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 September 30, 2007

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 000-23223

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.)

322 East Main Street, Branford, Connecticut	06405
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (203) 481-1104

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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨    Accelerated filer  x    Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.).    Yes  ¨    No  x

The number of shares outstanding of the registrant’s common stock as of November 1, 2007 was 58,050,556.

CURAGEN CORPORATION AND SUBSIDIARY

FORM 10-Q

INDEX

			Page
PART I.	Financial Information
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006 (unaudited)	3
		Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2007 and 2006 (unaudited)	4
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006 (unaudited)	5
		Notes to Condensed Consolidated Financial Statements (unaudited)	6 -12
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13 -24
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
	Item 4.	Controls and Procedures	25
PART II.	Other Information
	Item 1A.	Risk Factors	26 -40
	Item 6.	Exhibits	41
Signatures			42
Exhibit Index			43

CURAGEN CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value and share data)

(unaudited)

	September 30, 2007			December 31, 2006
ASSETS
Current assets:
Cash and cash equivalents	$	68,580		$	58,486
Restricted cash		14,366			—
Short-term investments		13,707			23,473
Marketable securities		56,930			82,434
Cash and investments		153,583			164,393
Income taxes receivable		394			543
Accounts receivable		—			926
Prepaid expenses		1,531			2,595
Assets held for sale		442			34,881
Total current assets		155,950			203,338
Property and equipment, net		556			12,214
Intangible and other assets, net		1,991			11,742
Total assets	$	158,497		$	227,294
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	448		$	321
Accrued expenses		3,913			3,289
Accrued payroll and related items		1,417			1,810
Interest payable		547			3,306
Current portion of deferred revenue		89			89
Other current liabilities		1,906			1,575
Current portion of convertible subordinated debt		—			66,228
Liabilities held for sale		—			30,735
Total current liabilities		8,320			107,353
Long-term liabilities:
Convertible subordinated debt, net of current portion		109,391			110,000
Deferred revenue, net of current portion		1,108			1,174
Total long-term liabilities		110,499			111,174
Commitments and contingencies
Stockholders' equity:
Common Stock; $.01 par value, issued and outstanding 58,040,464 shares at September 30, 2007, and 56,390,682 shares at December 31, 2006		580			564
Additional paid-in capital		524,951			518,827
Accumulated other comprehensive (loss) income		(850	)		2,348
Accumulated deficit		(485,003	)		(512,972	)
Total stockholders' equity		39,678			8,767
Total liabilities and stockholders' equity	$	158,497		$	227,294

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 September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
Collaboration revenue	$	22		$	—		$	66		$	2,284
Operating expenses:
Research and development		8,074			10,692			30,480			33,139
General and administrative		2,568			3,556			9,631			10,287
Restructuring charges		1,058			—			8,537			—
Total operating expenses		11,700			14,248			48,648			43,426
Loss from operations		(11,678	)		(14,248	)		(48,582	)		(41,142	)
Interest income		1,861			1,742			4,060			5,452
Interest expense		(1,273	)		(2,334	)		(4,172	)		(7,019	)
Gain on extinguishment of debt		169			—			169			—
Gain on sale of long-term marketable securities		973			—			973			—
Loss from continuing operations before income tax benefit		(9,948	)		(14,840	)		(47,552	)		(42,709	)
Income tax benefit		50			52			160			161
Loss from continuing operations		(9,898	)		(14,788	)		(47,392	)		(42,548	)
Discontinued operations:
Loss from discontinued operations		—			(1,092	)		(2,991	)		(1,495	)
Gain on sale of subsidiary		—			—			78,352			—
(Loss) income from discontinued operations		—			(1,092	)		75,361			(1,495	)
Net (loss) income	$	(9,898	)	$	(15,880	)	$	27,969		$	(44,043	)
Basic and diluted loss per share from continuing operations	$	(0.18	)	$	(0.27	)	$	(0.85	)	$	(0.77	)
Basic and diluted (loss) income per share from discontinued operations		—			(0.02	)		1.35			(0.03	)
Basic and diluted net (loss) income per share	$	(0.18	)	$	(0.29	)	$	0.50		$	(0.80	)
Weighted average number of shares used in computing basic and diluted net (loss) income per share		55,965			54,932			55,699			54,784

See accompanying notes to condensed consolidated financial statements

4

CURAGEN CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Nine Months Ended September 30,
	2007			2006
Cash flows from operating activities:
Net income (loss)	$	27,969		$	(44,043	)
(Income) loss from discontinued operations		(75,361	)		1,495
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Deferred revenue, net of current portion		(66	)		—
Depreciation and amortization		3,304			5,671
Impairment of long lived assets held for sale		6,273			—
Stock-based compensation		3,030			4,075
Stock-based 401(k) plan employer match		332			268
Non-cash interest income		345			659
Non-cash interest income - Restricted cash		(237	)		—
Gain on extinguishment of debt		(169	)		—
Gain on sale of long-term marketable securities		(973	)		—
Changes in assets and liabilities:
Income taxes receivable		149			239
Accrued interest receivable		587			214
Accounts receivable		926			42
Prepaid expenses		1,254			(460	)
Intangible and other assets, net		141			(138	)
Accounts payable		136			119
Accrued expenses		191			561
Accrued payroll and related items		(393	)		408
Interest payable		(2,759	)		(2,093	)
Deferred revenue		—			(2,901	)
Other current liabilities		331			(559	)
Net cash used in operating activities		(34,990	)		(36,443	)
Cash flows from investing activities:
Acquisitions of property and equipment		(174	)		(380	)
Proceeds from sale of fixed assets		29			134
Payments for intangible assets		—			(7	)
Purchases of short-term investments		(7,966	)		(29,167	)
Proceeds from sales of short-term investments		1,401			3,118
Proceeds from maturities of short-term investments		15,900			8,562
Purchases of marketable securities		(5,694	)		(11,710	)
Proceeds from sales of marketable securities		26,543			38,619
Proceeds from maturities of marketable securities		11,090			43,300
Proceeds from disposal of assets of discontinued operations		82,023			—
Proceeds from sale of held for sale assets		2,217			—
Restricted cash		(14,129	)		—
Net cash provided by investing activities		111,240			52,469
Cash flows from financing activities:
Proceeds from exercise of stock options		72			375
Repayment of convertible debt		(66,228	)		—
Net cash (used in) provided by financing activities		(66,156	)		375
Cash flows from discontinued operations:
Net operating cash flows used in discontinued operations		(379	)		(7,804	)
Net investing cash flows (used in) provided by discontinued operations		(74	)		8,438
Net financing cash flows provided by discontinued operations		23			338
Net cash (used in) provided by discontinued operations		(430	)		972
Net increase (decrease) in cash and cash equivalents of subsidiary held for sale		430			(972	)
Net increase in cash and cash equivalents		10,094			16,401
Cash and cash equivalents, beginning of period		58,486			17,697
Cash and cash equivalents, end of period	$	68,580		$	34,098
Supplemental cash flow information:
Interest paid	$	6,499		$	8,463
Income tax benefit payments received, net of payments made	$	407		$	1,114
Acquisition of property and equipment, unpaid at end of period	$	—		$	11

See accompanying notes to condensed consolidated financial statements

5

CURAGEN CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation and Discontinued Operations

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 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 (collectively, the “Company”) include CuraGen Corporation (“CuraGen”) and its former majority-owned subsidiary, 454 Life Sciences Corporation (“454”), and accordingly, all material intercompany balances and transactions have been eliminated. CuraGen reclassified its prior financial statements to present the assets and liabilities and operating results of 454 as held for sale on the condensed consolidated Balance Sheets and as a discontinued operation on the condensed consolidated Statements of Operations as a result of the Agreement and Plan of Merger (the “Merger Agreement”) signed by 454 on March 28, 2007 with Roche Holdings, Inc., and 13 Acquisitions, Inc., an indirect wholly-owned subsidiary of Roche Holdings, Inc., each affiliates of F. Hoffman-La Roche Ltd (“Roche”) (see Note 4). The Merger Agreement was subsequently assigned by Roche Holdings, Inc. to its affiliate Roche Diagnostics Operations, Inc. (“RDO”), which is also an affiliate of Roche. The sale of 454 to RDO pursuant to the Merger Agreement closed on May 25, 2007.

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, 2006. All dollar amounts herein are shown in thousands, except par value and per share data.

2. Comprehensive (Loss) Income

The accumulated balance of other comprehensive (loss) income is disclosed as a separate component of stockholders’ equity and consists of unrealized gains and losses on short-term investments and marketable securities. A summary of total comprehensive (loss) income is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
Net (loss) income	$	(9,898	)	$	(15,880	)	$	27,969		$	(44,043	)
Other comprehensive loss:
Unrealized gains (losses) on securities:
Unrealized holding (losses) gains arising during period		(1,195	)		612			(2,271	)		3,497
Reclassification adjustment for (gains) losses included in net (loss) income		(968	)		128			(928	)		141
Net unrealized (losses) gains on securities		(2,163	)		740			(3,199	)		3,638
Total comprehensive (loss) income	$	(12,061	)	$	(15,140	)	$	24,770		$	(40,405	)

The Company periodically reviews its investment portfolios to determine if there is an impairment that is other than temporary. As of September 30, 2007, the Company has reviewed its investment portfolio and determined that no other than temporary impairment of its investment portfolio existed.

During the three months ended September 30, 2007, the Company sold its investment in TopoTarget for proceeds of $6,260 and realized a gain of $973.

6

3. Segment Reporting

As of December 31, 2006, the Company had two reportable segments, CuraGen and 454. As of March 31, 2007, 454 was classified as a discontinued operation as a result of the Merger Agreement. Accordingly, as of September 30, 2007, and for the three and nine month periods ended September 30, 2007 and 2006, respectively, the Company operated as one segment excluding discontinued operations (see Note 5).

4. 454 Life Sciences/Roche Holdings, Inc. Merger

On March 28, 2007, 454 entered into the Merger Agreement with Roche Holdings, Inc. and 13 Acquisitions, Inc., an indirect wholly-owned subsidiary of Roche Holdings, Inc. Roche Holdings, Inc. subsequently assigned the Merger Agreement to its affiliate RDO. Roche Holdings, Inc. and RDO are affiliates of Roche, a global research-based healthcare company. Under the Merger Agreement, 13 Acquisitions, Inc. was merged with and into 454 (the “Merger”), with 454 continuing after the Merger as the surviving corporation and an indirect wholly-owned subsidiary of Roche Holdings, Inc.

Under the terms of the Merger Agreement, upon the closing of the sale of 454 to RDO on May 25, 2007, the purchase price before transaction costs was $152,019, of which RDO paid $140,000 in cash and $12,019 was received from the exercise of 454 stock options following the signing of the Merger Agreement and prior to the closing of the sale. Of the $140,000 received from RDO, $25,000 was placed in escrow for a period of 15 months, or until August 25, 2008, to provide for certain post-closing adjustments based on 454’s net working capital and net debt on May 25, 2007, and to secure the indemnification rights of RDO and its affiliates. The Company believes it will receive its share of the escrow fund, or $14,129, after expiration of the escrow term and has included such amount in the determination of the gain on sale in accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations”. Interest earned on the Company’s portion of restricted cash is being accrued on a quarterly basis and accordingly, $237 was accrued for the period from May 25, 2007 through September 30, 2007. As a result, $14,366 is classified as restricted cash and is included in current assets on the accompanying condensed consolidated Balance Sheets, due to its short-term nature as of September 30, 2007.

Following the closing, as required by the Merger Agreement, 454 prepared a closing balance sheet and calculated its net working capital and net debt as of the closing date. Based upon the closing balance sheet and net working capital and net debt calculations, RDO paid an additional $1,030 in merger consideration to 454 shareholders. In July 2007, CuraGen received $582, its portion of this additional amount, which was included in the calculation of the gain on sale of subsidiary reported in the second quarter of 2007.

5. Discontinued Operations

The sale of 454 (see Note 4) on May 25, 2007 has been accounted for in accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, and accordingly, at September 30, 2006, 454’s assets and liabilities have been classified as held for sale. In addition, 454’s operating results are reported as a discontinued operation for the three and nine months ended September 30, 2006 and for the periods April 1, 2007 to May 25, 2007 and January 1, 2007 to May 25, 2007.

The following table summarizes the financial information for the discontinued operations of 454 for the three and nine months ended September 30, 2006, and for the period January 1, 2007 to May 25, 2007:

	Three months ended September 30,			January 1 to May 25,			Nine months ended September 30,
	2006			2007			2006
Revenue:
Product revenue	$	4,806		$	14,210		$	14,654
Sequencing service revenue		2,777			3,825			7,479
Collaboration revenue		375			1,350			1,125
Grant revenue		949			444			2,296
Milestone revenue		950			3,707			2,850
Total revenue	$	9,857		$	23,536		$	28,404
Operating Expenses:
Cost of product revenue	$	2,949		$	9,015		$	8,890
Cost of sequencing service revenue		1,062			2,207			3,102
Grant research expenses		898			425			2,095
Research and development expenses		3,472			7,908			10,222
General and administrative expenses		3,088			7,075			6,682
Total operating expenses	$	11,469		$	26,630		$	30,991
Loss from discontinued operations before minority interest, net of tax of $18, $0, $26, and $0	$	(1,576	)	$	(3,053	)	$	(2,319	)
Minority interest in loss of discontinued consolidated subsidiary		484			62			824
Gain on sale of subsidiary		—			78,352			—
Income (loss) from discontinued operations	$	(1,092	)	$	75,361		$	(1,495	)

7

During the third quarter of 2006, the cumulative losses applicable to the minority interest in subsidiary exceeded the minority interest in the equity capital of 454, therefore, the majority of losses applicable to the minority interest from the third quarter of 2006 through the closing of the sale of 454 were charged to CuraGen.

The following tables set forth the components of 454’s assets and liabilities classified as held for sale on the condensed consolidated Balance Sheets at December 31, 2006 (in thousands):

	December 31, 2006
Cash and cash equivalents	$	4,164
Short-term investments		1,507
Marketable securities		90
Accounts, grants and royalty receivable		10,850
Inventory		9,855
Property and equipment, net		3,945
Licensing fees, net		3,281
Other assets		1,189
Assets held for sale	$	34,881

	December 31, 2006
Accounts payable	$	841
Accrued expenses		1,458
Deferred revenue		27,539
Other liabilities		897
Liabilities held for sale	$	30,735

6. Stock-Based Compensation

The Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), effective January 1, 2006. SFAS 123R requires recognition of the fair value of stock-based compensation in net earnings.

During the three and nine months ended September 30, 2007 and 2006, the Company recognized compensation expense in total operating expenses on the condensed consolidated statements of operations with respect to employee stock options and restricted stock grants as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
Compensation expense with respect to employee stock options	$	417	$	879	$	1,204	$	2,126
Compensation expense with respect to restricted stock grants	$	755	$	716	$	2,031	$	2,017

Due to the Company’s net loss position, no tax benefit was recorded during the periods presented above.

8

For the three and nine months ended September 30, 2007 and 2006, the adoption of SFAS 123R had the effect of increasing the loss from continuing operations and basic and diluted loss per share from continuing operations, over amounts that would have been reported using the intrinsic value method under APB 25, as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
Increase in loss from continuing operations	$	417	$	879	$	1,204	$	2,126
Increase in basic and diluted loss per share from continuing operations	$	0.01	$	0.02	$	0.02	$	0.04

The fair value of options granted during the three months ended September 30, 2007 and 2006 were estimated as of the grant date using the Black-Scholes option valuation model with the following assumptions:

	Three Months Ended September 30,
	2007		2006
Expected stock price volatility	65	%	78	%
Risk-free interest rate	4.81	%	4.49	%
Expected option term in years	6.25		6.25
Expected dividend yield	0	%	0	%

The approximate weighted-average grant date fair values using the Black-Scholes option valuation model of all stock options granted during the three and nine months ended September 30, 2007 and 2006 were as follows:

Three Months Ended September 30,			Nine Months Ended September 30,
2007	2006		2007		2006
$0.89	$	2.15	$	1.27	$	2.78

The 2007 Stock Incentive Plan (“2007 Stock Plan”) was approved by the Company’s stockholders as of May 2, 2007. The 2007 Stock Plan provides for the issuance of stock options and stock grants to employees, directors and consultants of CuraGen. A total of 3,000,000 shares of common stock were reserved for issuance under the 2007 Stock Plan. A summary of the stock option activity under the 2007 Stock Plan, as of September 30, 2007, and changes during the three months ended September 30, 2007, are as follows:

	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
Outstanding July 1, 2007	109,500	$	2.73
Granted	615,056		1.39
Exercised	—
Canceled or lapsed	—
Outstanding September 30, 2007	724,556		1.59	9.91	$	21
Exercisable September 30, 2007	107,500		2.73	9.59	$	0

There were no options exercised under the 2007 Stock Plan during the three months ended September 30, 2007.

