents and information. The subject matter of these communications and exchanges may include but may not be limited to (a) strategy and tactics regarding defense of the litigation; (b) legal memoranda, factual and background memoranda, legal theories, deposition summaries, notes of witness interviews, and witness statements and descriptions of produced documents, and (c) other privileged documents. All such communications and exchanges would be protected from disclosure to any Third Party by the attorney/client privilege, the attorney work-product privilege, the trial preparation exclusion, the joint defense privilege, the party communication privilege, and any other applicable privileges and protections, and such privileges and protections will not be waived as a result of such communications and exchanges among the Parties and their counsel. The documents and information described in this Section and exchanged and discussed pursuant to this Section

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

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would be subject to the following conditions which the Parties believe and intend will preserve the confidentiality of such communications and work product pursuant to the joint defense, common defense and party communication privileges: (i) such documents would be maintained in confidence by counsel and used by counsel solely for purposes of rendering legal advice to and defending the Parties in the applicable proceedings; (ii) such documents and information may be disclosed to outside or in-house counsel (and such counsel’s legal assistants, secretaries, word processing personnel and consultants) representing the Parties in connection with the defense; (iii) such documents and information additionally may be disclosed to present or former directors, officers or employees of a Party, for purposes of preparing for deposition or trial, or for purposes of interviewing potential deponents or witnesses, or for other purposes in connection with the defense; (iv) such documents and information additionally may be disclosed to expert witnesses and consultants retained by one or more of the Parties in connection with defense. The expenses for any such suit shall, unless otherwise provided in Section 7.4(b), be shared equally by the Parties.

c) If FHLR is, as a result of a court decision, ordered to stop the exploitation of any Licensed Products as permitted in this Agreement in any country, and if 454 finally fails to secure FHLR’s right to further exploit such Licensed Products, FHLR shall be entitled to reduce payment of any minimum royalties payable hereunder to the extent provided below, notwithstanding any other right FHLR may have under this Agreement. In addition, the Parties shall in such event cease making, using and selling such Licensed Product in such country. If any Licensed Products cannot be sold hereunder as provided above in the United States, Europe or Japan, and such circumstance affects FHLR’s ability to generate Net Sales so as to meet the minimum royalty obligations set forth in Section 3.4(d), such minimum royalties shall be reduced [********************************************************************** *************]. Such calculation [***********] shall be done on an average basis starting from the Effective Date until the time FHLR has to stop selling the relevant Licensed Product. Likewise any obligations of FHLR under Section 3.5 (a) with respect to Forecasts then in effect shall be reduced following the same principles.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

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8. PRODUCT DOCUMENTATION, PACKAGING AND LABELING AND STEERING COMMITTEE

8.1 Marketing and Sales Materials. 454 shall review and comment within a reasonable time period on any marketing and sales material to be used for Licensed Products as proposed by FHLR or its Affiliates. FHLR shall be responsible for the final content of such materials and hereby warrants to 454 that such materials will be in conformity with all applicable laws and regulations and will not misrepresent the Specifications and/or attributes of any Licensed Product.

8.2 Trade Dress and Labeling. Notwithstanding any provision hereof, all Licensed Products shall be co-labeled and sold as FHLR/454 products according to Exhibit 11. 454 shall provide to FHLR drafts of all labeling of the Licensed Products for FHLR’s review. All packaging and labelling responsibilities shall be carried out in full compliance with applicable regulations. FHLR shall have the right to change all packaging and labeling as reasonably necessary to comply with country-specific regulations. Any shipment or distribution of Instruments and Software to FHLR’s customers will be accompanied by general terms and conditions and a software use license in a form reasonably agreed by the Joint Steering Committee.

454 shall provide drafts of operator, service and software manuals and drafts of pack inserts as necessary to support FHLR’s activities hereunder. FHLR shall provide final versions of operator, service and software manuals and final versions of such pack inserts. FHLR shall be responsible for the final content of the operator, service and software manuals and pack inserts, subject to the approval of 454, not to be unreasonably withheld. FHLR shall print operator, service and software manuals and pack inserts accordingly and provide them to 454. Packaging materials and labels for Reagent Kits will be supplied by FHLR or 454 will purchase such materials and labels from Third Parties and such material shall be in a format specified by the Operations Steering Committee. Instrument packaging will be specified by FHLR, and approved by 454, such approval to not be unreasonably withheld or delayed. Packaging material, labels, operator, service and software manuals and pack inserts to be included in any Licensed Products shall be paid for by the Party manufacturing the relevant Licensed Product.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

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8.3 Joint Steering Committee. RDG and 454 shall set up a joint steering committee (“Joint Steering Committee”) to steer the collaboration between the Parties as specified below.

(a) Members. The Parties shall establish a Joint Steering Committee which shall comprise three (3) representatives designated by each Party (or such other number as the Parties may agree). The initial members of the Joint Steering Committee are set forth on Exhibit 12. Members of the Joint Steering Committee may be represented at any meeting by a designee who is appointed by such member for such meeting and who has authority to act on behalf of such member. The chairperson shall be selected by 454 and the initial chairperson is designated on Exhibit 12. The chairperson shall be one person selected out of the three (3) 454 members. Each Party shall be free to replace its representative members with new appointees who have authority to act on behalf of such Party, on notice to the other Party.

(b) Responsibilities. The Joint Steering Committee shall be responsible for overseeing and directing the activities of the Parties hereunder. Its duties, therein, shall include, without limitation:

(i) including Proposed Licensed Products and the Specifications for such Proposed Licensed Products according Exhibits 5 and 8 and including Licensed Products and their Specifications in Exhibits 2 and 3;

(ii) confirming 454’s representation that Proposed Licensed Products can be developed according to Specifications and FHLR’s Design Control Guidelines requirements according to Exhibit 6 and that Licensed Products can be manufactured according to agreed Specifications;

(iii) setting commercial launch dates and proposed launch dates in Exhibits 2 and 5 in accordance with FHLR’s Design Control Guidelines requirements;

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

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(iv) Establish Software use license terms and warranty terms for Licensed Products;

(v) approving changes to Specifications of the Licensed Products and Proposed Licensed Products and approving changes to manufacturing processes, SOP’s and PST’s;

(vi) approving beta sites and 454 strategic partners and strategic partner agreements according to Section 2.2 of this Agreement;

(vii) setting patent filing policies and making patent filing determinations, as contemplated by Section 7.1;

(viii) Approving and prioritizing R&D Projects (both System R&D Projects and Application R&D Projects) as well as budgets, development schedules and milestones as proposed by the R&D Steering Committee;

(ix) approving any decision and activities of subcommittees;

(x) performing any other tasks delegated by the Parties under this Agreement or otherwise by mutual written consent of the Parties;

(xi) setting prices for spare parts in Exhibit 7 according to Section 3.5 (d); and

(xii) agreeing on changes to Exhibits 10, 11,13 and 14.

(c) Subcommittees. The Joint Steering Committee shall be authorized to constitute separate functional committees, which committees will operate under written guidelines set forth by the Joint Steering Committee and which are consistent with the terms of this Agreement. Such committees shall have the same allocation of members from each Party as the allocation for the Joint Steering Committee. The Parties will set up a Marketing Steering Committee to review the commercial success of the collaboration and consult on joint marketing activities with respect to early adopter customers of new versions of Licensed Products and to ensure continuous development of the Technology according to customer needs and market requirements. All R&D activities (System R&D Projects and

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

49

Application R&D Projects) and funding decisions pursuant to the R&D Agreement shall be jointly discussed, decided and monitored in a R&D Steering Committee which shall be a subcommittee of the Joint Steering Committee. It is also anticipated that an Operations Steering Committee will oversee any transfer of Reagent Kit assembly responsibility to FHLR or its Affiliates under Section 5.1.

(d) Meetings. The Joint Steering Committee shall meet at least once every calendar quarter, and more frequently as the Parties deem appropriate, on such dates and at such times as the Parties shall agree, on ten (10) days’ written notice to the other Party unless such notice is waived by the Parties. The Joint Steering Committee may convene or be polled or consulted from time to time by means of telecommunications, videoconferences or correspondence, as deemed necessary or appropriate by the Parties. To the extent that meetings are held in person, they shall alternate between the offices of the Parties unless the Parties otherwise agree. The chairperson shall be responsible for sending notices of meetings to all members.

(e) Decisions. A quorum for a meeting of the Joint Steering Committee shall require the presence of at least two RDG members (or designee) and at least two 454 members (or designee) in person or by telephone. All decisions made or actions taken by the Joint Steering Committee shall be made by the majority vote of its members (or designees of such members) acting in good faith. In the event that a majority vote is not possible, the chairperson shall not decide. In such event Section 12.10 shall apply, however, with the difference that instead of the appointed senior managers, the CEO of 454 and the global Head of Roche Applied Science shall try to settle the dispute.

(f) Minutes. Within fifteen (15) days after each Joint Steering Committee meeting, the chairperson of the Joint Steering Committee or another member of the Joint Steering Committee, as appointed by him or her, shall have prepared and distributed minutes of the meeting, which shall provide a description in reasonable detail of the discussions had at the meeting and a list of any actions, decisions or determinations approved by the Joint Steering Committee. Minutes shall be approved or disapproved by the Joint Steering Committee, and revised as necessary, at the next meeting. Final minutes shall be distributed to the members of the Joint Steering Committee.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

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(g) Term. The Joint Steering Committee shall exist until the termination or expiration of the Initial Term.

(h) Expenses. Each Party shall be responsible for all travel and related costs for its representatives to attend meetings of, and otherwise participate on, the Joint Steering Committee and subcommittees thereof.

9. CONFIDENTIALITY

9.1 Confidential Information. “Confidential Information” shall mean all disclosures of proprietary and confidential information hereunder or under the Confidentiality Agreement dated October 1, 2004 between the Parties (i) which are in writing and clearly identified as being “Confidential” or (ii) if disclosed orally, which are reduced to writing within thirty (30) days of oral disclosure and clearly identified as being “Confidential”. Except to the extent expressly authorized by this Agreement or otherwise agreed to by the Parties in writing, during the term of this Agreement and for a period of [**********] following the termination or expiration of this Agreement, the receiving Party shall take such reasonable measures to maintain such Confidential Information as confidential as it takes to protect its own proprietary and Confidential Information, and shall not publish or otherwise disclose such Confidential Information or use such Confidential Information for any other purpose than for the performance of this Agreement. The following information shall not be considered Confidential Information:

(a) information which was already known to the receiving Party, other than under an obligation of confidentiality to the disclosing Party, at the time of disclosure by the other Party; or

(b) information which was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving Party; or

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

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(c) information which becomes generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the receiving Party in breach of this Agreement; or

(d) information which was disclosed to the receiving Party, other than under an obligation of confidentiality, by a Third Party who had no obligation to the disclosing Party not to disclose such information; or

(e) information which was developed independently without reference to or knowledge of Confidential Information received from the other Party hereunder as evidenced by the receiving Party’s own written records.

9.2 Required Disclosure. In the event either Party must disclose the other Party’s Confidential Information in order to comply with applicable governmental regulations or as otherwise required by law or judicial process, such Party shall give reasonable advance notice to the other Party of such proposed disclosure and shall use its best efforts to secure confidential treatment of such Confidential Information which is required to be disclosed.

10. INDEMNIFICATION

10.1 Indemnification by 454. In addition to 454’s indemnity obligations set forth elsewhere in this Agreement, 454 shall defend, indemnify and hold FHLR harmless against any claims, actions, suits, proceedings, losses, damages, liabilities, costs and expenses (including reasonable attorney’s fees) (“Liability”), related to or resulting from any Third Party claims or suits for personal injury, property damage and/or wrongful death made or brought against FHLR to the extent such Liability arises out of or relates to a breach of any representation or warranty provided by 454 herein, or 454’s negligence or willful misconduct resulting in non-conformity with the Specifications of Licensed Products supplied by 454 to FHLR. 454 will pay all cost of damages finally awarded in any such proceedings or any settlement with respect to any such claims.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

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10.2 Indemnification by FHLR. FHLR shall defend, indemnify and hold 454 harmless against any claims, actions, suits, proceedings, losses, damages, liabilities, costs and expenses (including reasonable attorney’s fees) (“Liability”), related to or resulting from any Third Party claims or suits for personal injury, property damage and/or wrongful death made or brought against 454 to the extent such Liability arises out of or relates to a breach of any representation or warranty provided by FHLR herein, or FHLR’s negligence or willful misconduct resulting in non-conformity with the Specifications of Licensed Products supplied by FHLR to 454 or sold by FHLR or its Affiliates hereunder. FHLR will pay all cost of damages finally awarded in any such proceedings or any settlement with respect to any such claims.

10.3 Condition to Indemnification. If either Party expects to seek indemnification under this Agreement, it shall promptly give notice to the indemnifying Party of the basis for such claim of indemnification. If indemnification is sought as a result of any Third Party claim or suit, such notice to the indemnifying Party shall be given within [***********] after receipt by the other Party of such claim or suit; provided, however, that the failure to give notice within such time period shall not relieve the indemnifying Party of its obligation to indemnify unless it shall be materially prejudiced by the failure. Each Party shall fully cooperate with the other Party in the defense of all such claims or suits, and each Party shall be obligated to use commercially reasonable efforts to mitigate any damages for which it seeks indemnification hereunder. No offer of settlement, settlement or compromise shall be binding on a Party hereto without its prior written consent (which consent shall not be unreasonably withheld) unless such settlement fully releases such Party without any liability, loss, cost or obligation to such Party. In addition, no Party shall agree to any settlement which may reasonably be expected to be detrimental to the reputation of the other Party hereto without the prior written consent of the other Party, such consent to not be unreasonably withheld.

10.4 No Incidental and/or Consequential Damages. Neither FHLR nor 454 shall under any circumstances be liable for incidental and/or consequential damages to the other.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

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11. TERM AND TERMINATION

11.1 Term and Expiration.

(a) The Initial Term of this Agreement shall be [**********************************] or until [************] after the end of the first Contract Year in which aggregate Net Sales of Licensed Products have reached [************************************ *****], whichever shall first occur, unless such Initial Term is extended as provided in (b) below, or is extended by the Parties by mutual agreement.

(b) If (i) FHLR has met minimum performance standards of [******************************************************* *********] in the [*] Contract Year after first Commercial Launch of a Licensed Product, or (ii) payment of equivalent royalties to 454 based on actual product mix among Licensed Products manufactured by FHLR and Licensed Products manufactured by 454 in such [*] Contract Year, or (iii) aggregate Net Sales of Licensed Products in any Contract Year have reached [***********************************************], FHLR shall have the right of first negotiation to extend the Initial Term of this Agreement for an additional [************] as follows: If FHLR provides notice to 454 within [**********] of becoming eligible to exercise such right of first negotiation, the Parties shall conduct exclusive negotiations and use good faith efforts to conclude an agreement to extend the Initial Term within [****************************] thereafter. If the Parties are unable to agree upon the terms of such agreement despite the use of good faith efforts during a period of at least [****************************], this Agreement will expire after the Initial Term or FHLR shall have the right to elect within [**************] of such [**************************] period to receive the rights set forth in (c) below. If, on the other hand, FHLR does not elect to exercise such right of first negotiation within [**********] of becoming eligible to do so, then FHLR’s rights following the Initial Term shall continue hereunder solely to the extent set forth in (c) below.

(c) If the Initial Term of this Agreement is not extended as provided above or terminated for any reason other than (i) breach by FHLR, or (ii) termination by 454 according to Section 11.4, FHLR shall retain for the life of the Licensed Patents the rights

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

54

as set forth in this Agreement, but which rights shall be non-exclusive and shall exist solely with respect to the Licensed Products included on Exhibit 2 as of the end of such Initial Term. FHLR will also then have a right but not the obligation to manufacture all such Licensed Products for sale in accordance with the terms of the retained non-exclusive rights and 454 will furnish FHLR at least [*********] before the termination of the Initial Term with all manufacturing instructions, SOPs and further documentation as necessary for the manufacturing of the Licensed Products, and with respect to Third Party suppliers of 454, 454 will consent that these suppliers shall supply FHLR at the same terms as they supply materials to 454. If the Initial Term of this Agreement is not extended as provided above and FHLR manufactures any Licensed Products under its non-exclusive rights as set forth herein, the royalties to be paid to 454 for Instruments, Software and Disposables shall be fixed at [*************] of Net Sales and the royalty to be paid for Reagent Kits shall be at [***************] of Net Sales and otherwise subject to the non-financial provisions set forth herein. For the avoidance of doubt, the royalty payments of [***************] and [*******************] set forth above shall in such case remain the only financial consideration from FHLR to 454 in such non-exclusive license except for the Transfer Prices to be paid by FHLR for any Licensed Products where 454 continues to supply FHLR. After the Initial Term, all relevant provisions of this Agreement (including non-exclusive supply until FHLR is in the position to manufacture Licensed Products at its own facilities) shall remain in full force and effect except as expressly modified by this Section 11.1(c), and FHLR shall be permitted to terminate this Agreement during any such non-exclusive period on [*************] prior written notice to 454.