A summary of the stock option activity under the 1997 Employee, Director and Consultant Stock Plan (“1997 Stock Plan”) as of September 30, 2007, and changes during the three months ended September 30, 2007, are as follows:

9

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
Outstanding July 1, 2007	5,988,843		$	9.42
Granted	—
Exercised	—
Canceled or lapsed	(1,558,428	)		17.07
Outstanding September 30, 2007	4,430,415			6.78	5.56	$	0
Exercisable September 30, 2007	3,117,337			7.69	4.52	$	0

The total intrinsic value of options exercised under the 1997 Stock Plan during the three months ended September 30, 2006 was $2. There were no options exercised under the 1997 Stock Plan during the three months ended September 30, 2007.

There was no significant activity in the 1993 Stock Option and Incentive Award Plan (“1993 Stock Plan”) during either the three months ended September 30, 2007 or 2006.

As of September 30, 2007 there was $2,075 of total unrecognized compensation expense related to unvested stock option grants under the 1993 Stock Plan, 1997 Stock Plan and 2007 Stock Plan, and this expense is expected to be recognized over a weighted-average period of 1.68 years.

A summary of all restricted stock activity under the 2007 Stock Plan as of September 30, 2007, and changes during the three months ended September 30, 2007, are as follows:

	Number of Shares of Restricted Stock	Weighted Average Grant Date Fair Value
Outstanding July 1, 2007	975,000	$	1.25
Granted	75,000		1.66
Restrictions lapsed	—
Repurchased upon employee termination	—
Outstanding September 30, 2007	1,050,000		1.28

On May 25, 2007, the Compensation Committee of the Company approved the issuance of an aggregate of 975,000 shares of restricted common stock to five executive officers, which will vest and become free from forfeiture on December 31, 2008, if the closing price of the common stock on the Nasdaq Global Market has equaled or exceeded $5.00 per share over a period of 20 consecutive trading days for any period ending on or before December 31, 2008. In each case, the shares of common stock described above will only vest if the executive is an employee of the Company as of December 31, 2008. Therefore, pursuant to SFAS 123R, these restricted stock awards are deemed to contain a market condition which is reflected in the grant-date fair value of the awards, based on a valuation technique which considered all the possible outcomes of such market condition. Compensation cost is required to be recognized over the requisite service period for an award with a market condition provided that the requisite service is rendered, regardless of when, if ever, the market condition is satisfied. Accordingly, the Company will reverse previously recognized compensation cost for the above awards only if the requisite service is not rendered.

There were no restricted shares vested under the 2007 Stock Plan during the three months ended September 30, 2007.

A summary of all restricted stock activity under the 1997 Stock Plan as of September 30, 2007, and changes during the three months ended September 30, 2007, are as follows:

	Number of Shares of Restricted Stock		Weighted Average Grant Date Fair Value
Outstanding July 1, 2007	1,079,265		$	4.33
Granted	—
Restrictions lapsed	(321,075	)		4.48
Repurchased upon employee termination	(19,970	)		4.46
Outstanding September 30, 2007	738,220			4.26

10

The total intrinsic value of restricted shares vested under the 1997 Stock Plan during the three months ended September 30, 2007 and 2006 was $398 and $292, respectively.

As of September 30, 2007, there was $2,291 of total unrecognized compensation expense related to unvested restricted stock grants under the 1997 Stock Plan and 2007 Stock Plan, and this expense is expected to be recognized over a weighted-average period of 1.07 years.

As a result of the sale of 454 discussed in Note 4 above, 454’s operating results are being reported as discontinued operations for the three and nine months ended September 30, 2006 and for the period January 1, 2007 to May 25, 2007. During the three and nine months ended September 30, 2006, 454 recognized compensation expense of $149 and $338, respectively, with respect to employee stock option awards which is included in loss from discontinued operations.

7. Income (Loss) Per Share

Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the period, excluding unvested restricted stock. Diluted income (loss) per share reflects the potential dilution that could occur if options or other contracts to issue common stock were exercised or converted into common stock. Convertible subordinated debt, stock options granted but not yet exercised under CuraGen’s stock option plans and unvested restricted stock are anti-dilutive and therefore not considered for the diluted income (loss) per share calculations. Anti-dilutive potential common shares, consisting of convertible subordinated debt, outstanding stock options and unvested restricted stock were 18,237,035 and 21,599,705 as of September 30, 2007 and 2006, respectively.

8. Restructuring Charge

During June and September 2007, the Company underwent corporate restructurings to reduce operating costs and to focus resources on the advancement of its therapeutic pipeline through clinical development, resulting in estimated full year 2007 restructuring charges of $10,527. During the second and third quarters of 2007, the Company recorded total restructuring charges of $8,537. This amount includes an asset impairment charge of $6,273 (associated with the closure of its pilot manufacturing plant, also known as the Biopharmaceutical Sciences Process facility, or BPS, on July 27, 2007), $1,838 related to employee separation costs paid in cash, $168 of non-cash employee separation costs and $258 of other asset write-offs. Pursuant to the terms of restricted stock agreements held by various employees being terminated in connection with the restructurings, the individual’s ownership of such restricted shares shall become immediately vested if the Company terminates the individual’s employment or service by way of an “involuntary termination.”

The following table details the charges, cash payments and balance of the restructuring reserves as of and for the nine months ended September 30, 2007:

	Charges		Cash Payments in 2007		Reserve at September 30, 2007
Employee separation costs:
Cash	$	1,838	$	991	$	847
Non-cash		168
Total employee separation costs		2,006
Impairment of assets:
Assets to be disposed of by sale		6,531
Total restructuring activity	$	8,537

Additional restructuring charges for severance and related benefits of approximately $1,905 and non-cash restructuring charges related to the accelerated vesting of restricted stock grants of approximately $85 will be recorded during the fourth quarter of 2007, as they relate to services to be performed by those affected employees who will be completing ongoing projects through the end of 2007.

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9. Accounting for Uncertainty in Income Taxes

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109 “Accounting for Income Taxes.” This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting for taxes in interim periods and disclosure requirements. The provisions of FIN 48 are to be applied to all tax positions upon initial adoption of this standard. Only tax positions that meet the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized upon adoption of FIN 48. Unrecognized tax benefits are tax benefits claimed in our tax returns that do not meet these recognition and measurement standards. The cumulative effect of applying the provisions of FIN 48 should be reported as an adjustment to the opening balance of retained earnings for that fiscal year. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. For the Company, this interpretation was effective beginning January 1, 2007.

As a result of the implementation of FIN 48, the Company recorded no adjustments in its unrecognized income tax benefits. As of January 1, 2007 and September 30, 2007, the Company had unrecognized income tax benefits totaling $0.8 million and $0.9 million, respectively. If recognized, all of the unrecognized tax benefits would be recorded as a benefit to income tax expense on the condensed consolidated statements of operations. The Company does not currently anticipate significant changes in the amount of unrecognized income tax benefits over the next year.

To the extent penalties and interest would be assessed on any underpayment of income tax, the Company’s policy is that such amounts would be accrued and classified as a component of income tax expense in the financial statements. To date the Company has not accrued any interest or penalties as they would be immaterial.

As a result of net operating loss carryforwards, the Company’s federal tax returns since 1992 remain open to examination with no years currently under examination by the Internal Revenue Service, and the Company’s Connecticut tax returns remain open to examination for all years since 2000 with no years currently under examination by the Department of Revenue Services.

10. Extinguishment of Debt

Effective September 28, 2007, the Company repurchased a total of $609 of its 4% convertible subordinated debentures due February 2011, for total consideration of $430, plus accrued interest of $3 to the date of repurchase. As a result of the transaction, in the third quarter of 2007 the Company recorded a gain of $169 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. The transaction closed on October 2, 2007. Accordingly, the amount payable at closing of $433 is included in accrued expenses in the accompanying condensed consolidated balance sheet as of September 30, 2007.

See Note 11 which describes the Company’s repurchase of an additional $13,251 of its 4% convertible subordinated debentures due February 2011, during October 2007.

11. Subsequent Event

During October 2007, the Company repurchased $13,251 of its 4% convertible subordinated debentures due February 2011, for total consideration of $9,463, plus accrued interest of $87 to the date of repurchase. As a result of the transaction, in the fourth quarter of 2007, the Company will record a gain of $3,571 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

Our management’s discussion and analysis of our financial condition and results of operations include the identification of certain trends and other statements that may predict or anticipate future business or financial results. There are important factors that could cause our actual results to differ materially from those indicated. See “Part II, Item 1A., Risk Factors.”

Overview

We are a biopharmaceutical development company dedicated to improving the lives of patients by developing novel therapeutics for the treatment of cancer. We have taken a systematic approach to identifying and validating promising therapeutic targets and our efforts are currently focused on developing and advancing two potential therapeutics, belinostat (PXD101) and CR011-vcMMAE through clinical development, and towards commercialization.

Corporate Restructuring

During June and September 2007, we underwent corporate restructurings to reduce operating costs and to focus resources on the advancement of our therapeutic pipeline through clinical development, resulting in estimated full year 2007 restructuring charges of $10.5 million. During the second and third quarters of 2007, we recorded total restructuring charges of $8.5 million. This amount includes an asset impairment charge of $6.3 million associated with the closure of our pilot manufacturing plant, also known as the Biopharmaceutical Sciences Process facility, or BPS, on July 27, 2007. The BPS facility is a 29,000 square foot, leased facility that was used by us for pilot scale production of proteins and antibodies. The BPS primarily supported early-stage pipeline development and non-GMP manufacturing efforts. In addition, $1.8 million related to employee separation costs paid in cash, $0.2 million of non-cash employee separation costs and $0.2 million of other asset write-offs were included in the total restructuring charges of $8.5 million. We also announced a reduction in workforce of approximately 55 employees, primarily composed of preclinical and manufacturing researchers, and additional support staff from within the organization. Affected employees will be eligible for a severance package that includes severance pay, continuation of benefits and outplacement services. The restructuring actions are expected to be substantially completed by the end of 2007.

Additional restructuring charges for severance and related benefits of approximately $1.9 million and non-cash restructuring charges related to the accelerated vesting of restricted stock grants of approximately $0.1 million will be recorded during the fourth quarter of 2007, as they relate to services to be performed by those affected employees who will be completing ongoing projects through the end of 2007.

Completion of 454 Acquisition

On May 25, 2007, the acquisition of 454 Life Sciences Corporation, a Delaware corporation and our majority-owned subsidiary, or 454, by Roche Diagnostics Operations, Inc., or RDO, was completed. The acquisition was accomplished through the merger of 13 Acquisitions, Inc., a Delaware corporation and a direct wholly-owned subsidiary of RDO, with and into 454, or the Merger, with 454 continuing after the Merger as the surviving corporation as a direct wholly-owned subsidiary of RDO, all in accordance with an Agreement and Plan of Merger dated March 28, 2007 by and among Roche Holdings, Inc., 454 and 13 Acquisitions, or the Merger Agreement. Roche Holdings, Inc. subsequently assigned its rights and obligations under the Merger Agreement to RDO, an indirect wholly-owned subsidiary of Roche Holdings, Inc., prior to the closing of the Merger. Roche Holdings, Inc. and RDO are affiliates of F. Hoffman-La Roche Ltd.

The purchase price paid for 454 by RDO was $152.0 million in cash, of which RDO paid $140.0 million in cash and $12.0 million of which was received from the exercise of 454 stock options following the signing of the Merger Agreement. Of the $140.0 million received from RDO, $25.0 million was placed in escrow for a period of 15 months from the date of closing, or until August 25, 2008, to secure the indemnification rights of RDO and its affiliates. Our portion of the escrow amounted to $14.1 million and is included in the net proceeds of $82.0 million received during the second quarter of 2007. Interest earned on our portion of restricted cash is being accrued on a quarterly basis and accordingly, $0.2 million was accrued for the period from May 25, 2007 through September 30, 2007. Accordingly, $14.3 million is classified as restricted cash and included in current assets on the accompanying condensed consolidated balance sheet as of September 30, 2007.

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Following the closing, as required by the Merger Agreement, 454 prepared a closing balance sheet and calculated its net working capital and net debt as of the closing date. Based upon the closing balance sheet and net working capital and net debt calculations, RDO paid an additional $1.0 million in merger consideration to 454 shareholders. In July 2007, we received $0.6 million, our portion of this additional amount, which is included in the calculation of the gain on sale of subsidiary on the accompanying condensed consolidated statement of operations for the nine months ended September 30, 2007.

Termination of velafermin development program

On October 11, 2007, we announced that our Phase II dose-confirmatory clinical trial on velafermin, designated CLN-12, did not meet its primary endpoint. Based on these trial results, we have discontinued the development of velafermin although patients from this study will need to be followed for approximately one year post treatment for protocol specified safety monitoring. Therefore, the study will not be clinically complete until approximately September 2008. No new obligations will be initiated with this program. The complete clinical trial results from CLN-12 will be presented in December at the American Society of Hematology, or ASH, 2007 Annual Meeting in Atlanta, GA.

CuraGen Clinical Oncology Pipeline; Recent Developments

We are currently focusing our resources on the development of the following clinical oncology therapeutics for the treatment of cancer:

Belinostat—is a small molecule therapeutic that inhibits the activity of the enzyme histone deacetylase, or HDAC, and is being evaluated for the treatment of solid and hematologic cancers either alone or in combination with other active chemotherapeutic drugs and newer targeted agents. We are conducting clinical trials evaluating intravenous and oral belinostat for:

Indication	Phase	Regimen	Initiation of Patient Enrollment	Milestone
Solid tumors	Ib	Combination with 5-fluorouracil (“5-FU”)	September 2005	Results presented June 2007
Solid tumors	Ib	Combination with paclitaxel and/or carboplatin	September 2005	Results presented June 2007
T-cell lymphoma	II	Monotherapy	January 2006	Updated preliminary results anticipated in December 2007
Advanced solid tumors	I	Oral belinostat monotherapy	August 2006	Results presented October 2007
Ovarian cancer	II	Combination with paclitaxel and/or carboplatin	November 2006	Results presented October 2007
Bladder cancer	II	Combination with paclitaxel and/or carboplatin	June 2007	Preliminary results anticipated in the second half of 2008

On October 25, 2007, we provided an update on clinical trial results that were presented on intravenous and oral belinostat at the 2007 AACR-NCI-EORTC International Conference on Molecular Targets and Cancer Therapeutics. Phase II results from our Phase II open-label trial evaluating a dose regimen consisting of belinostat in combination with carboplatin and paclitaxel, referred to as BelCaP, were reported on 23 patients including efficacy data for 16 patients who had available pre- and post-baseline assessments of tumor. During the Phase Ib dose-escalation of this trial, BelCaP was previously shown at the 2007 American Society of Clinical Oncology, or ASCO, Annual Meeting to be generally well tolerated. Safety results from the ongoing Phase II portion of this trial also suggest that BelCaP is generally well tolerated on patients with relapsed ovarian cancer. Reduction in tumor size was seen in 15 of 16 patients by radiologic assessment. As of the date of presentation, objective responses were observed in 8 patients, including 2 partial responses confirmed by RECIST and 6 additional responses that were pending radiologic confirmation. Thirteen additional patients had treatment ongoing with continued radiologic assessment of tumor to determine best response. The target enrollment of 34 patients for the trial was met.