11.2 Termination for Cause. Upon any material breach of this Agreement by either Party, the non-breaching Party may terminate this Agreement upon [**********] written notice to the breaching Party. The termination notice shall become effective at the end of the [*************] period unless the breaching Party has cured such breach within such period.

11.3 Acquisition of 454. If a Third Party other than CuraGen becomes or is to become the owner in one transaction or as a result of a series of transactions, whether through sale or merger, of at least [*************] of the outstanding voting common stock or equity

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

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of 454 or if a Third Party becomes or is to become the owner in one transaction or as a result of a series of transactions, whether through sale or merger, of at least [****************] of the outstanding voting common stock or equity of CuraGen while CuraGen owns a [**************************] interest in 454 or [**********************] of the outstanding voting common stock or equity in 454, 454 shall promptly notify FHLR of such actual or pending acquisition or merger (the “Notification Date”). Within [*******************] following the Notification Date, FHLR shall provide written notification to 454 of FHLR’s election of either one of the following two options: (i) that FHLR shall permit such Third Party to assume the terms of this Agreement in the place of 454; or (ii) that FHLR has elected to terminate this Agreement effective as of the date of FHLR’s written notification.

11.4 Termination for Insolvency. Either Party may terminate the Agreement upon written notice to the other in the event of (a) the appointment of a receiver by the other Party of all or any substantial part of its properties, provided that such receiver is not discharged within [**********] of its appointment; (b) the adjudication of the other Party as bankrupt; (c) the admission by the other Party in writing of its inability to pay its debts as they become due; (d) the execution by the other Party of an assignment, arrangement or reorganization of its assets for the benefit of its creditors; (e) the filing by the other Party of a petition to be adjudged bankrupt, or a petition or answer admitting the material allegations of a petition filed against the other Party in any bankruptcy proceeding, or the acts of the other Party in any other judicial proceeding intended to effect a discharge of the debts of the other Party, in whole or in part; or (f) the other Party for any reason ceases to do business.

11.5 Consequences of Expiration or Early Termination.

(a) Upon the expiration or early termination of this Agreement, each Party shall return or destroy, and certify to such destruction of, all Confidential Information of the other Party, except that each Party may maintain one (1) copy for archival purposes solely to confirm compliance with the provisions of Article 9.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

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(b) At 454’s request, FHLR shall purchase any Safety Stock inventory held by 454 in accordance with Section 3.7 upon early termination of this Agreement by FHLR for any reason or upon the expiration of the Initial Term, except for (i) termination due to breach or failure to supply by 454 or (ii) termination due to a Force Majeure event of 454 or (iii) in the event that a Third Party institutes proceedings against either FHLR, 454 or Subcontractor claiming that the Licensed Product infringes that Third Party’s intellectual property rights or (iv) termination by FHLR pursuant to Section 11.3. In addition, FHLR may, but is not obligated to, purchase the Safety Stock inventory held by 454 upon termination by FHLR for breach by 454 or a Force Majeure event of 454.

11.6 Inclusive Remedy. Except as otherwise provided in this Agreement, each Party shall have the rights and remedies set forth herein in addition to any other remedies which it may have under applicable law. Each Party shall have the sole discretion to determine which of its rights and remedies, if any, it shall pursue and such Party shall not be required to exhaust any of its other rights or remedies before pursuing any one of the rights and remedies set forth in this Agreement.

11.7 Survival. Expiration or early termination of this Agreement shall not relieve either Party of its obligations incurred prior to expiration or early termination. The obligations under Sections 2.2(a), 5.2, 5.6, 6.4, 6.6, 12.7, 12.10 and 12.12, and Articles 4, 7, 9, 10 and 11 of this Agreement, shall survive expiration or early termination of this Agreement or of any extensions thereof in accordance with their terms.

12. MISCELLANEOUS

12.1 Notices. All notices, requests or other communications required or permitted to be served under this Agreement to any Party shall be in writing and shall be deemed to have been sufficiently given when delivered by personal service, recognized courier providing evidence of delivery or sent by registered mail, or facsimile, to the recipient addressed as follows:

(a) If to FHLR:

Head Legal Diagnostics

Grenzacherstrasse 124

CH-4070 Basel

Switzerland

Fax +41 61 688 1396

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

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(b) Copy to:

Legal Counsel RAS

Nonnenwald 2

82377 Penzberg

Germany

Fax +49 8856 60 7292

(c) If to 454:

454 Life Sciences Corporation

20 Commercial Street

Branford, CT 06405

USA

Fax: 203-481-2075

(d) Copy to:

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

One Financial Center

Boston, MA 02111

USA

Attention: Jeffrey M. Wiesen, Esq.

Fax: 617-542-2241

All such communications shall be deemed to be effective on the day on which personally served or delivered by such courier, or, if sent by registered mail, on the [********] following the date presented to the postal authorities for delivery to the other Party (the cancellation date stamped on the envelope being evidence of the date of such delivery), or if by facsimile, on the facsimile date. Either Party may give to the other written notice of change of address, in which event any communication shall thereafter be given to such Party as above provided at such changed address.

12.2 Electronic Data Interchange. The Parties shall, within thirty (30) days following the Effective Date, mutually agree as to the parameters that will allow for electronic data interchange between them (“EDI”). Such parameters include, but are not limited to, data

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

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formats and contents, transaction sets and encryption requirements. During the term of this Agreement, the Parties shall use their best efforts to utilize EDI in all aspects of performing their obligations hereunder.

12.3 Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their successors and assigns. Notwithstanding the foregoing, no Party hereto shall have the right to assign any of its rights or obligations under this Agreement without the prior written consent of the other Party, such consent to not be unreasonably withheld; provided, however, FHLR may assign or delegate at its sole discretion its rights and obligations, in whole or in part, under this Agreement and/or the R&D Agreement to any of its Affiliates including, without limitation, RDG without any such prior written consent, but shall remain liable hereunder notwithstanding such assignment. Any such assignee shall assume this Agreement and the R&D Agreement subject to the rights and obligations of the Parties to this Agreement and the R&D Agreement.

12.4 Waivers. Any waiver by either of the Parties hereto of any rights arising from a breach of any covenants or conditions of this Agreement shall not be construed as a continuing waiver of other breaches of the same nature or other covenants or conditions of this Agreement.

12.5 No Agency, Etc. This Agreement is not intended to create, nor should it be construed as creating, an agency, joint venture, partnership or employer-employee relationship between FHLR and 454. Each Party shall act solely as an independent contractor and shall have no right, express or implied, to act for or to sign the name of or bind the other Party in any way or to make quotations or to write letters under the name of the other Party or to represent that the Party is in any way responsible for any acts or omissions of such Party.

12.6 Force Majeure. FHLR and 454 shall not be liable for loss, damage, detention or delay resulting from any cause whatsoever beyond its reasonable control or resulting from and, including, without limitation, acts of terrorism, fire, flood, strike, lock out, civil or military authority, insurrection, war, embargo, prohibition by applicable government authority of the export/import of each of the Licensed Products or raw material for each of

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

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the Licensed Products due to an animal disease (but only as regards the [**************] and not resulting from any action or omission by 454, container or transportation shortage or delay of 454 due to such causes, and delivery dates shall be extended to the extent of any delays resulting from the foregoing or similar causes. The Party so affected shall give prompt notice to the other Party of such cause, and shall take whatever reasonable steps are necessary to relieve the effort of such cause as rapidly as reasonably possible. The Party giving such notice shall thereupon be excused from such of its obligations hereunder as it is thereby disabled from performing for so long as it is so disabled or for [**************] after giving notice, whichever is longer; provided, however, that such affected Party shall commence and continue to take reasonable and diligent actions to cure such cause.

12.7 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to any choice of law principles thereof. The Parties agree that the United Nations Convention on Contracts for the International Sale of Goods (1980) is specifically excluded from application to this Agreement.

12.8 Public Announcements. The Parties agree to consult with each other regarding content and timing before issuing any press release or making any public statement with respect to this Agreement or any other transaction contemplated herein or the R&D Agreement and, except as may be required by applicable law or any listing agreement with any national securities exchange, shall not issue any such press release or make any such public statement prior to obtaining the written consent of the other Party. The existence of this Agreement shall not be disclosed or confirmed to a Third Party, other than financial and legal advisors and actual or potential business partners of either Party who have a reasonable need for access to such information and who are bound by confidentiality obligations substantially similar to those set forth herein, without the mutual written consent of both 454 and FHLR, which consent shall not be unreasonably withheld or delayed.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

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12.9 Customer Information. On the Effective Date of the Agreement, 454 will provide to RDG a list of all existing customers for the Licensed Products and inform them about the exclusive distribution by RDG upon launch of Licensed Product.

12.10 Disputes and Alternative Dispute Resolution. All disputes, controversies and differences which may arise between the Parties hereto (and which cannot be settled within the Joint Steering Committee) that cannot be resolved within a thirty (30) days period by an executive committee consisting of two (2) appointed senior managers of each of 454 and FHLR shall subsequently be tried to be settled amicably through mutual consultation within thirty (30) days of a written settlement request of either Party.

If such conflict resolution does not provide a solution, any remaining disputes arising out of or in connection with the Agreements, including any question regarding its existence, validity, breach, violation or termination, shall be exclusively and finally settled under the Rules of Arbitration of the International Chamber of Commerce by three arbitrators (the “Arbitral Tribunal”) appointed in accordance with the said Rules. Any award granted by the Arbitral Tribunal shall be final, binding and enforceable against the Parties. The arbitration shall at all times be held in the English language, provided, however, that (i) a Party may submit documents in the German language and such submitted documents will only be translated into the English language if the Arbitral Tribunal or a Party so requests, and (ii) that the cost of translation of any such German language documents shall be at the sole expense of the Party submitting such documents. Any arbitration arising pursuant to the Agreements shall be held in New York, N.Y. under the laws of the State of New York. Discovery shall only be admissible to the extent permitted and not prohibited under Article 20 of the ICC Rules.

12.11 Exhibits. The Parties hereby agree to be bound by and fully perform the terms, conditions, representations, warranties and obligations contained in the Exhibits, attached hereto and made part hereof, as if the same were fully set forth in this Agreement.

12.12 Severability. If any provision of this Agreement is finally held to be invalid, illegal or unenforceable by a court or agency of competent jurisdiction, that provision shall be severed or shall be modified by the Parties so as to be legally enforceable (and, to the

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

61

extent modified, it shall be modified so as to reflect, to the extent possible, the intent of the Parties) and the validity, legality and enforceability of the remaining provisions shall not be affected or impaired in any way.

12.13 Amendments. Except as otherwise expressly provided herein neither this Agreement nor any provision hereof may be amended or waived except by a written instrument signed by the Party against whom enforcement of the amendment or waiver is sought.

12.14 Singular and Plural. Where the context hereto requires, the singular number shall be deemed to include the plural and vice-versa.

12.15 Headings. The headings of the paragraphs and subparagraphs of this Agreement have been added for the convenience of the Parties and shall not be deemed a part hereof.

12.16 Counterparts. This Agreement may be executed in any number of counterparts, all of which together shall constitute a single Agreement.

12.17 Final Agreement. This Agreement, together with the R&D Agreement, as of the Effective Date, is the sole understanding and agreement of the Parties hereto with respect to the subject matter hereof and supersedes all other such prior agreements and understandings. In the event of a conflict between the R&D Agreement and this Agreement, the provisions of this Agreement shall prevail over and/or amend the relevant provisions of the R&D Agreement.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

62

IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed by its duly authorized representative.

Branford,		Basel,
454 Life Sciences Corporation		F. Hoffmann-La Roche Ltd
By:	/s/ Christopher K. McLeod	By:	/s/ Heino von Prondzynski
Name:	Christopher K. McLeod	Name:	Heino von Prondzynski
Title:	President and CEO	Title:	CEO Division Roche Diagnostics
Date: May 11, 2005		Date: May 11, 2005
		By:	/s/ Claus-Joerg Ruetsch
		Name:	Claus-Joerg Ruetsch
		Title:	Head Legal Diagnostics
		Date: May 11, 2005

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

63

SCHEDULE OF EXHIBITS

1.	Exhibit 1	Licensed Patents
2.	Exhibit 2	Licensed Products, Launch Dates and Initial estimated ASP
3.	Exhibit 3	Licensed Products Specifications
4.	Exhibit 4	Strategic partners with collaborative research agreements
5.	Exhibit 5	Proposed Licensed Products, launch dates and Initial estimated ASP
6.	Exhibit 6	Design Control Guidelines
7.	Exhibit 7	Spare parts
8.	Exhibit 8	Proposed Licensed Products Specifications
9.	Exhibit 9	Shipping instructions and pallet guidelines
10.	Exhibit 10	Release criteria and values for CoA
11.	Exhibit 11	Labeling
12.	Exhibit 12	Steering Committees
13.	Exhibit 13	Quality Management System Requirements
14.	Exhibit 14	Suppliers of critical products
15.	Exhibit 15	Third Party Patents

TRA 2054722v4

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934.

64

EX-10.3

Exhibit 10.3

Research and Development Agreement

between:

F. Hoffmann-La Roche Ltd

Grenzacherstrasse 124

CH-4070 Basel

Switzerland

(“FHLR”)

and:

454 Life Sciences

20 Commercial Street

Branford, CT 06405

USA

(“454”)

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 OF the Securities Exchange Act of 1934.

WHEREAS, the Parties have entered into a License, Supply and Distribution Agreement dated as of the date hereof (the “License Agreement”) pursuant to which 454 has agreed to manufacture and supply certain products to FHLR or its Affiliates and to allow FHLR or its Affiliates to manufacture and distribute certain products under the terms and conditions stated therein;

WHEREAS, the Parties desire to conduct research and development in order to develop Instruments, Disposables, applications and Reagents and other Licensed Products with respect to the Technology as described more fully herein; and

WHEREAS, FHLR may at its sole discretion delegate to any of its Affiliates, and specifically, but not limited to, Roche Diagnostics GmbH in Mannheim (“RDG”), any rights and obligations under this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereby agree as follows:

Section 1

Purpose of the Agreement and Definitions

1.1 The subject of this R&D Agreement is to set up general rules for a research and development co-operation between FHLR and 454. FHLR and 454 are interested in a long-term relationship with the aim of conducting System R&D Projects and Application R&D Projects (as defined in the License Agreement) based on the know-how of both Parties in support of the activities of the Parties under the License Agreement.

1.2 The Project Descriptions in Exhibit 2 for the Projects (as defined below) supplement this R&D Agreement and will be amended by the R&D Steering Committee from time to time pursuant to the terms of this Agreement. In addition, the R&D Steering Committee will

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 OF the Securities Exchange Act of 1934.

PAGE 2

agree on detailed Project Plans for each Project as set forth in more detail in this Agreement. To the extent there is a conflict between this R&D Agreement and any Project Plan or Project Description for any Project, the provisions of this R&D Agreement shall prevail over and/or amend the relevant provisions of the Project Plan or Project Descriptions.

1.3 For the purposes of this R&D Agreement, capitalized terms shall have the meaning specified in the License Agreement provided that the following additional terms shall have the meaning specified below:

(1) “Project” and “Projects” shall mean a System R&D Project and/or Application R&D Project, as defined in the License Agreement, which Projects shall be listed in the Project List (Exhibit 1), described in the relevant Project Description (Exhibit 2) and executed according to the Project Plan.

(2) “Project Description” shall have the meaning set forth in Section 2.2.

(3) “Project List” shall mean a list providing an overview of all ongoing projects including Application R&D Projects, System R&D Projects and projects with strategic partners under Exhibit 4 of the License Agreement with information on budget, prioritization, timeline and planned launch date of such projects.

(4) “Project Plan” shall mean a written and approved project plan for the detailed implementation of a Project to be approved by the R&D Steering Committee and amended with approval of the Joint Steering Committee as detailed under this Agreement.

(5) “Termination” of this R&D Agreement shall mean the ending, expiration, rescission, or any other discontinuation of this R&D Agreement for any reason whatsoever.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 OF the Securities Exchange Act of 1934.

PAGE 3

Section 2

Undertakings of the Parties

2.1 The Parties shall engage in Projects as further set forth herein and neither Party shall pursue any R&D projects past the DI Milestone criteria that are relevant to the Licensed Products or the Technology in the Field other than under the provisions set forth in this R&D Agreement and Section 2.7 of the License Agreement. All Projects shall be included in a Project List (Exhibit 1), which shall be approved, monitored and updated from time to time by the R&D Steering Committee and shall be subject to Section 2.7 of the License Agreement. 454 and FHLR will exercise due care to perform the research and development work for Projects, as set forth in the relevant Project Description (Exhibit 2), and the agreed upon Project Plan, based on the know-how of both Parties.