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We also reported on October 25, 2007 that initial results from an ongoing Phase I open-label, multi-center dose-escalation trial evaluating oral belinostat were presented at the 2007 AACR-NCI-EORTC conference. The goal of the study is to establish the maximum tolerated dose, or MTD, for oral belinostat administered once or twice daily in one of two regimens (either continuous daily dosing or dosing days one through 14 in a 21-day cycle). At the time of the presentation, data were available on 60 patients enrolled into the dose-escalation study with 46 patients on the continuous daily regimen and 14 patients dosed days one through 14 in a 21-day cycle. The most frequent adverse events reported were fatigue, anorexia and nausea. More than 2,400 ECGs were collected in this trial, with no grade 3 or 4 QTc changes noted. During the study, 15 patients (25%) achieved stable disease, or SD, for greater than or equal to 12 weeks, with no RECIST-defined objective responses currently reported. Dose-escalation performed with 250 mg capsules of oral belinostat resulted in a presumptive continuous dosing MTD of 250 mg twice daily. The MTD for dosing of oral belinostat on days one through 14 in a 21-day cycle has not yet been reached.

On August 6, 2007, we announced that we will not enroll additional patients into a Phase II open-label clinical trial evaluating intravenous belinostat in combination with Velcade^® (bortezomib) for Injection in patients with advanced, refractory multiple myeloma, or MM. Two out of four patients enrolled in the study developed acute renal insufficiency, or ARI, in the first cycle of treatment with the combination. Three similar events of ARI were previously reported from studies evaluating belinostat monotherapy in patients with MM. To date, no ARI has been observed in any other indication for which intravenous or oral belinostat is being evaluated.

On August 6, 2007, we also announced we are preparing to initiate a Phase I/II clinical trial evaluating belinostat in combination with the idarubicin for the treatment of acute myelogenous leukemia, or AML. The study will be conducted at multiple sites in the European Union. Up to 70 patients will be enrolled and receive intravenous treatment in one of two regimens. Patients will either receive intravenous belinostat administered once daily for five days in combination with idarubicin or a continuous infusion of belinostat with or without idarubicin. Enrollment into the treatment arms will occur in parallel to define the MTD, for each treatment regimen.

On June 12, 2007, we presented an update on the clinical development program for belinostat and reported preliminary clinical trial results suggesting clinical activity of belinostat against cutaneous T-cell lymphoma, or CTCL, and peripheral T-cell lymphoma, or PTCL. We reported interim results from our Phase II trial evaluating belinostat as a single agent on 14 patients with CTCL and 11 evaluable patients with PTCL. In the CTCL arm, patients had received a median of six prior lines of therapy. Four of 14 patients achieved an objective response after receiving belinostat for an objective response rate of 29%, including one complete response and three partial responses. Time to response ranged from 8 to 57 days. As demonstrated by a decrease in severity weighted assessment tool, or SWAT, scores, 77% of evaluable patients showed an improvement in skin burden of CTCL. As previously announced in December 2006, the CTCL arm was expanded to enroll up to 34 patients to further refine the magnitude of the objective response rate. In the PTCL arm, two of 11 evaluable patients achieved an objective response including one complete response and one partial response, with best responses not yet determined in 2 patients whose treatment is ongoing. We announced that based on a recent review of this data internally and with the study investigators, the degree of activity observed in the first phase of this study meets the predefined criteria to expand enrollment of the PTCL arm to a total of 34 patients.

Also in June 2007, we reported that Phase Ib dose-escalation results on 25 patients with advanced solid tumors were presented at ASCO and indicated that the combination of intravenous belinostat plus 5-FU is generally well tolerated. Two dose limiting toxicities, including one Grade 3 stomatitis and one Grade 3 angina were reported in the highest dose group evaluating 1000 mg/m 2 /day belinostat plus 1000 mg/2m²/day 5-FU. All patients received extensive pre- and post-treatment ECG monitoring with no Grade 3 QTc prolongation noted.

Of the 23 evaluable patients, a total of seven patients achieved SD (range 2 – 8 cycles), with two patients on treatment as of June 2007, and no objective responses noted. No consistent effect was seen on the expression of thymidylate synthase, or TS, in peripheral blood mononuclear cells from this population. As of June 12, 2007, enrollment of patients is continuing into the 1000 mg/m²/day belinostat and 500 mg/m²/day 5-FU dose cohort. Six additional patients are planned to be enrolled at this dose to determine whether there is any effect on the expression of TS in tissue samples, although further development of this indication is not planned at this time.

In addition to the clinical trials being sponsored by us, the National Cancer Institute, or NCI, is also conducting clinical trials evaluating intravenous belinostat, both alone and in combination, for other cancer indications under a Clinical Trials Agreement we signed with the NCI in August 2005:

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Indication	Phase	Regimen	Initiation of Patient Enrollment
Advanced solid tumors or lymphomas	Ib	Combination with Velcade ®	March 2006
Acute Myelogenous Leukemia	II	Monotherapy	June 2006
Advanced solid tumors	Ib	Combination with cis-retinoic acid	June 2006
Mesothelioma	II	Monotherapy	June 2006
Hepatocellular carcinoma	I/II	Monotherapy	July 2006
Advanced hematologic malignancies	I	Combination with azacitidine	August 2006
B-cell lymphomas	II	Monotherapy	August 2006
Ovarian	II	Monotherapy	November 2006
Myelodysplastic Syndrome	II	Monotherapy	November 2006

During the 2007 AACR-NCI-EORTC International Conference in October 2007, results from two NCI-sponsored clinical trials evaluating intravenous belinostat as either monotherapy for the treatment of ovarian cancer or in combination with Velcade^®, or bortezomib, for advanced solid tumors or lymphomas were presented.

Data from an ongoing Phase II open-label trial evaluating intravenous belinostat monotherapy on patients with either refractory or relapsed platinum resistant epithelial ovarian cancer, or EOC, or patients with micropapillary/borderline, or LMP, ovarian tumors were reported. Tumor response was assessed by RECIST and CA-125 criteria every two cycles. During the presentation it was reported that belinostat was safe and generally well-tolerated in these two ovarian cancer populations. A total of patients with LMP tumors received a median of 4 treatment cycles (range 1 to 13), with one LMP patient achieving a partial response, or PR, one patient having a CA-125 response, nine SD, and two not evaluable. Six patients remain on study. Objective responses to belinostat monotherapy were not observed in a heavily pre-treated well-defined platinum-resistant population of patients with EOC.

A presentation of data on 17 patients, of which 14 were evaluable, were reported from an ongoing Phase I open-label, dose-escalation study evaluating intravenous belinostat in combination with bortezomib for the treatment of advanced solid tumors or lymphomas was also made during the 2007 AACR-NCI-EORTC International Conference. Belinostat in combination with bortezomib were well tolerated at doses up to 600 mg/m2 belinostat and 1.3 mg/m2 bortezomib, with ongoing enrollment of patients into this dosing cohort. Activity of the combination reported included one patient with Ewing’s Sarcoma that has maintained SD for 4 cycles, and two patients, one with peritoneal and one with appendiceal carcinoma, that have maintained SD for 3 cycles. Adverse events were generally grades 1-2 and reversible. No grade 4 non-hematologic toxicities were reported.

CR011-vcMMAE—is a fully-human monoclonal antibody resulting from our collaboration with Amgen Fremont and utilizes antibody-drug conjugate, or ADC, technology licensed from Seattle Genetics to attach MMAE to yield CR011-vcMMAE.

On October 24, 2007, we announced initial Phase I results with CR011-vcMMAE that were presented at the 2007 AACR-NCI-EORTC International Conference. The open-label, multi-center, dose escalation study is evaluating the safety, tolerability and pharmacokinetics of CR011-vcMMAE for patients with unresectable Stage III or Stage IV melanoma who have failed no more than one prior line of cytotoxic therapy. The first part of the trial has been evaluating cohorts of patients receiving increasing doses of CR011-vcMMAE to determine the MTD. The trial has treated 25 patients with doses of up to 2.63 mg/kg CR011-vcMMAE administered intravenously once every three weeks. CR011-vcMMAE has been generally well-tolerated with no dose limiting toxicities observed to date. Dose escalation is ongoing until the MTD has been reached. Clinical activity consisting of stable disease in six patients lasting four cycles or longer has been reported with four patients achieving reductions in tumor size of up to 20%.

After determination of the MTD, up to approximately 32 additional patients are expected to be enrolled and treated at the MTD to further define safety and efficacy in this trial.

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Summary

We seek to generate value for our shareholders by developing novel therapeutics for the treatment of cancer. We seek to become profitable by commercializing a subset of therapeutics stemming from our development pipeline, and establishing partnerships with pharmaceutical and biotechnology companies for the development and commercialization of other therapeutics from our development pipeline. Our failure to successfully develop pharmaceutical products that we can commercialize would materially adversely affect our business, financial condition and results of operations. Royalties or other revenue generated from commercial sales of therapeutic products developed through the application of our technologies and expertise are not expected for several years, if at all.

We expect to continue incurring substantial research and development expenses relating to clinical trials required for the development of novel therapeutics and external programs that we identify as being promising and synergistic with our products and expertise. Conducting clinical trials is a lengthy, time-consuming and expensive process. As a result, we expect to incur continued losses over the next several years.

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 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 the sale of certain assets, 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.

Critical Accounting Policies and Use of Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses. On an on-going basis, we evaluate our estimates, including those related to revenue recognition and accrued expenses. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are more 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, 2006.

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Results of Operations

The following table sets forth a comparison of the components of our net loss for the three months ended September 30, 2007 and 2006 (in millions):

	Three months ended September 30,
	2007			2006			$ Change			% Change
Collaboration revenue	$	—		$	—		$	—		0	%
Research and development expenses		8.1			10.7			(2.6	)	(24	)%
General and administrative expenses		2.6			3.6			(1.0	)	(28	)%
Restructuring charges		1.1			—			1.1		100	%
Interest income		1.9			1.7			0.2		12	%
Interest expense		1.3			2.3			(1.0	)	(43	)%
Gain on extinguishment of debt		0.2			—			0.2		100	%
Gain on sale of long-term marketable securities		1.0			—			1.0		100	%
Income tax benefit		0.1			0.1			—		0	%
Loss from discontinued operations		—			1.1			(1.1	)	(100	)%
Net loss	$	(9.9	)	$	(15.9	)

The following table sets forth a comparison of the components of our net income (loss) for the nine months ended September 30, 2007 and 2006 (in millions):

	Nine months ended September 30,
	2007		2006			$ Change			% Change
Collaboration revenue	$	—	$	2.3		$	(2.3	)	(100	)%
Research and development expenses		30.5		33.2			(2.7	)	(8.1	)%
General and administrative expenses		9.6		10.3			(0.7	)	(7	)%
Restructuring charges		8.5		—			8.5		100	%
Interest income		4.0		5.5			(1.5	)	(27	)%
Interest expense		4.2		7.0			(2.8	)	(40	)%
Gain on extinguishment of debt		0.2		—			0.2		100	%
Gain on sale of long-term marketable securities		1.0		—			1.0		100	%
Income tax benefit		0.2		0.2			—		0	%
Loss from discontinued operations		3.0		1.5			1.5		100	%
Gain on sale of subsidiary		78.4		—			78.4		100	%
Net income (loss)	$	28.0	$	(44.0	)

Collaboration revenue. The decrease in our collaboration revenue for the nine month period ended September 30, 2007, as compared to the nine month period ended September 30, 2006 was due to the completion of work under the Bayer AG Pharmacogenomics Agreement during the second quarter of 2006. We do not expect to recognize additional collaboration revenue during 2007, with the exception of immaterial amounts of collaboration revenue related to the amortization of the $1.3 million received during 2006 from the LEO Pharma/TopoTarget licensing agreement. We had no material collaboration revenue for either of the three month periods ending September 30, 2006 or 2007.

Research and development expenses. Research and development expenses consist primarily of: contractual and manufacturing costs; salary and benefits; supplies and reagents; perpetual license fees; depreciation and amortization; and allocated facility costs. Historically, our research and development efforts have been concentrated on three major project areas: clinical trials; preclinical drug candidates; and collaborations. However, upon completion of our work on the Bayer AG Pharmacogenomics Agreement during the second quarter of 2006, and subsequent to our decision in the first quarter of 2007 to focus our resources during 2007 exclusively on generating clinical trial results from our lead oncology drug development programs, our research and development efforts are now being concentrated solely on clinical trials. We budget and monitor our research and development costs by expense category, rather than by specific project, because these costs often benefit multiple projects.

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Below is a summary that reconciles our total research and development expenses for the three and nine month periods ended September 30, 2007 and 2006 (in millions):

	Three months ended September 30,
	2007		2006		$ Change			% Change
Contractual and manufacturing costs	$	5.0	$	4.7	$	0.3		6	%
Salary and benefits		2.2		3.0		(0.8	)	(27	)%
Supplies and reagents		—		0.4		(0.4	)	(100	)%
Depreciation and amortization		—		0.5		(0.5	)	(100	)%
Allocated facility costs		0.9		2.1		(1.2	)	(57	)%
Total research and development expenses	$	8.1	$	10.7

	Nine months ended September 30,
	2007		2006		$ Change			% Change
Contractual and manufacturing costs	$	16.7	$	14.0	$	2.7		19	%
Salary and benefits		7.6		8.5		(0.9	)	(11	)%
Supplies and reagents		0.6		1.4		(0.8	)	(57	)%
Perpetual license fees and milestone payments		0.1		1.3		(1.2	)	(92	)%
Depreciation and amortization		1.1		2.1		(1.0	)	(48	)%
Allocated facility costs		4.4		5.9		(1.5	)	(25	)%
Total research and development expenses	$	30.5	$	33.2

The decrease in our research and development expenses for the three month period ended September 30, 2007, as compared to the three month period ended September 30, 2006, was primarily due to our decision in the first quarter of 2007 to focus our resources during 2007 exclusively on generating clinical trial results from our lead oncology drug development programs, as well as the second quarter 2007 restructuring, which included the closing of our BPS. The decrease in our research and development expenses for the nine month period ended September 30, 2007, as compared to the nine month period ended September 30, 2006, was due to a decrease in license fees and milestone payments (related to our collaboration with Seattle Genetics) offset by an increase in contractual and manufacturing costs. The decrease was also due to our decision in the first quarter of 2007 to focus our resources during 2007 exclusively on generating clinical trial results from our lead oncology drug development programs as well as the second quarter 2007 restructuring which included the closing of our BPS. We anticipate our research and development expenses for the remainder of 2007 will decrease due to the second and third quarter 2007 restructurings, which included the closing of our BPS.

As soon as we advance a potential clinical candidate into clinical trials, we begin to track the direct research and development expenses associated with that potential clinical candidate. The following table shows the cumulative direct research and development expenses as of September 30, 2007, as well as the current direct research and development expenses for the three and nine month periods ended September 30, 2007 and 2006 which were incurred on or after we started conducting a Phase I clinical trial for a clinical candidate (in millions):

Therapeutic Area and Clinical Candidate	Class	Cumulative as of September 30, 2007 (since commencement of Phase I)		Indication	Trial Status
Cancer Supportive Care
Velafermin	Protein	$	48.6	Oral Mucositis	CLN-12 safety surveillance on-going
Oncology
Belinostat	Small Molecule	$	41.1	Various Cancers	Phase II
CR011-vcMMAE	Antibody-Drug Conjugate	$	6.3	Metastatic Melanoma	Phase I
Kidney Inflammation
CR002	Antibody	$	1.8	Kidney Inflammation	Phase I

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	Three Months Ended				Nine Months Ended
Therapeutic Area and Clinical Candidate	September 30, 2007		September 30, 2006		September 30, 2007		September 30, 2006
Cancer Supportive Care
Velafermin	$	3.6	$	3.4	$	11.5	$	7.9
Oncology
Belinostat	$	4.1	$	2.6	$	10.7	$	7.6
CR011-vcMMAE	$	0.5	$	1.0	$	1.9	$	3.8
Kidney Inflammation
CR002	$	0.1	$	0.1	$	0.1	$	0.2

We expect that the full year 2007 direct research and development expenses incurred in connection with our development of velafermin will increase as compared to full year 2006. Although we completed enrollment in our Phase II trial in August 2007 pursuant to our decision to discontinue our velafermin program, additional costs associated with planned safety follow up visits and other trial close out activities will be incurred through the third quarter of 2008. We expect that the direct research and development expenses incurred in connection with our development of belinostat will increase in 2007 as compared to 2006. The expected increase during 2007 is related to higher enrollment of patients into our ongoing Phase I and Phase II clinical trials. We expect the CR011-vcMMAE expenses to decrease in 2007 as compared to 2006 due to the completion of manufacturing activities during 2006. We expect no material costs related to CR002 in 2007; we are seeking to license CR002 to a partner with the necessary resources and expertise required for developing this potential therapeutic.