2.2 Prior to carrying out any Projects (and latest at the DI milestone according to Exhibit 6 requirements in the License Agreement), RDG and 454 will via the R&D Steering Committee agree on the general objectives and product specifications of such Project in a written Project Description which shall be approved by the Joint Steering Committee and attached to this Agreement in Exhibit 2 and amended from time to time by mutual agreement of the Joint Steering Committee.

Each Project Description shall, in particular, include the following:

• proposed specification of the products that shall be developed;

• timeline, resource and budget requirements;

• required funding and proposed resource and budget allocation. Preference will be given to utilizing 454 employees;

• the qualification and/or names of certain persons to be deployed by 454/FHLR or

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 OF the Securities Exchange Act of 1934.

PAGE 4

its Affiliates in the performance of the respective Project, qualification and/or name of 454’s Project Leader for the respective Project and the name of the Project Leader at FHLR or its Affiliates (hereinafter referred to as the “Project Team”).

The Projects will be conducted according to and in conformance with FHLR’s Design Control Guideline (Exhibit 6 of the License Agreement). Any products resulting from the Projects will be referenced on Exhibits 2 and 5 of the License Agreement as required pursuant to the provisions of Section 2.7 of the License Agreement.

For each Project, a specific and detailed Project Plan shall be developed. Such document shall be issued by the R&D Steering Committee.

2.3 Activities in support of any Project, as set forth in the relevant Project Plan, will be carried out by each Party under its own responsibility and in compliance with all laws and regulations, government and authority orders and FHLR’s Design Control Guidelines. Each Party will ensure that all persons involved in carrying out Projects are sufficiently qualified and reliable. 454’s Project Leader will be reasonably available to employees of FHLR or its Affiliates for explaining the status quo of the Projects and actions that have to be done and have already been done.

2.4 At the DO milestone of every Project the R&D Steering Committee will present a final report containing a scientifically utilizable description of the research and development activity, including the results of such Project, and any Sole Inventions and Joint Inventions resulting from such Project, to the Joint Steering Committee.

2.5 454 and FHLR recognize the importance of co-operating and communicating with each other in the course of conducting the Projects, for which purpose the Parties will form an R&D Steering Committee, consisting of three members of 454 and three members of RDG. The R&D Steering Committee shall be a subcommittee of the Joint Steering Committee. Either Party may change its members at any time, and shall inform the other Party should this occur. Said R&D Steering Committee shall meet at regular intervals at the request of RDG but at least four times per year. Sections 8.3 (e), (f), (g) and (h) of the License Agreement shall apply also to the R&D Steering Committee.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 OF the Securities Exchange Act of 1934.

PAGE 5

2.6 The R&D Steering Committee shall in particular have the following tasks and responsibilities:

• provide at each Joint Steering Committee meeting an updated Project List including major objectives, prioritization, budget, resource and funding requirements by Project;

• propose to the Joint Steering Committee specific Projects with proposed Project Descriptions which shall be added to Exhibit 2 hereof following the approval of the Joint Steering Committee. Following such approval by the Joint Steering Committee the R&D Steering Committee shall agree on the detailed Project Plans for each approved Project;

• with respect to Licensed Products and Proposed Licensed Products, propose Specifications and updates of the Specifications for Exhibits 3 and 8 of the License Agreement for approval by the Joint Steering Committee;

• coordinate and monitor the performance of each Project and propose corrective actions to the Joint Steering Committee in the event of a delay or other deviations from the Project Plan;

• review and update Project Plans according to FHLR’s Design Control Guidelines and propose any deviations from agreed Project Plans to the Joint Steering Committee for its approval;

• propose to the Joint Steering Committee the termination of Projects in the event the R&D Steering Committee is of the opinion that they are not feasible any more;

• propose to the Joint Steering Committee decisions on the scope and nature of the Parties’ funding for any Application R&D Projects;

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 OF the Securities Exchange Act of 1934.

PAGE 6

• review and monitor proposed collaborative research plans with 454 strategic partners listed in Exhibit 4 of the License Agreement, and as included on the Project List; and

• perform any other tasks reasonably required to ensure successful monitoring and efficiency of the R&D collaboration between the Parties.

2.7 During the term of this R&D Agreement, neither Party shall co-operate with Third Parties (except those Third Parties as listed on Exhibit 4 of the License Agreement, with respect to which 454 may conduct the relevant collaborative research projects) in any project competitive with a Project conducted under this R&D Agreement without the other Party’s prior written consent.

Section 3

Obligations of the Parties

3.1 454 shall solely be responsible for the funding of System R&D Projects. Until the Commercial Launch of Rev 2.0, 454 shall fund such System R&D Projects with a minimum amount of [*********************************************] per year and Application R&D Projects with a minimum amount of [**********************************************] per year (subject to reduction under Section 3.3). Following Commercial Launch of Rev. 2.0 Licensed Products, 454 shall spend on Projects [************************************] (subject to any reduction in Application R&D Project funding under Section 3.3), or [****************************************************************************************

*********************************] is lower.

3.2 454 and FHLR shall be jointly responsible for Application R&D Projects, including but not necessarily limited to those applications as included in Exhibit 1.

3.3 Between the Effective Date of this Agreement until the end of the calendar year 2005, 454 shall[*************************

****************************************************]. During the term of this Agreement, starting in the calendar year 2006, the

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 OF the Securities Exchange Act of 1934.

PAGE 7

Parties shall share the costs of the Application R&D Projects equally and each of the Parties shall invest a minimum of [*******************************************] annually for Application R&D Projects. This investment can be done by providing R&D personnel, materials or money. In no case shall 454 be obligated to pay money to FHLR in support of FHLR employees on Projects.

The R&D Steering Committee shall inspect the investments on a quarterly basis. In the event that the budgets set forth above are not utilized despite good faith efforts of the Parties to present, approve and conduct Application R&D Projects, the R&D Steering Committee may decide on potential lower investments of the Parties, such decision to be approved by the Joint Steering Committee.

Personnel capacity investments shall be calculated on the actual fully-burdened FTE rate of the Parties according to criteria to be agreed by the R&D Steering Committee and approved by the Joint Steering Committee.

3.4 454 shall invoice FHLR for FHLR’s estimated aggregate net funding responsibilities for Application R&D Projects for each calendar quarter, in advance, according to the approved Project Plans for Application R&D Projects.

Within [************] of the end of each calendar quarter, each Party shall provide the other with an accounting of actual expenditures on Application R&D Projects over such calendar quarter. At such time, 454 shall invoice FHLR for FHLR’s share of funding for any expenditures incurred by 454 and not previously invoiced to FHLR.

Any payments made by FHLR in excess of its responsibilities for 454’s actual expenditures but being within the limit of FHLR’s funding commitment of [***********************************************] shall be credited against future invoices for estimated research expenditures. Neither Party shall exceed its budgeted expenditures for an Application R&D Project without approval from the R&D Steering Committee.

3.5 All expenses (internal and external) of 454 related to Exhibit 4 (License Agreement) projects with strategic partners shall be financed solely by 454 and shall be excluded from 454’s investment share in Section 3.1 and 3.3 of this Agreement.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 OF the Securities Exchange Act of 1934.

PAGE 8

3.6 Notwithstanding any of the foregoing, each Party shall bear its own travel expenses with respect to this R&D Agreement.

3.7 Notwithstanding any other provision hereof, should 454 propose a Project, and (i) RDG representatives do not approve the relevant Project Plan or (ii) FHLR does not elect to fund such project as a Project under this R&D Agreement within [*************] of any request by 454 to do so or (iii) the Joint Steering Committee decides at any time at or after the DI milestone not to pursue the Project any more, 454 shall be free to conduct such Project for its own benefit and such Project shall not be deemed to be a Project for purposes of this R&D Agreement (an “Unfunded Project”). Any product that results from an Unfunded Project (an “Unfunded Product”) will not be a Licensed Product under this R&D Agreement or the License Agreement and 454 will be free to independently develop and distribute such Unfunded Product except as set forth below. FHLR and its Affiliates shall have an exclusive right to include the Unfunded Product as a Licensed Product and obtain exclusive license and/or distribution rights with respect to the sale of such Unfunded Product as a Licensed Product under the License Agreement as set forth herein by reimbursing 454 [****************************************** ***************] the Unfunded Product (the “Unfunded Costs”) and by agreeing in writing to [*********] remaining costs to develop such Unfunded Product. This right shall be exercisable during the term of this R&D Agreement so long as FHLR is not in material default of any provision under this R&D Agreement and/or the License Agreement.

In the event that 454 wishes to sell an Unfunded Product or grant any Third Party licenses or rights in any country within the Territory with respect to the manufacture, distribution or sale of an Unfunded Product (regardless of whether 454 desires to initiate or a Third Party has initiated discussions of such rights), 454 shall provide written notice to FHLR, including the amount of Unfunded Costs with respect to the Unfunded Product. Within [**********] after receipt of any such notice, FHLR shall notify 454 if FHLR wishes to include the Unfunded Product as a Licensed Product or Proposed Licensed Product under

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 OF the Securities Exchange Act of 1934.

PAGE 9

the License Agreement which notice shall include the proposed date (which shall be no later than [*********************

*****] from the date of 454’s notice) on which the Unfunded Costs will be paid by FHLR and the required written agreement will be provided, and in which event Exhibits 2 and/or 5 of the License Agreement, as relevant, will be modified upon receipt of such payment and written agreement. If FHLR does not respond to 454’s notice within [**********] after receipt thereof or if FHLR fails to pay the Unfunded Costs within the reasonable timeframe described in its notice, then 454 shall be free to sell the Unfunded Product or to grant a license or other rights to Third Parties to make, use or sell the Unfunded Product on any terms as 454 may determine in its sole discretion without any further obligation to FHLR.

3.8 If 454’s share of costs with respect to Application R&D Projects exceeds [******************************************

******] in any one calendar year, FHLR will fund the amount of such excess (the “Excess Amount”) on or before [***************************************************]. Any Excess Amount funded by FHLR will be repaid to FHLR by 454 by deducting the Excess Amount from any future royalties due to 454 under Section 3.4 of the License Agreement commencing [******************************************************************]. Any such deductions shall be indicated in the relevant royalty report or if such date is past the termination of the License Agreement such deduction shall be made with the last royalty report thereunder.

3.9 Any and all payments by FHLR hereunder shall be made within [*************] after receipt of the respective invoice. Payment shall be made to the following account held by 454, unless otherwise directed by 454:

Bank of America

ABA# [*******]

Wire account# [*********]

For further credit to: [*************],

Account# [***************]

Attn: [************************]

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 OF the Securities Exchange Act of 1934.

PAGE 10

3.10 All payments will include value added tax (VAT) in so far as services rendered by 454 are subject to value added tax (VAT). If so, 454 will issue invoices to FHLR that include value added tax (VAT) as a separate amount.

Any withholding tax levied on payments made by FHLR to 454 hereunder shall be borne by 454. FHLR agrees to use its best efforts to do anything necessary to enable 454 to claim exemption therefrom under double taxation or similar agreements in force and shall produce to 454 proper evidence of payment of any withholding tax.

Section 4

Reservation of Ownership

4.1 All property right and title on all objects, computer software and similar materials made available to 454 by FHLR or its Affiliates pursuant to this Agreement are owned by FHLR or its Affiliates alone. FHLR or its Affiliates reserves all ownership on any and all items placed by FHLR or its Affiliates at 454’s disposal hereunder.

4.2 454 will handle with care, service and maintain at its own costs any and all objects, computer software and materials received from FHLR or its Affiliates or on FHLR’s or its Affiliates’ behalf from a Third Party pursuant to this Agreement. At the termination of the respective Project, 454 shall return to FHLR or its Affiliates all such items which are owned by FHLR or its Affiliates.

Section 5

Confidentiality and Publication

5.1 Except to the extent expressly authorized by this Agreement or otherwise agreed to by the Parties in writing, during the term of this Agreement and for a period of [************] following the termination or expiration of this Agreement, a Party receiving Confidential Information relating to this R&D Agreement or any Project (the “Receiving Party”) shall take such reasonable measures to maintain such Confidential Information as confidential

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 OF the Securities Exchange Act of 1934.

PAGE 11

as it takes to protect its own proprietary and Confidential Information, and shall not publish or otherwise disclose such Confidential Information or use such Confidential Information for any other purpose than for the performance of this Agreement or the License Agreement. The Receiving Party further undertakes to limit dissemination of such Confidential Information to only those of its personnel and employees necessary for the effective performance under this R&D Agreement. The Receiving Party shall prevent unauthorized access or use of such Confidential Information.

5.2 FHLR or its Affiliates may disseminate Confidential Information to its distributors or other sublicensees pursuant to the License Agreement as is deemed necessary for the commercial exploitation of Licensed Products, subject to its distributors and other sublicensees being under the same obligation of confidentiality as FHLR and its Affiliates hereunder.

Confidential Information provided by a Party to the Receiving Party hereunder shall be returned by the Receiving Party on written demand during or following the term of this R&D Agreement. A right of retention with respect to such documents and records cannot be claimed, provided that each Party may retain a copy in its legal archives solely for purposes of determining compliance hereunder.

5.3 Neither Party shall be entitled to publish or disclose any publication whatsoever arising from or containing data, information, results or any other matter from any Project without the other Party’s prior written consent, provided that the decision as to whether or not to grant such consent shall not be unreasonably withheld or delayed.

5.4 If either Party wishes to publish or disclose data, information, results or any other matter related to any Project it will timely send a copy of the planned publication or conference documents to the other Party and ask for the other Party’s consent. Both the content and the time of the publication have to be consented by the other Party in order to not endanger any application for intellectual property rights. If the other Party does not answer the publishing Party’s inquiry within [************], the publishing Party is free to publish the data, information, results and other matter that is in question.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 OF the Securities Exchange Act of 1934.

PAGE 12

5.5 No announcement of any kind whatsoever regarding any part of the subject matter of this R&D Agreement shall be made by either Party without the prior written approval of the other Party.

5.6 454 and FHLR and their Affiliates will ensure that all of their employees and any Third Parties involved into the carrying out of the R&D Agreement keep to confidentiality as outlined under Sections 5.1 to 5.5, and will comply with the conditions for publications. Each Party shall ensure that all such persons enter into a written covenant on this matter in accordance with Exhibit 3, as far as these persons are not already obliged under a contract to keep confidentiality and comply with publication conditions.

5.8 The obligations of the Parties under this Section 5 shall continue during the term of this R&D Agreement and for a period of [************] after the Termination of this R&D Agreement.

Section 6

Intellectual Property

6.1 Joint Inventions.

(a) For purposes of this Agreement and the License Agreement, “Joint Invention” shall mean all inventions, results, data, know-how, information, experiences, discoveries and improvements, whether or not patentable, jointly made or conceived by employees or others acting on behalf of FHLR and 454 (as determined in accordance with U.S. Patent Law) during the term of the License Agreement and in the course of performance of the License Agreement or a Project under this Agreement.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 OF the Securities Exchange Act of 1934.

PAGE 13

All Joint Inventions shall be jointly owned by both Parties. All costs associated with filing, prosecuting and maintaining patent applications and patents claiming Joint Inventions shall be borne by 454. All external costs (e.g., attorneys fees) associated with defending or enforcing such patents and patent applications on Joint Inventions against Third Parties shall be shared equally by both Parties provided that both Parties agree on such defense and enforcement actions. 454 shall use commercially reasonable efforts to restrain any Third Party infringement of any Joint Inventions in the Field. FHLR shall be given the opportunity to review and comment upon 454’s patent applications covering Joint Inventions and the Parties shall mutually agree upon all such filings. 454 shall keep FHLR advised as to all material developments with respect to all such patents and patent applications. In case FHLR does not agree to enforcement actions suggested by 454, all cost for such enforcement actions of the Joint Inventions shall be borne by 454 and all recoveries shall be retained by 454. In case FHLR does not agree to any defense actions for Joint Inventions suggested by 454, Section 6.1 (b) shall apply.

(b) In the event that either Party intends or desires to give up its interest in any existing patent rights based on any Joint Invention, or give up its interest under any Joint Invention, then such Party shall offer in writing to assign its interest under such Joint Invention to the other Party and, as of [**********] after such notice, shall have no further obligation for any prosecution, maintenance, enforcement or defense costs and/or expenses of any patent application or patent covering such Joint Invention, except as to costs and expenses that have accrued prior to the end of such notice period.

(c) To the extent not exclusively licensed under the License Agreement, each Party shall have the right to grant non-exclusive licenses to its interest in any Joint Inventions to which it retains ownership rights and shall be entitled to all proceeds of such licensing. Neither Party shall license a Joint Invention covered by this Section 6.1 without the prior written consent of the other Party (such consent not to be unreasonably withheld).

(d) Notwithstanding (c) above, in the event that FHLR determines that it wishes to grant a license under its interest in any Joint Invention to any Third Party, then it shall first

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 OF the Securities Exchange Act of 1934.