Currently, our potential pharmaceutical products require significant research and development efforts, and will require extensive evaluation in clinical trials prior to submitting an application to regulatory agencies for their commercial use. Although we are conducting, or have conducted, human studies with respect to belinostat, CR011-vcMMAE, 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 provide reliable estimates as to 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, and dependent 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 of clinical trials 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 comprehensive studies conducted during the drug development process.

In addition, many factors may delay the commencement and speed of completion of clinical trials, including, but not limited to, 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, other products that are either approved or are in clinical trials that compete for the same population of patients, 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.

Due to the variability in the length of time necessary to develop a product candidate, the uncertainties related to the cost of projects and the need to obtain governmental approval for commercialization, accurate and meaningful estimates of the ultimate costs to bring our product candidates to market are not available. If our major research and development projects are delayed, then we can expect to incur additional costs in conducting our clinical trials, and a longer period of time before we might achieve profitability from our operating activities. Accordingly, the timing of the potential market approvals for our existing product candidates, including belinostat and CR011-vcMMAE, may have a significant impact on our capital requirements.

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General and administrative expenses. The decrease in our general and administrative expenses for the three month period ended September 30, 2007 as compared to the three month period ended September 30, 2006 was primarily due to the second quarter 2007 restructuring. General and administrative expenses for the nine month period ended September 30, 2007 as compared to the nine month period ended September 30, 2006 decreased slightly primarily due to the second quarter 2007 restructuring, offset by consulting and legal fees incurred in the first quarter 2007 in connection with the sale of our shares of 454. We anticipate our general and administrative expenses for the remainder of 2007 to remain consistent with the third quarter of 2007.

Restructuring charge. During June and September 2007, we underwent corporate restructurings to reduce operating costs and to focus resources on the advancement of our therapeutic pipeline through clinical development, resulting in estimated full year 2007 restructuring charges of $10.5 million. During the second and third quarters of 2007, we recorded total restructuring charges of $8.5 million. This amount includes an asset impairment charge of $6.3 million associated with the closure of our BPS, $1.8 million related to employee separation costs paid in cash, $0.2 million of non-cash employee separation costs and $0.2 million of other asset write-offs. Pursuant to the terms of restricted stock agreements held by various employees being terminated in connection with the restructurings, the individual’s ownership of such restricted shares shall become immediately vested if we terminate the individual’s employment or service by way of an “involuntary termination.”

Additional restructuring charges for severance and related benefits of approximately $1.9 million and non-cash restructuring charges related to the accelerated vesting of restricted stock grants of approximately $0.1 million will be recorded during the fourth quarter of 2007, as they relate to services to be performed by those affected employees who will be completing ongoing projects through the end of 2007.

Interest income. The increase in interest income for the three month period ended September 30, 2007 as compared to the three month period ended September 30, 2006 was primarily due to higher average quarterly cash and investment balances due to the sale of 454 to RDO as well as higher yields on our investment portfolio. Interest income for the nine month period ended September 30, 2007 decreased as compared to the nine month period ended September 30, 2006, primarily due to lower average quarterly cash and investment balances in the first half of 2007, partially offset by higher average cash and investment balances in the third quarter of 2007 due to the sale of 454 to RDO, as well as higher yields on our investment portfolio. We earned an average yield of 4.7% during the third quarter of 2007 as compared to 4.2% in the third quarter of 2006, and earned an average yield of 4.3% during the first nine months of 2007 as compared to 3.8% during the same period in 2006. We anticipate interest income to be approximately $5.5 million for the full year 2007 due to anticipated lower cash balances resulting from the utilization of cash and investment balances in the normal course of operations. The repayment of $66.2 million of our 6% convertible subordinated debentures which occurred upon their maturity in February 2007 and the third and fourth quarter 2007 repurchases of $0.6 million and $13.3 million, respectively, of our 4% convertible subordinated debentures due 2011, offset by the receipt of $82.0 million of proceeds from the sale of 454 (assuming full payment to us of our share of the proceeds currently being held in escrow to secure the indemnification rights of RDO and its affiliates) are also expected to contribute to the decrease. We also expect the yields in our investment portfolio to increase during the remainder of 2007.

Interest expense. Interest expense for the three and nine month periods ended September 30, 2007 decreased as compared to the same periods in 2006 due to the repayment of $66.2 million of our 6% convertible subordinated debentures which occurred upon their maturity in February 2007. We expect interest expense, including interest paid to debt holders, as well as amortization of deferred financing costs, to decrease during the remainder of 2007 as compared to the third quarter of 2007. The anticipated decrease is related to the repayment of $66.2 million of our 6% convertible subordinated debentures which occurred upon their maturity in February 2007, the third and fourth quarter 2007 repurchases of $0.6 million and $13.3 million, respectively, of our 4% convertible subordinated debentures due 2011 as well as anticipation of additional debt repurchases in the fourth quarter of 2007.

Gain on extinguishment of debt. On September 28, 2007, we repurchased a total of $0.6 million of our 4% convertible subordinated debentures due February 2011, for total consideration of $0.4 million, plus accrued interest to the date of repurchase. As a result of the transaction, in the third quarter of 2007, we recorded a gain of $0.2 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. We anticipate recording additional gains on repurchases of debt in the fourth quarter of 2007.

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Gain on sale of long-term marketable securities. During the three months ended September 30, 2007, we sold our Investment in TopoTarget for proceeds of $6.3 million and realized a gain of $1.0.

Income tax benefit. We recorded an income tax benefit during the three and nine month periods ended September 30, 2007 and 2006 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. We expect the 2007 income tax benefit to be less than 2006 (before adjustment to reflect statute of limitations expirations) due to an anticipated decrease in research and development expenses for the full year 2007 as compared to the full year 2006.

Loss from discontinued operations. Due to the disposition of 454 in the second quarter of 2007, the results of 454’s operations have been reclassified as discontinued operations for all periods presented. The loss from discontinued operations for the three month period ended September 30, 2007 as compared to the same period in 2006 was due to the sale of 454 to RDO during the second quarter of 2007. As a result, no losses from discontinued operations were recorded during the third quarter of 2007. The increase in the loss from discontinued operations for the nine month period ended September 30, 2007 as compared to the same period in 2006 was due to an increase in 454’s SFAS 123R compensation expense for the accelerated vesting of stock options in connection with the Merger, 454’s research and development expenses associated with additional personnel and lab supplies and an increase in general and administrative expenses primarily due to consulting and legal fees incurred in connection with the sale of 454 to RDO. The increase in expenses were partially offset by an increase in the profit 454 earned on product, grant and milestone revenue. During the third quarter of 2006, the cumulative losses applicable to the minority interest in subsidiary exceeded the minority interest in the equity capital of 454, therefore all losses applicable to the minority interest from the third quarter of 2006 through the closing of the sale of 454 to RDO on May 25, 2007 were charged to us.

Gain on sale of subsidiary. During May 2007, the sale of 454 to RDO closed and as a result we recognized a gain on the sale of our ownership in 454 of approximately $78.4 million.

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; and revenues received under our collaborative research agreements. 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 third quarter of 2007, we repurchased a total of $0.6 million of our 4% convertible subordinated debentures due February 2011, for total consideration of $0.4 million, plus accrued interest to the date of repurchase. As a result of the transaction, in the third quarter of 2007, we recorded a gain of $0.2 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 October 2007, we repurchased an additional $13.3 million of our 4% convertible subordinated debentures due February 2011, for total consideration of $9.5 million, plus accrued interest of $0.1 million to the date of repurchase. As a result of the transaction, in the fourth quarter of 2007, the Company will record a gain of $3.6 million 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.

During September 2007, we sold our Investment in TopoTarget for proceeds of $6.3 million and a realized gain of $1.0 million.

During June and September 2007, we underwent corporate restructurings to reduce operating costs and to focus resources on the advancement of our therapeutic pipeline through clinical development, resulting in estimated full year 2007 restructuring charges of $10.5 million. During the second and third quarters of 2007, we recorded total restructuring charges of $8.5 million. This amount includes an asset impairment charge of $6.3 million associated with the closure of our pilot manufacturing plant, $1.8 million related to employee separation costs paid in cash, $0.2 million of non-cash employee separation costs and $0.2 million of other asset write-offs. Pursuant to the terms of restricted stock agreements held by various employees being terminated in connection with the restructurings, the individual’s ownership of such restricted shares shall become immediately vested if we terminate the individual’s employment or service by way of an “involuntary termination.”

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Additional restructuring charges for severance and related benefits of approximately $1.9 million and non-cash restructuring charges related to the accelerated vesting of restricted stock grants of approximately $0.1 million will be recorded during the fourth quarter of 2007, as they relate to services to be performed by those affected employees who will be completing ongoing projects through the end of 2007.

During May 2007, the sale of 454 to RDO closed and as a result we received net proceeds of $82.0 million, which included $14.1 million to be held in escrow for a period of 15 months after closing of the sale, or until August 25, 2008, to secure the indemnification rights of RDO and its affiliates. If RDO makes successful claims for indemnification, the amount held in escrow will be reduced in whole or in part. We intend to use the proceeds from this transaction to continue funding our business and the clinical trials being conducted on belinostat, and CR011-vcMMAE. In July 2007, we received $0.6 million, our portion of 454’s net working capital and net debt adjustment as of the closing date.

On February 2, 2007, we repaid at maturity the remaining $66.2 million balance of the 6% convertible subordinated debentures, plus accrued interest of $2.0 million.

Cash and investments. The following table depicts the components of our operating, investing and financing activities for the nine month periods ended September 30, 2007 and 2006, using the direct cash flow method (in millions):

	Nine months ended September 30,
	2007			2006
Cash received from collaborators	$	0.9		$	0.5
Cash paid to suppliers and employees		(33.0	)		(34.6	)
Restructuring and related charges paid		(1.6	)		(1.3	)
Interest income received		4.1			5.5
Interest expense paid		(6.5	)		(8.5	)
Income tax benefit received		0.4			1.1
Net cash and investments used in operating activities		(35.7	)		(37.3	)
Cash paid to acquire property and equipment		(0.1	)		(0.4	)
Proceeds from sale of fixed assets		—			0.1
Proceeds from disposal of assets of discontinued operations		82.0			—
Proceeds from sale of held for sale assets		2.2			—
Proceeds from sale of long-term marketable securities		6.2			—
Net cash and investments provided by (used in) investing activities		90.3			(0.3	)
Cash received from employee stock option exercises		0.1			0.4
Cash paid for extinguishment of debt		(66.2	)		—
Net cash and investments (used in) provided by financing activities		(66.1	)		0.4
Unrealized gain on short-term investments and marketable securities		0.7			0.9
Net decrease in cash and investments		(10.8	)		(36.3	)
Cash and investments, beginning of period		164.4			211.2
Cash and investments, end of period	$	153.6		$	174.9

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 24 months we expect to continue to fund our operations through a combination of the following sources: cash and investment balances; interest income; potential public securities offerings; and/or private strategic-driven transactions. At September 30, 2007, approximately $0.5 million of proceeds from the sale of assets under the June 2007 restructuring are expected to be received during the fourth quarter of 2007. During May 2007, the sale of 454 to RDO closed and we received net proceeds of $82.0 million, which included $14.1 million to be held in escrow for a period of 15 months after closing of the merger. We plan to use the proceeds to continue generating clinical trial results from our two late stage oncology programs, belinostat and CR011-vcMMAE, which will potentially enable us to bring one or more of these products into registrational or Phase III trials during 2008. On February 2, 2007, we repaid the remaining $66.2 million balance of the 6% convertible subordinated debentures plus accrued interest of $2.0 million. We plan to continue making substantial investments to advance our clinical drug

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pipeline. We do not anticipate any material capital expenditures in the near future. Accordingly, we foresee the following as significant uses of liquidity: contractual services related to clinical trials and manufacturing; salary and benefits; perpetual license fees; potential milestone payments; and payments of interest to the holders of our convertible subordinated debt due in 2011.

We will continue to evaluate options to repurchase or refinance a portion of our outstanding 4% convertible debentures that mature on February 15, 2011. Any repurchases might occur through cash purchases and/or exchange for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved in any such transactions, individually or in the aggregate, may be material. We may use sources of liquidity for working capital, and for general corporate purposes and potentially for future acquisitions of complementary businesses or products 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 24 months. We consider our operating and capital expenditures to be crucial to our future success, and by continuing to make strategic investments in our 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 $109.4 million of 4% convertible subordinated notes due February 15, 2011, will depend on many factors. These factors include: the number, breadth, progress and results of our research, product development and clinical programs; the costs and timing of obtaining regulatory approvals for any of our products; in-licensing and out-licensing of pharmaceutical products; costs incurred in enforcing and defending our patent claims; other intellectual property rights; and the extent to which RDO makes successful claims for indemnification under the Merger Agreement relating to the sale of 454.

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.

Contractual Obligations

In the table below, we set forth our enforceable and legally binding obligations, along with future commitments related to all contracts that we are likely to continue, regardless of the fact that they are cancelable as of September 30, 2007. As compared to the Contractual Obligations disclosure in our Annual Report on Form 10-K for the year ended December 31, 2006, this table no longer includes 454, which was sold in May 2007. In addition, the figure shown below for 2008 purchase commitments includes $1.8 million in costs associated with planned safety follow up visits in the velafermin clinical trial and other trial close out activities.

Some of the amounts we include in this table under purchase commitments 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		2007		2008		2009		2010		2011
Long-term debt obligations	$	109.4	$	—	$	—	$	—	$	—	$	109.4
Interest on convertible subordinated debt		15.4		—		4.4		4.4		4.4		2.2
Operating leases		1.2		0.5		0.7		—		—		—
Purchase commitments		8.1		2.6		5.0		0.5		—		—
Total	$	134.1	$	3.1	$	10.1	$	4.9	$	4.4	$	111.6

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our outstanding long-term liabilities as of September 30, 2007 include $109.4 million of our 4% convertible subordinated notes due February 15, 2011. As the debentures and notes bear interest at a fixed rate, our results of operations are not affected by interest rate changes. As of September 30, 2007, the market value of our $109.4 million 4% convertible subordinated notes due 2011, based on quoted market prices, was approximately $76.7 million. Although future borrowings may bear interest at a floating rate, and would therefore be affected by interest rate changes, at this point we do not anticipate any significant future borrowings at floating interest rates, and therefore do not believe that a change of 100 basis points in interest rates would have a material effect on our financial condition.

There have been no other significant changes in our market risk compared to the disclosures in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2006.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2007. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act of 1934 is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2007, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

(b) Changes in Internal Controls

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended September 30, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Part II - Other Information

Item 1A. Risk Factors

Statements contained or incorporated by reference in this Quarterly Report on Form 10-Q that are not based on historical fact are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. These forward-looking statements regarding future events and our future results are based on current expectations, estimates, forecasts, and projections and the beliefs and assumptions of our management including, without limitation, our expectations regarding results of operations, selling, general and administrative expenses, research and development expenses, the sufficiency of our cash for future operations, and the success of our preclinical, clinical and development programs. Forward-looking statements may be identified by the use of forward-looking terminology such as “may,” “could,” “will,” “expect,” “estimate,” “anticipate,” “continue,” or similar terms, variations of such terms or the negative of those terms.

We cannot assure investors that our assumptions and expectations will prove to have been correct. Important factors could cause our actual results to differ materially from those indicated or implied by forward-looking statements. Such factors that could cause or contribute to such differences include those factors discussed below. We undertake no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. If any of the following risks actually occur, our business, financial condition, results of operations or liquidity would likely suffer.

The following discussion includes revised risk factors that reflect developments subsequent to the discussion of risk factors included in our most recent Annual Report on Form 10-K, including the closing of the sale of our stake in 454 to RDO on May 25, 2007. Due to the completion of the sale of 454 to RDO, we have excluded the risk factors related to 454’s business and added two risk factors addressing risks to us associated with the sale of 454. A detailed discussion of the 454 sale can be found in Note 4 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Risks Related to Our Business

Substantially all of our gross consolidated revenue for the year ended December 31, 2006 was derived from sales by 454. As a result of the acquisition of 454 by RDO, we will have no meaningful source of recurring revenue in the near future.

In fiscal year 2006, approximately 94% of our gross consolidated revenues were derived from product, sequencing service, collaboration, grant and milestone revenue from 454. As a result of the acquisition of 454 by RDO, our revenue sources now consist of limited amounts of collaboration revenue related to the LEO Pharma/TopoTarget licensing agreement. Accordingly, we have no meaningful source of recurring revenue for the short term.

We have a history of operating losses and expect to incur operating 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 experienced net losses of $59.8 million in 2006, $73.2 million in 2005 and $90.4 million in 2004, and as of September 30, 2007 had an accumulated deficit of $485.0 million. During the nine months ended September 30, 2007, we reported net income of $28.0 million, as a result of the gain on the sale of our stake in 454. We anticipate incurring additional losses as we focus our resources on prioritizing, selecting, and advancing our most promising drug candidates. We may never have operating income or achieve significant revenues.

We can not ensure that our existing cash and investment balances will be sufficient to meet our requirements for the future.

We believe that our existing cash and investment balances and other sources of liquidity, will be sufficient to meet our requirements for the next 24 months. We consider our operating and capital expenditures to be crucial to our future success, and by continuing to make strategic investments in our clinical drug pipeline, we believe that we are building substantial value for our stockholders. The adequacy of our available funds to meet our future operating and capital requirements will depend on many factors. These factors include: the number, breadth,

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progress and results of our research, product development and clinical programs; the costs and timing of obtaining regulatory approvals for any of our products; in-licensing and out-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 stockholders to lose all or a substantial portion of their investment.

All of our drug candidates are still in the early stages of development and remain subject to clinical testing and regulatory approval. If we are unable to successfully develop and test our drug candidates, we will not be successful.

To date, we have not marketed, distributed or sold any drug candidates. The success of our business depends primarily upon our ability to develop and commercialize our drug candidates successfully. Our most advanced drug candidates are belinostat, which is in multiple Phase I and Phase II clinical trials, and CR011-vcMMAE, which is currently in a Phase I/II clinical trial. Further development of our other preclinical candidates will be limited in the foreseeable future due to our decision to focus our resources on the development of our clinical oncology therapeutics. Our drug candidates must satisfy rigorous standards of safety and efficacy before they can be approved for sale. To satisfy these standards, we must engage in expensive and lengthy testing and obtain regulatory approval of our drug candidates. Despite our efforts, our drug candidates may not:

• offer therapeutic or other improvement over existing comparable drugs;

• be proven safe and effective in clinical trials;

• meet applicable regulatory standards;

• be capable of being produced in commercial quantities at acceptable costs; or

• be successfully commercialized.

Positive results in preclinical studies of a drug candidate may not be predictive of similar results in humans during clinical trials, and promising results from early clinical trials of a drug candidate may not be replicated in later clinical trials. For example, we recently decided to discontinue the development of velafermin after reviewing and evaluating the results of Phase II clinical trials. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late stage clinical trials even after achieving promising results in early stage development. Accordingly, the results from the completed preclinical studies and clinical trials and ongoing clinical trials for belinostat, CR011-vcMMAE and our other drug candidates may not be predictive of the safety, efficacy or dosing results we may obtain in later stage trials. We do not expect any of our drug candidates to be commercially available for at least several years.

If we are unable to obtain U.S. and/or foreign regulatory approval, we will be unable to commercialize our drug candidates.

Our drug candidates are subject to extensive governmental regulations relating to development, clinical trials, manufacturing and commercialization. Rigorous preclinical testing and clinical trials and an extensive regulatory approval process are required in the United States and in many foreign jurisdictions prior to the commercial sale of our drug candidates. Satisfaction of these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays. It is possible that none of the drug candidates we are developing will obtain marketing approval. In connection with the clinical trials for belinostat, CR011-vcMMAE and any other drug candidate we may seek to develop in the future, we face risks that:

• the drug candidate may not prove to be efficacious;

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• the drug may not prove to be safe;

• the results may not confirm the positive results from earlier preclinical studies or clinical trials; and

• the results may not meet the level of statistical significance required by the FDA or other regulatory authorities.

We have limited experience in conducting and managing the clinical trials necessary to obtain regulatory approvals, including approval by the FDA. The time required to complete clinical trials and for the FDA and other countries’ regulatory review processes is uncertain and typically takes many years. Our analysis of data obtained from preclinical and clinical activities is subject to confirmation and interpretation by regulatory authorities, which could delay, limit or prevent regulatory approval. We may also encounter unanticipated delays or increased costs due to government regulation from future legislation or administrative action or changes in FDA policy during the period of product development, clinical trials and FDA regulatory review.

Any delay in obtaining, or failure to obtain, required approvals could materially adversely affect our ability to generate revenues from the particular drug candidate. Furthermore, any regulatory approval to market a product may be subject to limitations on the indicated uses for which we may market the product. These limitations may limit the size of the market for the product. We are also subject to numerous foreign regulatory requirements governing the conduct of clinical trials, manufacturing and marketing authorization, pricing and third-party reimbursement. The foreign regulatory approval process includes all of the risks associated with FDA approval described above as well as risks attributable to the satisfaction of foreign requirements. Approval by the FDA does not ensure approval by regulatory authorities outside the United States. Foreign jurisdictions may have different approval procedures than those required by the FDA and may impose additional testing requirements for our drug candidates.

If clinical trials for our drug candidates are prolonged or delayed, we may be unable to commercialize our drug candidates on a timely basis, which would require us to incur additional costs and delay our receipt of any product revenue.

We cannot predict whether we will encounter problems with any of our completed, ongoing or planned clinical trials that will cause us or regulatory authorities to delay or suspend clinical trials, or delay the analysis of data from our completed or ongoing clinical trials. Any of the following could delay the clinical development of our drug candidates:

• ongoing discussions with the FDA or comparable foreign authorities regarding the scope or design of our clinical trials;

• delays in receiving or the inability to obtain required approvals from institutional review boards or other reviewing entities at clinical sites selected for participation in our clinical trials;

• delays in enrolling volunteers and patients into clinical trials;

• a lower than anticipated retention rate of volunteers and patients in clinical trials;

• the need to repeat clinical trials as a result of inconclusive or negative results or unforeseen complications in testing;

• inadequate supply or deficient quality of drug candidate materials or other materials necessary for the conduct of our clinical trials;

• unfavorable FDA inspection and review of a clinical trial site or records of any clinical or preclinical investigation;

• serious and unexpected drug-related side effects experienced by participants in our clinical trials; or

• the placement by the FDA of a clinical hold on a trial.

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Our ability to enroll patients in our clinical trials in sufficient numbers and on a timely basis will be subject to a number of factors, including the size of the patient population, the nature of the protocol, the proximity of patients to clinical sites, the availability of effective treatments for the relevant disease and the eligibility criteria for the clinical trial. Delays in patient enrollment may result in increased costs and longer development times. In addition, subjects may withdraw from our clinical trials, and thereby impair the validity or statistical significance of the trials.

We, the FDA or other applicable regulatory authorities may suspend clinical trials of a drug candidate at any time if we or they believe the subjects or patients participating in such clinical trials are being exposed to unacceptable health risks or for other reasons.

We cannot predict whether any of our drug candidates will encounter problems during clinical trials which will cause us or regulatory authorities to delay or suspend these trials, or which will delay the analysis of data from these trials. In addition, it is impossible to predict whether legislative changes will be enacted, or whether FDA regulations, guidance or interpretations will be changed, or what the impact of such changes, if any, may be. If we experience any such problems, we may not have the financial resources to continue development of the drug candidate that is affected or the development of any of our other drug candidates.

Even if we obtain regulatory approvals, our drug candidates will be subject to ongoing regulatory review. If we fail to comply with continuing U.S. and applicable foreign regulations, we could lose those approvals, and our business would be seriously harmed.

Even if we receive regulatory approval of any drugs we may develop, we will be subject to continuing regulatory review, including the review of clinical results which are reported after our drug candidates become commercially available approved drugs. Since drugs are more widely used by patients once approval has been obtained, side effects and other problems may be observed after approval that were not seen or anticipated during pre-approval clinical trials. In addition, the manufacturer, and the manufacturing facilities we use to make any of our drug candidates, will also be subject to periodic review and inspection by the FDA. The subsequent discovery of previously unknown problems with the drug, manufacturer or facility may result in restrictions on the drug, manufacturer or facility, including withdrawal of the drug from the market. If we fail to comply with applicable continuing regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approval, product recalls and seizures, operating restrictions and criminal prosecutions.

Our business has a substantial risk of product liability claims. If we are unable to obtain appropriate levels of insurance, a product liability claim could adversely affect our business.

Our business exposes us to significant potential product liability risks that are inherent in the development, manufacturing and sales and marketing of human therapeutic products. Although we do not currently commercialize any products, claims could be made against us based on the use of our drug candidates in clinical trials. We currently have clinical trial insurance and will seek to obtain product liability insurance prior to the sales and marketing of any of our drug candidates. However, our insurance may not provide adequate coverage against potential liabilities. Furthermore, clinical trial and product liability insurance is becoming increasingly expensive. As a result, we may be unable to maintain current amounts of insurance coverage or obtain additional or sufficient insurance at a reasonable cost to protect against losses that could have a material adverse effect on us. If a claim is brought against us, we might be required to pay legal and other expenses to defend the claim, as well as uncovered damages awards resulting from a claim brought successfully against us. Furthermore, whether or not we are ultimately successful in defending any such claims, we might be required to direct significant financial and managerial resources to such defense, and adverse publicity is likely to result.

If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our drug candidates, we may not generate product revenue.

We have no commercial products and we do not currently have an organization for the sales and marketing of pharmaceutical products. In order to successfully commercialize any drugs that may be approved in the future by the FDA or comparable foreign regulatory authorities, we must build our sales and marketing capabilities or make arrangements with third parties to perform these services. There are risks involved with establishing our own sales and marketing capabilities, as well as entering into arrangements with third parties to perform these services. For example, developing a sales force is expensive and time consuming and could delay any product launch. In addition, to the extent that we enter into arrangements with third parties to perform sales, marketing and distribution services, we will have less control over sales of our products, and our future revenues would depend heavily on the success of the efforts of these third parties. If we are unable to establish adequate sales, marketing and distribution capabilities, whether independently or with third parties, we may not be able to generate product revenue and may not become profitable.

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If physicians, patients and third-party payors do not accept our future drugs, we may be unable to generate significant revenue, if any.

Even if belinostat, CR011-vcMMAE or any other drug candidates we may develop or acquire in the future obtain regulatory approval, they may not gain market acceptance among physicians, patients and health care payors. Physicians may elect not to recommend these drugs for a variety of reasons including:

• timing of market introduction of competitive drugs;

• lower demonstrated clinical safety and efficacy compared to other drugs;

• lack of cost-effectiveness;

• lack of availability of reimbursement from third-party payors;

• convenience and ease of administration;

• prevalence and severity of adverse side effects;

• other potential advantages of alternative treatment methods; and

• ineffective marketing and distribution support.

If our approved drugs fail to achieve market acceptance, we would not be able to generate sufficient revenue from product sales to maintain or grow our business.

If third-party payors do not adequately reimburse customers for any of our product candidates that are approved for marketing, they might not be purchased or used, and our revenues and profits will not develop or increase.

Our revenues and profits will depend heavily upon the availability of adequate reimbursement for the use of our approved product candidates from governmental and other third-party payors, both in the United States and in foreign markets. Reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a product is:

• a covered benefit under its health plan;

• safe, effective and medically necessary;

• appropriate for the specific patient;

• cost-effective; and

• neither experimental nor investigational.

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Obtaining reimbursement approval for a product from each government or other third-party payor is a time-consuming and costly process that could require us to provide supporting scientific, clinical and cost-effectiveness data for the use of our products to each payor. We may not be able to provide data sufficient to gain acceptance with respect to reimbursement. There is substantial uncertainty whether any particular payor will reimburse the use of any drug products incorporating new technology. Even when a payor determines that a product is eligible for reimbursement, the payor may impose coverage limitations that preclude payment for some uses that are approved by the FDA or comparable authority. Moreover, eligibility for coverage does not imply that any product will be reimbursed in all cases or at a rate that allows us to make a profit or even cover our costs. Interim payments for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the product and the clinical setting in which it is used, may be based on payments allowed for lower-cost products that are already reimbursed, may be incorporated into existing payments for other products or services, and may reflect budgetary constraints and/or imperfections in Medicare, Medicaid or other data used to calculate these rates. Net prices for products may be reduced by mandatory discounts or rebates required by government health care programs or by any future relaxation of laws that restrict imports of certain medical products from countries where they may be sold at lower prices than in the United States.

There have been, and we expect that there will continue to be, federal and state proposals to constrain expenditures for medical products and services, which may affect payments for our products. The Centers for Medicare and Medicaid Services, or CMS, frequently change product descriptors, coverage policies, product and service codes, payment methodologies and reimbursement values. Third-party payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates, and both CMS and other third-party payors may have sufficient market power to demand significant price reductions. Due in part to actions by third-party payors, the health care industry is experiencing a trend toward containing or reducing costs through various means, including lowering reimbursement rates, limiting therapeutic class coverage and negotiating reduced payment schedules with service providers for drug products.

Our inability to promptly obtain coverage and profitable reimbursement rates from government-funded and private payors for our products could have a material adverse effect on our operating results and our overall financial condition.

We may not be able to execute our business strategy if we are unable to enter into alliances with other companies that can provide capabilities and funds for the development and commercialization of our drug candidates. If we are unsuccessful in forming or maintaining these alliances on favorable terms, our business may not succeed.

We have entered into collaboration arrangements with several companies for the research, development and commercialization of our drug candidates, and we may enter into additional collaborative arrangements in the future. For example, we may enter into alliances with major biotechnology or pharmaceutical companies to jointly develop specific drug candidates and to jointly commercialize them if they are approved. We may not be successful in entering into any such alliances on favorable terms. Even if we do succeed in securing such alliances, we may not be able to maintain them if, for example, development or approval of a drug candidate is delayed or sales of an approved drug are disappointing. Furthermore, any delay in entering into collaboration agreements could delay the development and commercialization of our drug candidates and reduce their competitiveness even if they reach the market. Any such delay related to our collaborations could adversely affect our business.

In addition to relying on a third party for its capabilities, we may depend on our alliances with other companies to provide substantial additional funding for development and potential commercialization of our drug candidates. We may not be able to obtain funding on favorable terms from these alliances, and if we are not successful in doing so, we may not have sufficient funds to develop a particular drug candidate internally, or to bring drug candidates to market. Failure to bring our drug candidates to market will prevent us from generating sales revenues, and this may substantially harm our business.

If a collaborative partner terminates or fails to perform its obligations under agreements with us, the development and commercialization of our drug candidates could be delayed or terminated.

If any current or future collaborative partner does not devote sufficient time and resources to collaboration arrangements with us, we may not realize the potential commercial benefits of the arrangement, and our results of operations may be adversely affected. In addition, if any existing or future collaboration partner were to breach or terminate its arrangements with us, the development and commercialization of the affected drug candidate could be delayed, curtailed or terminated because we may not have sufficient financial resources or capabilities to continue development and commercialization of the drug candidate on our own.

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Much of the potential revenue from our existing and future collaborations will consist of contingent payments, such as payments for achieving development milestones and royalties payable on sales of drugs developed using our technologies. The milestone and royalty revenues that we may receive under these collaborations will depend upon our collaborator’s ability to successfully develop, introduce, market and sell new products. In addition, our collaborators may decide to enter into arrangements with third parties to commercialize products developed under our existing or future collaborations using our technologies, which could reduce the milestone and royalty revenue that we may receive, if any. In many cases we will not be involved in these processes and accordingly will depend entirely on our collaborators. Our collaboration partners may fail to develop or effectively commercialize products using our products or technologies because they:

• decide not to devote the necessary resources due to internal constraints, such as limited personnel with the requisite scientific expertise, limited cash resources or specialized equipment limitations, or the belief that other drug development programs may have a higher likelihood of obtaining regulatory approval or may potentially generate a greater return on investment;

• do not have sufficient resources necessary to carry the drug candidate through clinical development, regulatory approval and commercialization;

• decide to pursue a competitive drug candidate developed outside of the collaboration; or

• cannot obtain the necessary regulatory approvals.

If our collaboration partners fail to develop or effectively commercialize drug candidates or drugs for any of these reasons, we may not be able to replace the collaboration partner with another partner to develop and commercialize a drug candidate or drugs under the terms of the collaboration. We may also be unable to obtain a license from such collaboration partner on terms acceptable to us, or at all.