PAGE 14

provide written notice of same to 454. 454 shall have [*************] from the date of such notice to provide a written response as to whether or not it wishes to enter into negotiations with FHLR with respect to the exclusive license in FHLR’s interest in such Joint Invention. If 454 fails to give such response within the [************] response period, FHLR shall thereafter have the right to license to any Third Party the Joint Invention that was the subject of the notice, without any further obligation to 454 under this subparagraph (d). If 454’s response states that it wishes to enter into negotiations with FHLR, the Parties shall negotiate in good faith for a period of [************] from the date of FHLR’s receipt of 454’s response with respect to the terms and conditions of such exclusive license. If after [*****************], the Parties have not agreed upon terms and conditions of such license despite their good faith efforts, then 454 shall set forth in writing its final offer with respect to such license (the “Final Offer”). If FHLR does not accept such Final Offer, FHLR shall thereafter have the right to pursue the license to one or more Third Parties of its interest in the Joint Invention that was the subject of the Final Offer, but only on financial terms more favorable to FHLR than are set forth in the Final Offer.

6.2 Any and all results, data, know-how, information, experiences, discoveries, improvements and inventions, whether or not patentable, made or conceived solely by one Party during the term of the License Agreement and in the course of performance of the License Agreement or a Project under this Agreement, shall be owned by the Party that made the respective invention (each, a “Sole Invention”).

6.3 Notwithstanding Section 6.1 hereof or any provision of the License Agreement to the contrary, with respect to any Joint Invention which arises from a System R&D Project where FHLR’s inventive contribution is made in the course of reviewing and approving relevant Project Plans, Project Descriptions, relevant reports or similar circumstances, and does not arise as a result of actual scientific participation in the performance of such Project as required in the relevant Project Plan, such Joint Invention shall be solely owned by 454 and treated as a 454 Sole Invention for purposes of this Agreement and the License Agreement, and not as a Joint Invention.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 OF the Securities Exchange Act of 1934.

PAGE 15

6.4 For the commercialization of Licensed Products based on 454 Sole Inventions and/or Joint Inventions, FHLR shall be granted the licenses according to the License Agreement.

6.5 FHLR hereby grants to 454 a non-exclusive, non-royalty bearing, fully-paid up license, without the right to sublicense, under any claim of a patent or patent application covering any Sole Invention owned by FHLR and made under this R&D Agreement as necessary to enable the exploitation by 454 of Joint Inventions made under this R&D Agreement for the longer of the term of the License Agreement and this R&D Agreement.

FHLR hereby grants to 454 a perpetual non-exclusive license, with the right to sublicense, to practice the technology claimed in any claim of a patent or patent application covering any Sole Invention owned by FHLR and developed under this R&D Agreement or incorporated into a Licensed Product following the expiration of the license provided above. Such license shall be subject to a reasonable royalty to be negotiated in good faith for the time after the term of the License Agreement.

6.6 In the event that FHLR determines that it wishes to grant a license under any FHLR Sole Invention to any Third Party, then it shall first provide written notice of same to 454. 454 shall have [**********] from the date of such notice to provide a written response as to whether or not it wishes to enter into negotiations with FHLR with respect to the exclusive license of FHLR’s interest in such Sole Invention. If 454 fails to give such response within the [**********] response period, FHLR shall thereafter have the right to license to any Third Party the Sole Invention that was the subject of the notice, without any further obligation to 454. If 454’s response states that 454 wishes to enter into negotiations with FHLR, the Parties shall negotiate in good faith for a period of [***********] from the date of FHLR’s receipt of 454’s response with respect to the terms and conditions of such exclusive license. If after [*****************], the Parties have not agreed upon terms and conditions of such license despite their good faith efforts, then 454

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 OF the Securities Exchange Act of 1934.

PAGE 16

shall set forth in writing its final offer with respect to such license (the “Final Offer”). If FHLR does not accept such Final Offer, FHLR shall thereafter have the right to pursue the license to one or more Third Parties of its interest in the Sole Invention that was the subject of the Final Offer, but only on financial terms more favorable to FHLR than are set forth in the Final Offer.

6.7 Costs for patents and patent applications on FHLR Sole Inventions and the preparation, filing, prosecution, maintenance, enforcement and/or defense thereof shall be borne by FHLR. FHLR shall keep 454 advised as to all material developments with respect to all such patents and patent applications. In the event that FHLR intends to give up its interest in any existing patent rights based on any FHLR Sole Invention or, or give up its interest under any FHLR Sole Invention, then FHLR shall offer in writing to assign its interest under such Sole Invention to 454 and, as of [**************] after such notice, shall have no further obligation for any prosecution, maintenance, enforcement or defense costs and/or expenses of any patent application or patent covering such Sole Invention, except as to costs and expenses that have accrued prior to the end of such notice period.

6.8 Costs for patents and patent applications on 454 Sole Inventions and the preparation, filing, prosecution, maintenance, enforcement and/or defense thereof shall be borne by 454. 454 shall keep FHLR advised as to all material developments with respect to all such patents and patent applications relevant to the Field.

Section 7

Disclaimer/Limitation of Liability/Indemnification

7.1 FHLR and 454 recognize that there are significant risks associated with designing, developing and manufacturing products. Each Party individually bears the risk that:

(a) Neither Party will develop any products or methods, that meet customer requirements or the goals of any Project; or

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 OF the Securities Exchange Act of 1934.

PAGE 17

(b) That the market will fail to accept any such products or methods or that the market will fail to accept such products or methods to the level anticipated by the Parties at the time of signing this R&D Agreement.

7.2 EXCEPT AS EXPLICITLY SET FORTH HEREIN OR OTHERWISE SET OUT IN THE LICENSE AGREEMENT, EACH PARTY EXPRESSLY DISCLAIMS TO THE OTHER PARTY ANY EXPRESS OR IMPLIED WARRANTY, INCLUDING WARRANTIES OF NON-INFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, ARISING OUT OF ITS PERFORMANCE OR ATTEMPTED DEVELOPMENT OF ANY PRODUCT OR METHODS HEREUNDER.

7.3 NEITHER PARTY SHALL UNDER ANY CIRCUMSTANCES BE LIABLE TO THE OTHER FOR INDIRECT, INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOSS OF PROFITS, REVENUE, OR BUSINESS (REGARDLESS OF THE THEORY OF LIABILITY) RESULTING FROM OR IN ANY WAY RELATED TO THIS R&D AGREEMENT, OR THE TERMINATION OF THIS R&D AGREEMENT, OR ARISING OUT OF OR ALLEGED TO HAVE ARISEN OUT OF (I) BREACH OF THIS R&D AGREEMENT, (II) THE FAILURE BY EITHER PARTY TO DEVELOP ANY PRODUCTS OR METHODS IN ACCORDANCE WITH ANY PRODUCT SPECIFIC DEVELOPMENT PLAN HEREUNDER OR (III) THE FAILURE BY EITHER PARTY TO DEVOTE THE RESOURCES SPECIFIED IN ACCORDANCE WITH ANY PROJECT PLAN OR PROJECT DESCRIPTION HEREUNDER.

7.4 NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY DIRECT DAMAGES OF ANY KIND (REGARDLESS OF THE THEORY OF LIABILITY) RESULTING FROM OR IN ANY WAY RELATED TO (I) TERMINATION OF THIS R&D AGREEMENT PURSUANT TO SECTION 8.3, OR (II) THE FAILURE OF EITHER PARTY TO (A) DEVELOP ANY PRODUCT, OR (B) MEET THE GOALS OF ANY PROJECT HEREUNDER.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 OF the Securities Exchange Act of 1934.

PAGE 18

Section 8

Term of the R&D Agreement

8.1 Unless terminated earlier under this Section 8, this R&D Agreement shall have a term of five (5) years from the Effective Date.

8.2 Each Party shall have the right to terminate this R&D Agreement by giving the other Party [************]’ prior written notice for substantial reasons, e.g.:

8.2.1 if the other Party files a declaration of bankruptcy or enters into any agreement of composition with creditors or goes into liquidation, whether voluntarily or compulsory; or

8.2.2 if the other Party fails or becomes substantially unable to perform any of its obligations or undertakings to be performed under, or otherwise breaches, this R&D Agreement or any Project hereunder and such default or breach is not cured within [*************] or such longer period as the non-defaulting Party within its discretion may determine and where such breach is reasonably capable of being remedied within the noticed period;

8.2.3 if the other Party assigns this R&D Agreement in whole or in part other than as permitted under Section 9.9 ; or

8.2.4 on FHLR’s side, if 454 agrees to perform or actually performs research and development services for a competitor of FHLR with a yearly turnover of at least [*************************************] regarding a project being substantially similar or identical to or containing substantially similar elements of any Project being conducted under this R&D Agreement, during the term of such Project for FHLR.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 OF the Securities Exchange Act of 1934.