We rely on third parties to conduct our clinical trials and provide other services, and those third parties may not perform satisfactorily, including failing to meet established deadlines for the completion of such services.

We do not have the ability to independently conduct some preclinical studies and the clinical trials for our drug candidates, and we rely on third parties such as contract laboratories, contract research organizations, medical institutions and clinical investigators to design and conduct these studies and our clinical trials. Our reliance on these third parties reduces our control over these activities. Accordingly, these third-party contractors may not complete activities on schedule, or may not conduct the studies or our clinical trials in accordance with regulatory requirements or our trial design. To date, we believe our contract research organizations and other similar entities with which we are working have performed well. However, if these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be required to replace them. Although we believe that there are a number of other third-party contractors we could engage to continue these activities, it may result in delays. Accordingly, our efforts to obtain regulatory approvals for and commercialize our drug candidates may be delayed.

In addition, our ability to bring our future products to market depends on the quality and integrity of the data we present to regulatory authorities in order to obtain marketing authorizations. We cannot guarantee the authenticity or accuracy of such data, nor can we be certain that such data has not been fraudulently generated. The failure of these third parties to carry out their obligations would materially adversely affect our ability to develop and market new products and implement our strategies.

We currently depend on third-party manufacturers to produce our clinical drug supplies and intend to rely upon third-party manufacturers to produce commercial supplies of any approved drug candidates. If in the future we manufacture any of our drug candidates, we will be required to incur significant costs and devote significant efforts to establish and maintain these capabilities.

We have relied upon third parties to produce material for clinical testing purposes and intend to continue to do so in the future. Although we believe that we will not have any material supply issues, we cannot be certain that we will be able to obtain long-term supplies of those materials on acceptable terms, if at all. We also expect to rely upon third parties to produce materials required for the commercial production of our drug candidates if we succeed in obtaining necessary regulatory approvals. If we are unable to arrange for third-party manufacturing, or to do so on commercially reasonable terms, we may not be able to complete development of our drug candidates or market them. Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured drug candidates ourselves, including reliance on the third party for regulatory compliance and quality assurance, the possibility of breach of the manufacturing agreement by the third party because of factors beyond our control and the possibility of termination or nonrenewal of the agreement by the third party, based on its own business priorities,

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at a time that is costly or damaging to us. In addition, the FDA and other regulatory authorities require that our drug candidates be manufactured according to current Good Manufacturing Practices, or cGMP, regulations. Any failure by us or our third-party manufacturers to comply with cGMP and/or our failure to scale up our manufacturing processes could lead to a delay in, or failure to obtain, regulatory approval of any of our drug candidates. In addition, such failure could be the basis for action by the FDA to withdraw approvals for drug candidates previously granted to us and for other regulatory action.

We currently rely on a single manufacturer for the clinical supplies of our antibody, and ADC drug candidates and do not currently have relationships for redundant supply or a second source for any of these drug candidates. To date, our third-party manufacturers have met our manufacturing requirements, but we cannot assure that they will continue to do so. Any performance failure on the part of our existing or future manufacturers could delay clinical development or regulatory approval of our drug candidates or commercialization of any approved products. If for some reason our current contract manufacturers cannot perform as agreed, we may be required to replace them. Although we believe there are a number of potential replacements as our manufacturing processes are not manufacturer specific, we may incur added costs and delays in identifying and qualifying any such replacements. Furthermore, although we generally do not begin a clinical trial unless we believe we have a sufficient supply of a drug candidate to complete the trial, any significant delay in the supply of a drug candidate for an ongoing trial due to the need to replace a third-party manufacturer could delay completion of the trial.

We may in the future elect to manufacture certain of our drug candidates in our own manufacturing facilities. If we do so, we will require substantial additional funds and need to recruit qualified personnel in order to build or lease and operate any manufacturing facilities.

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

Our products in development will require significant research and development and preclinical and clinical testing prior to our submitting any regulatory application for their commercial use. These activities, even if undertaken without the collaboration of others, will require us to expend significant funds and will be subject to the risks of failure inherent in the development of pharmaceutical products. We have limited experience conducting clinical trials. Even if we complete such studies, our ability to commercialize products will depend on our ability to:

• obtain and maintain necessary intellectual property rights to 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 services.

As a result of these possibilities, we may not be able to develop any commercially viable products. 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 FDA cGMPs. Any potential products developed by our licensees will be subject to the same risks.

We do not currently 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 other third parties to market certain of our products. Ultimately, we and our partners may not be successful in marketing our products.

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 of 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

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development of our drug candidates. Moreover, these drug candidates 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 rely significantly on our collaborative partners to gain access to specified technologies 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. We currently have significant strategic alliances with Amgen Fremont, TopoTarget, Seattle Genetics, and Bayer 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 senior management and scientific staff. Our future success will depend in part on the continued services of our key management and scientific personnel. The loss of services of any of these personnel could materially adversely affect our business, financial condition, and results of operations. We have entered into employment agreements with all of the principal members of our senior management team. Our future success will also depend in part on our ability to attract, hire, and retain additional personnel. There is intense competition for 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, consultants, and scientific advisors at academic and other institutions that conduct research or provide consulting services at our request. These collaborators, consultants, and scientific advisors are not our employees. Substantially all of our collaborators, consultants, and scientific advisors are employed by employers other than us and may have commitments to, or collaboration, 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, consulting agreements, and advisory agreements, can expect only limited amounts of their time to be dedicated to our activities. Our ability to explore and validate biological activity of therapeutic candidates and commercialize products based on these 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, consultants, or scientific advisors at academic and other institutions.

Our academic collaborators, consultants, and scientific advisors may have relationships with other commercial entities, some of which could compete with us. Our academic collaborators, consultants and scientific advisors sign agreements which provide for confidentiality of our proprietary information and of the results of studies. We may not be able to maintain the confidentiality of our technology and other confidential information in connection with every academic collaboration, consulting, 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 in the development and commercialization of new drugs from organizations that are pursuing strategies, approaches, technologies and products that are similar to our own. Many

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of the organizations competing with us have greater capital resources, research and development staffs and facilities and marketing capabilities. 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.

We are aware of specific companies that are developing HDAC inhibitors for use in the treatment of cancer that may be competitive with ours. With respect to our HDAC inhibitor, belinostat, Merck & Co., Inc. recently received FDA approval to market Zolinza, or vorinostat, the first HDAC inhibitor approved for use in the U.S., for the treatment of cutaneous T-cell lymphoma. Bayer Schering Pharma AG, Gloucester Pharmaceuticals, Inc., Methylgene, Inc., and Novartis Pharma AG are also currently evaluating HDAC inhibitors in clinical trials for the treatment of cancers, and in combinations with other chemotherapies, that are similar to approaches and indications we are pursuing. In addition, many other pharmaceutical and biotechnology companies are engaged in research and development for the treatment of cancer from which we may face intense competition. We expect belinostat to compete on the basis of efficacy, routes of administration, and potentially safety and economic value compared to drugs used in current practice or currently being developed.

If we do not obtain adequate intellectual property protection, we may not be able to prevent our competitors from commercializing our discoveries.

Our business and competitive position depends on our ability to protect our products and processes, including 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.

The patent positions of pharmaceutical, biopharmaceutical, and biotechnology companies, including us, are generally uncertain and involve complex legal and factual questions. The law relating to the scope of patent claims in the technology fields in which we operate is evolving, and the degree of future protection for our proprietary rights is uncertain. Furthermore, even if patents are issued to us, there can be no assurance that others will not develop alternative technologies or design around the patented technologies developed by us. Therefore, our patent applications may not protect our products, processes, and technologies for at least the following reasons:

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

• 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.

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. The invalidation of key patents owned by or licensed to us or the non-approval of pending patent applications could increase competition and materially adversely affect our business, financial condition, and results of operations.

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, even if obtainable, such technology may not be available at a reasonable cost.

If we infringe on the intellectual property rights of others, we may be required to obtain a license, pay damages, and/or cease the commercialization of our technology.

We believe that there may be significant litigation in the industry regarding patent and other intellectual property rights. It is possible that the commercialization of our technology could infringe the patents or other

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intellectual property rights of others. In addition, 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 applications may have priority over our patent applications, and may result in the issuance of patents to others that could be infringed by our products or processes.

A number of competitors are producing proteins from genes and claiming both the proteins as potential therapeutics as well as the antibodies against these proteins. In many cases, generic antibody claims are being issued by the 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 to proteins as therapeutics, to all antibodies against a protein, and to methods of use in broad human indications are being filed at a rapid rate, and patents including such claims have issued and may continue to issue. Such patents may prevent us from commercializing some products or processes or, if licenses under the patents are made available, may make the royalty burden on these products and processes so high as to prevent commercial success.

In addition, 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.

Certain 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.

Any legal action against us or our collaborators for patent infringement relating to our 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. If we become involved in such litigation, it could consume a substantial portion of our managerial and financial resources.

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

We rely upon trade secret protection for some of our confidential and proprietary information that is not the subject matter for which patent protection is being sought. 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, consultants, and scientific advisors 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, technology, or disclose such information; or

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

If the security of our confidential information is breached, our business could be materially adversely affected.

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. We may not be able to acquire licenses on commercially reasonable terms, if at all. Failure to license or otherwise acquire necessary technologies could materially adversely affect our business, financial condition, and results of operations.

If we do not comply with laws regulating the protection of the environment and health and human safety, our business could be adversely affected.

Our research and development efforts involve the controlled use of hazardous materials, chemicals and various radioactive compounds. Although we believe that our safety procedures for handling and disposing of these

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materials comply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. If an accident occurs, we could be held liable for resulting damages, which could be substantial. We are also subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and the handling of biohazardous materials. Although we maintain workers’ compensation insurance to cover us for costs we may incur due to injuries to our employees resulting from the use of these materials, this insurance may not provide adequate coverage against potential liabilities. Due to the small amount of hazardous materials that we generate, we do not currently maintain any environmental liability or toxic tort claim insurance coverage to cover pollution conditions or other extraordinary or unanticipated events relating to our use and disposal of hazardous materials. Additional federal, state and local laws and regulations affecting our operations may be adopted in the future. We may incur substantial costs to comply with, and substantial fines or penalties if we violate, any of these laws or regulations.

Risks Related to Our Financial Results

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 September 30, 2007, we had total consolidated debt of $109.4 million which is due in February 2011; and for the year ended December 31, 2006, we had a deficiency of earnings available to cover fixed charges of $61.3 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 debt that we sold in 2004. The following table shows, as of September 30, 2007, the remaining aggregate amount of our interest payments due in each of the years listed (in millions):

Year	Aggregate Interest
2008	$	4.4
2009		4.4
2010		4.4
2011		2.2
Total	$	15.4

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.

We will likely 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 funding requirements for the next 24 months. However, our future funding requirements will depend on many factors and we anticipate that we will likely 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;

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• 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;

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

• the extent to which RDO makes successful claims for indemnification under the Merger Agreement relating to the sale of 454.

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 stockholders. 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.

If the proceeds we receive from the sale of our stake in 454 are less than anticipated due to indemnification claims against the escrow account, our liquidity may be impaired, and we may be forced to seek alternative sources of financing sooner than anticipated.

We expect to use the proceeds we receive from the sale of our stake in 454 to make further investments in our clinical drug pipeline; however, as described in Note 4 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, $25 million of the total sale proceeds to 454 stockholders has been placed in an escrow account in order to secure certain indemnification rights of RDO and its affiliates. Our portion of the $25 million escrow fund totals $14.1 million. Under the Merger Agreement, Roche is entitled to indemnification for damages incurred by RDO, 454 and certain other RDO affiliates as a result of the following: breaches of representations, warranties or covenants made by 454 in the Merger Agreement; costs incurred by the indemnified parties in connection with demands by 454 stockholders under Delaware law for appraisal, or payment of the fair value of their 454 shares as determined by the Delaware Court of Chancery, or compliance with certain environmental laws; and costs incurred by the indemnified parties in connection with the sale of 454 that were not previously taken into account in determining the price paid by RDO for 454. If RDO makes a successful claim for indemnification due to one or more of these reasons, the amount of the escrow account that is available for distribution to us and other 454 stockholders at the end of the 15-month escrow period will be reduced or eliminated.

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:

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

• 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;

38

• losses and expenses related to our investments;

• regulatory developments;

• 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.

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.

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

We have a diversified portfolio of investments of which $22.3 million at September 30, 2007 were invested in U.S. Treasuries and debt investments that are sponsored by the U.S. Government. Our corporate fixed-rate debt investments comply with our policy of investing in only investment-grade debt instruments. The ability for the debt to be repaid upon maturity or to have a viable resale market is dependent, in part, on the financial success of the underlying company. Should the underlying company suffer significant financial difficulty, the debt instrument could either be downgraded or, in the worst case, our investment could be worthless. This would result in our losing the cash value of the investment and incurring a charge to our statement of operations.

The market price of our common stock is highly volatile.

The market price of our common stock has fluctuated widely and may continue to do so. For example, during the first nine months of 2007, the closing price of our stock ranged from a high of $4.80 per share to a low of $1.14 per share. Many factors could cause the market price of our common stock to rise and fall. These factors include:

• variations in our quarterly operating results;

• announcements of clinical results, technological innovations, 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 significant leverage as a result of the sale of our debt in 2004.

In February 2004, in connection with the sale of our 4% convertible subordinated notes due 2011, we incurred $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. During September 2007, we repurchased $0.6 million of these debentures, for total consideration of $0.4 million, plus accrued interest to the date of repurchase. As a result of the remaining indebtedness, our interest payment obligations amount to $4.4 million per year.

The degree to which we are leveraged could adversely affect our ability to obtain further financing for working capital, acquisitions, or other purposes and could make us more vulnerable to industry downturns and competitive pressures. Our ability to meet our debt service obligations will depend upon our future performance, which may be subject to the financial, business, and other factors affecting our operations, many of which are beyond our control.

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

The indentures governing our convertible debt due 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.

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Our debt service obligations may adversely affect our cash flow.

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

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

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

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

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

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

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

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

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 stockholders will be reduced, and the new equity securities may have rights with priority over our common stock. We may not be able to obtain sufficient financing on terms that are favorable to us or our existing stockholders, if at all.

Any conversion of our convertible debt into shares of common stock will dilute the ownership interest of our current stockholders. The conversion price of our convertible debt due in February 2011 is approximately $9.69 per share.

We may effect future repurchases of our 4% convertible debentures due in February 2011, which may adversely affect our liquidity.

We may from time to time seek to repurchase or refinance a portion of our outstanding 4% convertible debentures that mature on February 15, 2011. Any repurchases might occur through cash purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved in any such transaction, individually or in the aggregate, may be material.

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Item 6. Exhibits

Exhibit 10.1	Transition and Severance Agreement, dated September 19, 2007, between the Registrant and Frank M. Armstrong, M.D.
Exhibit 10.2	Amended and Restated Employment Agreement, dated September 19, 2007, between the Registrant and Timothy M. Shannon, M.D.
Exhibit 10.3	Nonstatutory Stock Option Agreement granted under 2007 Stock Incentive Plan, dated September 25, 2007, between the Registrant and Timothy M. Shannon, M.D.
Exhibit 10.4	Assignment and Assumption of Lease with Landlord’s Consent and Release, dated August 1, 2007, between ZFI Group, LLC, 454 Life Sciences Corporation and the Registrant
Exhibit 10.5	Indemnity Agreement dated August 1, 2007, between 454 Life Sciences Corporation and the Registrant
Exhibit 10.6	Form of Restricted Stock Agreement for restricted stock awards granted on May 25, 2007 to each of Frank M. Armstrong, Paul M. Finigan, Timothy M. Shannon, Elizabeth A. Whayland and David M. Wurzer under the 2007 Stock Incentive Plan
Exhibit 31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

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SIGNATURES

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

Dated: November 9, 2007	CuraGen Corporation
	By:	/s/ Timothy M. Shannon, M.D.
		Timothy M. Shannon, M.D.
		Chief Executive Officer and President
		(principal executive officer of the registrant)
Dated: November 9, 2007	By:	/s/ David M. Wurzer
		David M. Wurzer
		Executive Vice-President, Chief Financial Officer and Treasurer (principal financial and accounting officer of the registrant)

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CURAGEN CORPORATION

EXHIBIT INDEX

No.

Exhibit 10.1	Transition and Severance Agreement, dated September 19, 2007, between the Registrant and Frank M. Armstrong, M.D.
Exhibit 10.2	Amended and Restated Employment Agreement, dated September 19, 2007, between the Registrant and Timothy M. Shannon, M.D.
Exhibit 10.3	Nonstatutory Stock Option Agreement granted under the 2007 Stock Incentive Plan dated September 25, 2007, between the Registrant and Timothy M. Shannon, M.D.
Exhibit 10.4	Assignment and Assumption of Lease with Landlord’s Consent and Release, dated August 1, 2007, between ZFI Group, LLC, 454 Life Sciences Corporation and the Registrant
Exhibit 10.5	Indemnity Agreement dated August 1, 2007, between 454 Life Sciences Corporation and the Registrant
Exhibit 10.6	Form of Restricted Stock Agreement for restricted stock awards granted on May 25, 2007 to each of Frank M. Armstrong, Paul M. Finigan, Timothy M. Shannon, Elizabeth A. Whayland and David M. Wurzer under the 2007 Stock Incentive Plan
Exhibit 31.1	Certification by Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2	Certification by Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32	Certification by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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EX-10.1

Exhibit 10.1

Transition And Severance Agreement

This Transition Agreement made as of this 19th day of September 2007 by and between CuraGen Corporation (“CuraGen” or “Company”) and Frank M. Armstrong, MD (“Dr. Armstrong”).

WHEREAS, Dr. Armstrong has served as President and Chief Executive Officer of the Company pursuant to an Amended and Restated Employment Agreement dated September 1, 2006 (the “Employment Agreement”);

WHEREAS, Dr. Armstrong will be transitioning from the Company;

WHEREAS, the Company desires to secure his continued service until December 31, 2007 to allow for the timely completion of certain objectives and to allow for an appropriate transition of duties; and

WHEREAS, the Company desires to maintain his participation as a member of its Board of Directors for a period of time thereafter;

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, the parties agree as follows.

1. Continued Employment. Effective September 19, 2007, Dr. Armstrong shall resign his positions as President and Chief Executive Officer of the Company and he shall assume the position of Special Adviser to the Board of Directors. Dr. Armstrong will remain in this position without reduction in compensation or benefits through December 31, 2007 at which time he will terminate employment with the Company effective January 1, 2008 (the “Separation from Service Date”). Due to continuing business needs, Dr. Armstrong shall serve as a non-employee member of the Company’s Board of Directors through the date of the Company’s annual meeting of stockholders in May, 2008, or such earlier date as may be agreed to by Dr. Armstrong and the Company (such period referred to as the “Director Term”), and Dr. Armstrong will be eligible to receive compensation for such position in accordance with Company practice. For purposes of this Agreement, the term “Separation from Service” shall have the same meaning as that accorded the term under the default rule contained in Treasury Regulation Section 1.409A-1(h)(1)(ii).

2. Bonus Eligibility. Dr. Armstrong shall be eligible for potential award of his annual bonus for the full year 2007 pursuant to the Executive Incentive Plan, subject to the approval of the Compensation Committee in January, 2008, and to be paid in accordance with the terms of such plan.

3. Severance Benefits. Upon the Separation from Service Date, Dr. Armstrong shall execute the Release of Claims attached hereto as Exhibit A and, conditioned on the Release of Claims becoming binding upon him, Dr. Armstrong or, in the event of Dr. Armstrong’s death, his estate, shall be entitled to receive $519,000 as severance due to his termination without cause. This severance will be paid in a cash

lump sum within 30 days after his Separation from Service Date less applicable taxes and withholdings, in accordance with the Company’s normal payroll practices, but in no event shall payment be made until timely return and non-revocation of Attachment A. Dr. Armstrong is not eligible to receive any other payments or severance benefits under the Employment Agreement or pursuant to any other Company plan or policy, except as specifically set forth herein. This paragraph 3 shall constitute an election as to form of payment in accordance with Section 3.02 of IRS Notice 2006-79 and an amendment to Paragraph 11C(i) of Dr Armstrong’s employment agreement.

4. Health and Dental Insurance. The Separation from Service Date will serve as the “qualifying event” under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), which shall entitle Dr. Armstrong to COBRA continuation for an 18 month period following his Separation from Service. If Dr. Armstrong timely elects to continue medical and/or dental insurance coverage after the Separation from Service Date in accordance with the provisions of COBRA, the Company will pay the Company portion of his monthly premium payments for twelve (12) months or until he is covered under a group health plan of another employer, whichever occurs first (the “Continuation Period”). Dr. Armstrong still will be responsible for the same employee portion of the premium during the Continuation Period being paid by active employees participating in the same health program and paid in such manner as the Company provides.

5. Stock Options and Restricted Stock Awards—The terms and conditions of Dr. Armstrong’s (i) Non-Qualified Stock Option Agreement dated March 29, 2006, (ii) Restricted Stock Agreement dated March 29, 2006 and (iii) Restricted Stock Agreement dated January 24, 2007 shall remain in full force and effect, and to the extent permitted under the terms of said agreements shall continue to vest, through and including the last day of the Director Term. The incentive stock option granted to Dr. Armstrong on March 29, 2006, which is subject to the Incentive Stock Option Agreement dated March 29, 2006, shall cease vesting as of the Separation from Service Date. The shares of common stock subject to Dr. Armstrong’s Restricted Stock Agreement dated May 25, 2007 shall not vest and shall be forfeited as of the Separation from Service Date. The post-termination period for exercise of Non-qualified Stock Options shall extend from the end of the Director Term, rather than the Separation from Service date.

6. Termination of Benefits. All benefits, other than those provided under this Transition Agreement, will end upon the Separation from Service Date; provided, however, the Company will provide Dr. Armstrong with return transportation to his home country following the Separation from Service Date.

7. Section 409A. It is intended that all payments made under the terms of this Transition Agreement come within exceptions to Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), including transition guidance issued thereunder. The Transition Agreement and all related documents shall be interpreted and administered in accordance with that intention. However, if any amount

2

payable under this Transition Agreement is determined to be subject to Section 409A then such payments shall be administered in accordance with Section 409A; provided that the Company shall not be liable for any failures under this Section 7 that result in the payment of any taxes or other amounts due under the terms of Section 409A. To the extent any amount subject to Section 409A is to be paid or provided to Dr. Armstrong in connection with a separation from service at a time when he is considered a specified employee within the meaning of Section 409A then such payment shall not be made until the date that is six months and one day following such separation from service, or in a lump sum to his estate upon his earlier death.

8. Non-Disclosure, Non-Competition and Non-Solicitation Obligations. Dr. Armstrong acknowledges and reaffirms his obligation to keep confidential and not disclose any non-public information concerning the Company and its clients that he acquired during the course of his employment with the Company, as stated more fully in the Employment Agreement. Dr. Armstrong further acknowledges and reaffirms his obligations as set forth in Paragraphs 6, 7 and 8 of the Employment Agreement, which shall also remain in full force and effect; provided, however, that the reference to any “any HDAC product for oncology” shall be deleted from Paragraph 8 (A) of the Employment Agreement, except as such prohibition would relate to Gloucester, Methylgene, Syndex and TopoTarget and any of their respective successors, joint-ventures and assigns, as to which such Paragraph 8(A) shall continue to apply for a period of 1 year from the Separation from Service Date.

9. Return of Company Property. Dr. Armstrong confirms that, as of the Separation from Service Date, he will return to the Company all keys, files, records (and copies thereof), equipment (including, but not limited to, software and printers, wireless handheld devices, cellular phones, pagers, etc.), Company identification, and any other Company-owned property in his possession or control, and that he will leave intact all electronic Company documents, including, but not limited to, those which he developed or helped develop during his employment. Dr. Armstrong agrees that in the event that he discovers any other Company or proprietary materials in his possession after the Separation from Service Date, he will immediately return such materials to Paul Finigan at the Company. Dr. Armstrong further confirms that he will have cancelled all accounts for his benefit, if any, in the Company’s name, including, but not limited to, credit cards, telephone charge cards, cellular phone and/or pager accounts and computer accounts.

10. Release of Claims. In consideration of the benefits provided for in this Transition Agreement, which Dr. Armstrong acknowledges he would not otherwise be entitled to receive, and except with respect to benefits and payments under this Transition Agreement or to which Dr. Armstrong is entitled under the Company’s benefit plans in the ordinary course, Dr. Armstrong hereby fully, forever, irrevocably and unconditionally releases, remises and discharges the Company, its officers, directors, stockholders, corporate affiliates, subsidiaries, parent companies, agents, representatives, plan administrators and employees (each in their individual and corporate capacities) (hereinafter, the “Released Parties”) from any and all claims, charges, complaints, demands, actions, causes of action, suits, rights, debts, sums of money, costs, accounts,

3

reckonings, covenants, contracts, agreements, promises, doings, omissions, damages, executions, obligations, liabilities, and expenses (including attorneys’ fees and costs), of every kind and nature which he ever had or now has against the Released Parties, including, but not limited to, any claims arising out of his employment with and/or separation from the Company, including, but not limited to, all employment discrimination claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., the Age Discrimination in Employment Act, 29 U.S.C. § 621 et seq., the Americans With Disabilities Act of 1990, 42 U.S.C. §12101 et seq., the Family and Medical Leave Act, 29 U.S.C. § 2601 et seq., the Worker Adjustment and Retraining Notification Act (“WARN”), 29 U.S.C. § 2101 et seq., Section 806 of the Corporate Fraud Accountability Act of 2002, 18 U.S.C. § 1514(A), the Rehabilitation Act of 1973, 29 U.S.C. § 701 et seq., Executive Order 11216, Executive Order 11141, all as amended; all claims arising out of the Fair Credit Reporting Act, 15 U.S.C. §1681 et seq., the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §1001 et seq., the Connecticut Human Rights and Opportunities Act, Conn. Gen. Stat. § 46a-51 et seq., the Connecticut Equal Pay Law, Conn. Gen. Stat. § 31-75 et seq. and 31-58(e), the Connecticut Family and Medical Leave Law, Conn. Gen. Stat. § 31-51kk et seq., Conn. Gen. Stat. § 31-51m (Connecticut whistleblower protection law), all as amended; all common law claims including, but not limited to, actions in tort, defamation and breach of contract; all claims to any non-vested ownership interest in the Company, contractual or otherwise, including, but not limited to, claims to stock or stock options; and any claim or damage arising out of his employment with or separation from the Company (including any claim for retaliation) under any common law theory or any federal, state or local statute or ordinance not expressly referenced above; provided, however, that nothing in this Transition Agreement prevents him from filing, cooperating with, or participating in any proceeding before the EEOC or a state Fair Employment Practices Agency (except that he acknowledges that he may not be able to recover any monetary benefits in connection with any such claim, charge or proceeding).

11. Acknowledgment. Dr. Armstrong acknowledges that he has been advised of his right to at least twenty-one (21) days to consider this Transition Agreement and the Release of Claims at Attachment A, and that the Company advises him to consult with an attorney of his own choosing prior to signing this Transition Agreement and Attachment A. Dr. Armstrong is advised that he may revoke his agreement for a period of seven (7) days after he signs each of the documents, and the releases provided above and at Attachment A shall not be effective or enforceable until the expiration of each such seven (7) day revocation period. Dr. Armstrong is advised and he understands and agrees that by entering into this agreement and Attachment A and signing the Release of Claims he is waiving any and all rights or claims he might have under The Age Discrimination in Employment Act, as amended by The Older Workers Benefit Protection Act, and that he has received consideration beyond that to which he was previously entitled.

12. Amendment. This Transition Agreement and Attachment A shall be binding upon the parties and may not be modified in any manner, except by an instrument in writing of concurrent or subsequent date signed by duly authorized representatives of the parties hereto. This Transition Agreement and Attachment A are binding upon and shall inure to the benefit of the parties and their respective agents, assigns, heirs, executors, successors and administrators.

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13. No Waiver. No delay or omission by either party in exercising any right under this Transition Agreement and Attachment A shall operate as a waiver of that or any other right. A waiver or consent given by a party on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion.

14. Validity. Should any provision of this Transition Agreement or Attachment A be declared or be determined by any court of competent jurisdiction to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby and said illegal and/or invalid part, term or provision shall be deemed not to be a part of this Transition Agreement.

15. Continued Assistance. Dr. Armstrong agrees that after the Separation from Service Date he will provide all reasonable cooperation to the Company, including, but not limited to, assisting the Company transition his job duties, assisting the Company in defending against and/or prosecuting any litigation or threatened litigation, and performing any other tasks as reasonably requested by the Company, without additional compensation beyond Board fees if such services are rendered while Dr. Armstrong is a member of the Board, and at the rate of $250 per hour following his resignation from the Board.

16. Cooperation. To the extent permitted by law, Dr. Armstrong agrees to cooperate fully with the Company in the defense or prosecution of any claims or actions which already have been brought, are currently pending, or which may be brought in the future against or on behalf of the Company (other than those brought by the Company against him or brought by him against the Company), whether before a state or federal court, any state or federal government agency, or a mediator or arbitrator. Dr. Armstrong’s full cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare its claims or defenses, to prepare for trial or discovery or an administrative hearing or a mediation or arbitration and to act as a witness when requested by the Company at reasonable times designated by the Company. The Company agrees to reimburse him for reasonably necessary and documented professional time rendered following his resignation from the Board at an agreed upon hourly rate of $250.00 in connection with such claims or actions, and shall reimburse Dr. Armstrong for travel, food, and lodging expenses. Dr. Armstrong agrees that he will notify the Company promptly in the event that he is served with a subpoena or in the event that you are asked to provide a third party with information concerning any actual or potential complaint or claim against the Company. The Company agrees that, in the event of a third party claim against him, the Company will provide him with indemnification in accordance with the terms and conditions set forth in the Company’s Amended and Restated By-Laws.

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17. Voluntary Assent. Dr. Armstrong affirms that no other promises or agreements of any kind have been made to or with him by any person or entity whatsoever to cause him to sign this Transition Agreement and Attachment A, and that he fully understands the meaning and intent of these documents. Dr. Armstrong states and represents that he has had an opportunity to fully discuss and review the terms of this Transition Agreement and Attachment A with an attorney. Dr. Armstrong further states and represents that he has carefully read this Transition Agreement, including Attachment A hereto, understands the contents therein, freely and voluntarily assents to all of the terms and conditions hereof, and signs his name of his own free act.

18. Entire Agreement. This Transition Agreement, together with Attachment A, contains and constitutes the entire understanding and agreement between the parties hereto and cancels all previous oral and written negotiations, agreements, commitments and writings in connection therewith except as expressly provided herein. Nothing in this paragraph, however, shall modify, cancel or supersede Dr. Armstrong’s obligations set forth in paragraph 8 above.

CURAGEN CORPORATION		FRANK M. ARMSTRONG, MD
By:	/s/    Timothy M. Shannon	/s/    Frank M. Armstrong
Name: Title:	Timothy M. Shannon CEO
Date:	September 19, 2007	Date:	September 19, 2007

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ATTACHMENT A

RELEASE OF CLAIMS

This Release of Claims forms a part of that certain Transition Agreement (the “Transition Agreement”) dated as of                             , 2007 by and among Frank M. Armstrong, MD (“Dr. Armstrong”), and CuraGen Corporation (the “Company”).