PAGE 19

8.3 Either Party may terminate this R&D Agreement immediately if the License Agreement is terminated or if the Initial Term thereof expires or is terminated.

8.4 Each Termination notice shall be delivered in writing with first copy by electronic mail communication and by registered mail with copy to the legal department of the other Party. Any willful Termination does not prevent a Party from enforcing existing damages and/or other claims.

8.5 All provisions of this R&D Agreement and any Project concerning confidentiality, publication, reservation on ownership and/or intellectual property rights (including the payment of costs with respect to the prosecution and maintenance of patents covering Joint Inventions) shall survive the Termination of this R&D Agreement or the expiration of any Project for any reason.

8.6 In case of a Termination of this R&D Agreement, the R&D Steering Committee shall determine whether individual Projects that have been approved prior to this termination date shall be performed in full, despite Termination of this R&D Agreement. If the R&D Steering Committee determines so, said Projects to be completed shall be carried out analogous to the rules and stipulations under the then terminated R&D Agreement.

8.7 In case of a Termination of this R&D Agreement, any payments by FHLR are only due for such research and development services rendered by 454 until the moment of Termination, except for research and development services carried out under Application R&D Projects to be continued according to the R&D Steering Committee’s decision under the preceding Section 8.6.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 OF the Securities Exchange Act of 1934.

PAGE 20

Section 9

Final Provisions

9.1 This R&D Agreement and all Projects hereunder shall be construed in accordance with and governed by the laws of the State of New York, without giving effect to any choice of law principles thereof.

9.2 All disputes, controversies and differences which may arise hereunder between the Parties hereto and which cannot be settled within the R&D Steering Committee shall be resolved pursuant to Section 12.10 of the License Agreement.

9.3 This R&D Agreement and the License Agreement contain the entire understanding of the Parties hereto with respect to the subject matter hereof and shall supersede any prior written or oral agreements regarding such subject matter. In the event of a conflict between the License Agreement and this R&D Agreement, the provisions of the License Agreement shall prevail over and/or amend the relevant provisions of this R&D Agreement. The Termination, any changes or amendments, including the waiver of any provisions and the specific protocols within each area of co-operation, are effective only if made in writing specifically referencing this R&D Agreement. The waiving of the requirement for the written form must likewise satisfy such form.

9.4 In the event that one or more provisions of this R&D Agreement are invalid or will be invalidated, the invalid provisions shall be replaced by an understanding, which in the best possible way comes closest to the economic and scientific intentions of the Parties, and from which it can reasonably be expected that the Parties would have executed the R&D Agreement with that provision also.

9.5 Termination of this R&D Agreement shall not relieve the Parties of any obligation arising prior to the effective date of such Termination and shall not constitute a waiver of any right of the Parties hereunder as a result of breach or default.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 OF the Securities Exchange Act of 1934.

PAGE 21

9.6 Any delays in or failures of performance by either Party under this R&D Agreement shall not be considered a breach of this R&D Agreement if and to the extent caused by occurrences beyond the reasonable control of the Party affected, including but not limited to: acts of terrorism, acts of God, earthquake, new regulations or laws of any government, strikes or other concerted acts of workers; fire, floods, explosions; riots; wars; rebellion; and, sabotage, and any time for performances hereunder shall be extended by the time of delay reasonably occasioned by such occurrence. Each Party agrees to notify the other promptly of any factor, occurrence or event coming to its attention that may affect its ability to meet its obligations under this R&D Agreement.

9.7 Failure of any Party to insist upon a strict and punctual performance of any of the provisions hereof shall not constitute a waiver nor an estoppel against asserting the right to require such performance, nor shall a waiver or estoppel in one instance constitute a waiver or estoppel with respect to a later breach, whether of a similar nature or otherwise. Nothing in this R&D Agreement shall prevent a Party from enforcing its rights under this R&D Agreement by such remedies as may be available under the laws of the State of New York.

9.8 Any notice, consent or report (each, a “Notice”) required or permitted to be given by either Party under this R&D Agreement shall be in writing and shall be either personally delivered or sent by electronic mail (confirmed by registered mail), by overnight express mail, or by registered or certified letter to the other Party at its address set forth below, or such new address as may from time to time be supplied hereunder by the Parties. Any Notice shall be effective upon receipt by the addressee, provided that all postage or delivery charges are prepaid in full by the sender.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 OF the Securities Exchange Act of 1934.

PAGE 22

If to 454:	454 Life Sciences
	20 Commercial Street
	Branford, CT 06405
	USA
	Attention: President
	Fax: 203-481-2075
If to FHLR:
	Head Legal Diagnostics
	Grenzacherstrasse 124
	CH-4070 Basel
	Switzerland
	Fax +41 61 688 1396
	Copy to:
	Legal Counsel RAS
	Nonnenwald 2
	82377 Penzberg
	Germany
	Fax +49 8856 60 7292

9.9 Neither Party shall assign its rights or obligations under this R&D Agreement, in whole or in part, by operation of law or otherwise, without the prior written consent of the other Party, which consent shall not unreasonably be withheld. Any purported assignment in violation of this Section 9.9 shall be null and void. Notwithstanding the preceding sentences, either Party may assign this R&D Agreement, in whole but not in part, without the other Party’s consent, to an Affiliate of the assigning Party or in connection with the sale of all or substantially all of the assets of the assigning Party relating to the business unit which is the subject of this R&D Agreement as a going concern; provided that the assignee assumes, in full, the obligations of the assigning Party under this R&D Agreement.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 OF the Securities Exchange Act of 1934.

PAGE 23

9.10 The headings of the several Sections of this R&D Agreement are intended for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this R&D Agreement.

9.11 Each Party agrees to execute, acknowledge and deliver such further instruments, and do such other acts, as may be necessary and appropriate in order to carry out the purposes and intent of this Agreement.

9.12 Notwithstanding Section 9.9, FHLR may at its sole discretion delegate to any of its Affiliates, and specifically, but not limited to, Roche Diagnostics GmbH in Mannheim (“RDG”), any rights and obligations under this Agreement.

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 OF the Securities Exchange Act of 1934.

PAGE 24

IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed by its duly authorized representative.

Branford,		Basel,
454 Life Sciences Corporation		F. Hoffmann-La Roche Ltd
By:	/s/ Christopher K. McLeod	By:	/s/ Heino von Prondzynski
Name:	Christopher K. McLeod	Name:	Heino von Prondzynski
Title:	President and CEO	Title:	CEO Division Roche Diagnostics
Date: May 11, 2005		Date: May 11, 2005
		By:	/s/ Claus-Joerg Ruetsch
		Name:	Claus-Joerg Ruetsch
		Title:	Head Legal Diagnostics
		Date: May 11, 2005

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 OF the Securities Exchange Act of 1934.

PAGE 25

EXHIBIT 1

PROJECT LIST

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 OF the Securities Exchange Act of 1934.

PAGE 26

EXHIBIT 2

PROJECT DESCRIPTIONS

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 OF the Securities Exchange Act of 1934.

PAGE 27

EXHIBIT 3

EMPLOYEE/THIRD PARTY DECLARATION

In favor of:	Roche Diagnostics GmbH (“FHLR”)
	Sandhofer Strasse 116
	68305 Mannheim
	Federal Republic of Germany
Reference:	Research Project: [please insert]
Name:	[please insert]

1) I shall hold confidential and not disclose to others materials received under this Agreement as well as any other information and data received from FHLR and as well as any results generated under the present project, except for information which has become publicly available through no fault of myself. This obligation of confidentiality shall continue beyond the termination of the above mentioned research project.

2) In the event of any intended scientific publication relating to the research project covered hereunder, I shall safeguard FHLR’s interests and submit the manuscript to FHLR prior to the proposed publication, to permit FHLR to state its position and to preclude any prior publication which might be detrimental to the novelty of any proposed patent application.

__________,	___________
Place,	Date	Signature of employee/third party

TRA 2054814v1

Portions of this Exhibit were omitted and have been filed separately with the Secretary of the Commission pursuant to the

Company’s application requesting confidential treatment under Rule 24b-2 OF the Securities Exchange Act of 1934.

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-

OXLEY ACT OF 2002

I, Patrick J. Zenner, 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: August 5, 2005

/s/ Patrick J. Zenner

Patrick J. Zenner

Interim Chief Executive Officer

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

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-

OXLEY ACT OF 2002

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: August 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 June 30, 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: August 5, 2005	By:	/s/ Patrick J. Zenner
		Patrick J. Zenner
		Interim Chief Executive Officer and
		Chairman of the Board (principal executive officer of the registrant)
Dated: August 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)