1. Dr. Armstrong’s Release of Claims – In consideration of the payment of the benefits set forth in paragraph 3 of the Transition Agreement, which Dr. Armstrong acknowledges he would not otherwise be entitled to receive, and except with respect to benefits and payments under this Transition Agreement or to which Dr. Armstrong is entitled under the Company’s benefit plans in the ordinary course, he hereby fully, forever, irrevocably and unconditionally releases, remises and discharges the Company, its officers, directors, stockholders, corporate affiliates, subsidiaries, parent companies, agents, representatives, plan administrators and employees (each in their individual and corporate capacities) (hereinafter, the “Released Parties”) from any and all claims, charges, complaints, demands, actions, causes of action, suits, rights, debts, sums of money, costs, accounts, reckonings, covenants, contracts, agreements, promises, doings, omissions, damages, executions, obligations, liabilities, and expenses (including attorneys’ fees and costs), of every kind and nature which he ever had or now has against the Released Parties, including, but not limited to, any claims arising out of his employment with and/or separation from the Company, including, but not limited to, all employment discrimination claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. §2000e et seq., the Age Discrimination in Employment Act, 29 U.S.C. § 621 et seq., the Americans With Disabilities Act of 1990, 42 U.S.C. §12101 et seq., the Family and Medical Leave Act, 29 U.S.C. § 2601 et seq., the Worker Adjustment and Retraining Notification Act (“WARN”), 29 U.S.C. § 2101 et seq., Section 806 of the Corporate Fraud Accountability Act of 2002, 18 U.S.C. § 1514(A), the Rehabilitation Act of 1973, 29 U.S.C. § 701 et seq., Executive Order 11216, Executive Order 11141, all as amended; all claims arising out of the Fair Credit Reporting Act, 15 U.S.C. §1681 et seq., the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §1001 et seq., the Connecticut Human Rights and Opportunities Act, Conn. Gen. Stat. § 46a-51 et seq., the Connecticut Equal Pay Law, Conn. Gen. Stat. § 31-75 et seq. and 31-58(e), the Connecticut Family and Medical Leave Law, Conn. Gen. Stat. § 31-51kk et seq., Conn. Gen. Stat. § 31-51m (Connecticut whistleblower protection law), all as amended; all common law claims including, but not limited to, actions in tort, defamation and breach of contract; all claims to any non-vested ownership interest in the Company, contractual or otherwise, including, but not limited to, claims to stock or stock options; and any claim or damage arising out of his employment with or separation from the Company (including any claim for retaliation) under any common law theory or any federal, state or local statute or ordinance not expressly referenced above; provided, however, that nothing in this Release of Claims prevents him from filing, cooperating with, or participating in any proceeding before the EEOC or a state Fair Employment Practices Agency (except that he acknowledges that he may not be able to recover any monetary benefits in connection with any such claim, charge or proceeding).

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2. Acknowledgement. Dr. Armstrong hereby acknowledges that he has been given at least twenty-one (21) days to consider the Transition Agreement, as well as this Attachment A, and that the Company advises him to consult with any attorney of his own choosing prior to signing the Transition Agreement and this Attachment A. Dr. Armstrong is advised that he may revoke his acceptance of this Attachment A during the period of seven (7) days after the execution of each of them, and this Attachment A shall not become effective or enforceable, and no severance payments will be made pursuant to Paragraph 3 of the Transition Agreement, until this seven (7) day period has expired. Dr. Armstrong is advised and he understands and agrees that by entering into this agreement and signing these documents and the Release of Claims he is waiving any and all rights or claims he might have under The Age Discrimination in Employment Act, as amended by The Older Workers Benefit Protection Act, and that he has received consideration beyond that to which he was previously entitled.

3. Non-Disparagement. Dr. Armstrong understands and agrees that as a condition for payment to him of the consideration herein described, he shall not make any false, disparaging or derogatory statements to any media outlet, industry group, financial institution or current or former employee, consultant, client or customer of the Company regarding the Company or any of its directors, officers, employees, agents or representatives or about the Company’s business affairs and financial condition, provided, however, he can give truthful statements to any state or federal officials.

4. Tax Acknowledgement. In connection with the payments and consideration provided to Dr. Armstrong pursuant to the Transition Agreement, the Company shall withhold and remit to the tax authorities the amounts required under applicable law, and he shall be responsible for all applicable taxes with respect to such payments and consideration under applicable law. Dr. Armstrong acknowledges that he is not relying upon the advice or representation of the Company with respect to the tax treatment of any of the payments set forth in paragraphs 2 and 3 of the Transition Agreement.

5. Applicable Law. The Transition Agreement and this Attachment A shall be interpreted and construed by the laws of the State of Connecticut, without regard to conflict of laws provisions. Dr. Armstrong hereby irrevocably submits to and acknowledges and recognizes the jurisdiction of the courts of the State of Connecticut or, if appropriate, a federal court located in the State of Connecticut (which courts, for purposes of this letter agreement, are the only courts of competent jurisdiction), over any suit, action or other proceeding arising out of, under or in connection with the Transition Agreement, this Attachment A or the subject matter hereof.

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CURAGEN CORPORATION	FRANK M. ARMSTRONG, MD
By:
Name: Title:
Date:	Date:

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EX-10.2

Exhibit 10.2

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (“Agreement”) entered into as of September 19, 2007 between CuraGen Corporation, a corporation organized under the laws of the State of Delaware, with its principal place of business at 322 East Main Street, Branford, Connecticut (the “Company”), and Timothy M. Shannon, M.D. (“Executive”) amends and restates the Employment Agreement originally dated as of September 9, 2002 and amended thereafter, to provide for the continued employment of Executive.

WHEREAS, the Executive desires to continue to be employed by the Company, subject to the terms and conditions of this Agreement; and the Company desires to retain the Executive’s services, subject to the terms and conditions of this Agreement.

THEREFORE, the Company and the Executive, intending to be legally bound, hereby agree as follows:

1. Employment; Duties and Responsibilities

A) The Company shall employ the Executive, and the Executive shall serve the Company, as President and Chief Executive Officer, with such duties and responsibilities as are typically associated with positions of that nature, and as may be assigned to the Executive by the Board of Directors of the Company. If elected or appointed to serve as a member of the Board of Directors (“BOD”) Executive shall also serve as a director of the Company in accordance with the by-laws of the Company.

B) The Executive shall devote his best efforts and all of his business time to the performance of his duties under this Agreement and shall perform them faithfully, diligently and competently in a manner consistent with the policies and goals of the Company as determined from time to time by the BOD.

C) The Executive shall report to the BOD of the Company.

D) The Executive shall not engage in any activities outside the scope of his employment that would detract from, or interfere with, the fulfillment of his responsibilities or duties under this Agreement.

E) The Executive shall not serve as a director (or the equivalent position) of any public company or entity and shall not render services of a business, professional or commercial nature to any other person or firm, except for not-for-profit organizations or entities, without prior written consent of the BOD. Such consent shall not be unreasonably withheld.

F) The Executive shall not receive fees or other remuneration for work performed either within or outside the scope of his employment without prior written consent of the BOD. Such consent shall not be unreasonably withheld.

2. Term of Employment

The Executive’s employment pursuant to this Agreement shall be effective as of September 19, 2007. The Executive is employed on an at-will basis, and, subject to the provisions of Section 9 and 11, either the Executive or the Company may terminate the employment relationship at any time for any reason.

3. Compensation

As full compensation for all services rendered by the Executive to the Company under this Agreement, the Company shall pay the Executive the compensation set forth in Schedule A attached and incorporated into this Agreement. This schedule may be amended from time to time in writing by the Company and the Executive. In addition, the Company will pay and award to the Executive certain compensation as promotion-

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based payments as set forth in Schedule B attached hereto and incorporated into this Agreement.

4. Fringe Benefits

A) Fringe Benefits: The Executive shall be entitled to participate in employee benefit plans which the Company provides or may establish for the benefit of its senior executives generally (for example, group life, disability, medical, dental and other insurance, retirement, pension, profit-sharing and similar plans) (collectively, the “Fringe Benefits”). Eligibility to participate in the Fringe Benefits and receive benefits thereunder is subject to the plan documents governing such Fringe Benefits. Nothing contained herein shall require the Company to establish or maintain any Fringe Benefits, and such Fringe Benefits may be modified from time to time in the Company’s discretion.

B) Vacation: The Executive shall be entitled to accrue on an annual basis 25 paid vacation days in accordance with the Company’s policies as in effect from time to time. All vacation days will be taken at times selected by him, with the prior approval of the Chairman of the Board or the BOD.

C) Directors’ and Officers’ Insurance; Indemnification: The Executive shall be covered under the Company’s directors’ and officers’ insurance coverage to the same extent as other officers and directors of the Company. The Company shall at all times maintain in force and effect a directors and officers liability insurance policy with coverage and coverage limits not less than is comparable in the marketplace for publicly held entities of the size and in the business of the Company.

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5. Expenses

The Company shall reimburse the Executive for all reasonable and necessary expenses incurred by him in connection with the performance of his services for the Company in accordance with the Company’s policies for its executives, upon submission of appropriate expense reports and documentation in accordance with the Company’s policies and procedures for its executives.

6. Patents, Copyrights and Intellectual Property

A) The Executive shall promptly disclose to the Company all Inventions. Inventions shall mean, for purposes of this paragraph, inventions, discoveries, developments, methods and processes (whether or not patentable or copyrightable or constituting trade secrets) conceived, made or discovered by the Executive (whether alone or with others) while employed by the Company that relate, directly or indirectly, to the past, present, or future business activities of the Company, research, product design or development, personnel, and business opportunities of the Company, or result from tasks assigned to the Executive by the Company or done by the Executive for or on behalf of the Company or any affiliate, subsidiary, division or parent of the Company (the term “Company” as used in this Agreement shall mean the Company and any such affiliate, subsidiary, division or parent of the Company). The Executive hereby assigns and agrees to assign to the Company (or as otherwise directed by the Company) his full right, title and interest in and to all Inventions. The Executive agrees to execute any and all applications for domestic and foreign patents, copyrights or other proprietary rights and to do such other acts (including, among others, the execution and delivery of instruments of further assurance or confirmation) requested by the Company to assign the

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Inventions to the Company and to permit the Company to file, obtain and enforce any patents, copyrights or other proprietary rights in the Inventions. The Executive agrees to make and maintain adequate and current records of all Inventions, in the form of notes, sketches, drawings, or reports relating thereto, which records shall be and remain the property of and available to the Company at all times.

B) All designs, ideas, inventions, improvements, and other creations made or owned by the Executive before becoming an employee of the Company and which the Executive desires to exempt from this Agreement are listed on Attachment A hereof and authorized for exclusion by the signature of an Officer of the Company. (If the Executive does not have any such designs, ideas, inventions, improvements, or other creations write “none” on this line: none.)

C) The Executive agrees to notify the Company in writing before the Executive makes any disclosure or performs or causes to be performed any work for or on behalf of the Company, which appears to threaten or conflict with (a) rights the Executive claims in any invention or idea conceived by the Executive or others (i) prior to the Executive’s employment, or (ii) otherwise outside the scope of this Agreement; or (b) rights of others arising out of obligations incurred by the Executive (i) prior to this Agreement, or (ii) otherwise outside the scope of this Agreement. In the event of the Executive’s failure to give notice under the circumstances specified, the Company may assume that no such conflicting invention or idea exists and the Executive agrees that the Executive will make no claim against the Company with respect to the use of any such invention or idea in any work which the Executive performs or causes to be performed for or on behalf of the Company.

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7. Proprietary and Trade Secret Information

A) The Executive agrees that he will keep confidential and will not make any unauthorized use or disclosure, or use for his own benefit or the benefit of others, during or subsequent to his employment of any research, development, engineering and manufacturing data, plans, designs, formulae, processes, specifications, techniques, trade secrets, financial information, customer or supplier lists or other information that becomes known to him as a result of his employment with the Company which is the property of the Company or any of its clients, customers, consultants, licensors, or licensees, provided nothing herein shall be construed to prevent the Executive from using his general knowledge and skill after termination of his employment whether acquired prior to or during his employment by the Company.

B) Proprietary information subject to paragraph 7(A) does not include information that: (i) is or later becomes available to the public through no breach of this Agreement by the Executive; (ii) is obtained by the Executive from a third party who had the legal right to disclose the information to the Executive; or (iii) is required to be disclosed by law, government regulation, or court order.

C) During the course of his employment with the Company, the Executive will not accept information from sources outside of the Company, which is designated as “Confidential,” or “Proprietary,” or “Trade Secret” without prior written permission from the Company or its attorneys. The Executive is not expected to and is expressly forbidden by the Company policy from disclosing to the Company a “Trade Secret” or “Confidential” or “Proprietary” information from a former employer.

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D) Upon leaving the employment of the Company, the Executive will not remove from the Company’s premises, either directly or indirectly, any drawings, writings, prints, any documents or anything containing, embodying, or disclosing any confidential or proprietary information or any of the Company’s trade secrets unless express written permission is given by the BOD. Upon termination of his employment, the Executive shall return to the Company any and all documents and materials that are the property of the Company or its customers, licensees, licensors or affiliates or which contain information that is the property of the Company.

8. Covenant Not to Compete

A) While in the employ of the Company and for a period of one (1) year or the maximum period permitted by applicable law (whichever is shorter) following termination of his employment with the Company, the Executive shall not, without the approval of the Company, alone or as a partner, officer, director, consultant, employee, stockholder or otherwise, engage in any employment, consulting or business activity or occupation that is or is intended to be directly competitive with the development, marketing and sale of CR11, Velafermin, any histone deacetylase (“HDAC”) product for oncology, or any governmentally approved product of the Company, which is being marketed and/or sold at the time of termination; provided, however, that the holding by the Executive of any investment in any security shall not be deemed to be a violation of this section if such investment does not constitute over one percent (1%) of the outstanding issue of such security. The restriction shall run for a period of one year after said termination, and if there shall be any violation hereof during said period, then for a period of one year after cessation of such violation.

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B) The Executive shall not, directly or indirectly, either during the term of the Executive’s employment under this Agreement or for a period of one (1) year thereafter, solicit or attempt to solicit, directly or indirectly, the services of any person who was a full-time employee of the Company or solicit or attempt to solicit the business of any person who was a client or customer of the Company at any time during the last year of the term of the Executive’s employment under this Agreement. The Executive shall not, directly or indirectly, either during the term of the Executive’s employment under this Agreement or for a period of one (1) year thereafter, employ or attempt to employ, directly or indirectly, the services of any person who was a full-time employee of the Company at any time during the last year of the term of the Executive’s employment under this Agreement. For purposes of this Agreement, the term “person” shall include natural persons, corporations, business trusts, associations, sole proprietorships, unincorporated organizations, partnerships, joint ventures and governments or any agencies, instrumentalities or political subdivisions thereof.

C) The Executive acknowledges and agrees that the covenants in this section are necessary for the protection of the legitimate business interests of the Company and that the covenants are reasonable in all respects. The Executive further acknowledges and agrees that, if his employment by the Company is terminated, his experience and capabilities are such that he is both qualified and willing to seek and obtain employment involving business activities which will not violate any covenant on his part to be observed hereunder and that a court decree enjoining any such violation will not prevent him from earning a reasonable livelihood.

D) Just compensation for the duties under this paragraph is included in the

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salary and benefits provided herein.

E) If the Executive is terminated as a result of or in connection with a Change of Control, as defined in this Agreement, this Section, titled “Covenant Not to Compete,” shall not be applicable.

F) The parties agree that if any provision of this Section 8 is held invalid or unenforceable by a court of competent jurisdiction, that part should be modified by the court to make it enforceable to the maximum extent possible. If the part cannot be modified, then that part may be severed and the other parts of this Agreement shall remain enforceable.

9. Termination

A) The Company shall have the right to terminate the Executive’s employment with the Company at any time for any reason, including for Executive’s Disability, Performance Reasons or with or without Cause (all terms as defined in this Agreement).

B) The Executive’s employment shall terminate automatically upon his death.

C) The Executive shall have the right to terminate the Executive’s employment with the Company at any time for any reason, including with Good Reason (as that term is defined in this Agreement).

D) For purposes of this Agreement, the term “Performance Reasons” shall mean termination of the Executive’s employment upon the assessment of the BOD, or a Committee of the BOD that the Executive has failed to satisfactorily perform the essential functions of the Executive’s position. Such a determination shall be made using acceptable business practices and sound management principles and shall not be made in

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bad faith or arbitrarily. Notwithstanding the foregoing, the Executive may not be terminated for Performance Reasons until and unless the Executive has been given reasonable advance notice of the BOD’s determination that he has failed to satisfactorily perform the essential functions of the Executive’s position, an opportunity to cure, and an opportunity, together with his counsel, to be heard by the BOD.

E) For purposes of this Agreement, the term “Cause” shall mean the Executive’s willfully engaging in conduct demonstrably and materially injurious to the Company, monetarily or otherwise, provided that the Executive receives a copy of a resolution duly adopted by the unanimous affirmative vote of the entire disinterested membership of the BOD at a meeting of the BOD called and held for such purpose after the Executive has been given reasonable notice of such meeting and has been given an opportunity, together with his counsel, to be heard by the Board of the Company, finding that in the good faith opinion of the BOD the Company the Executive was guilty of the conduct set forth and specifying the particulars thereof in detail.

F) The Executive’s act, or failure to act, shall be deemed “willful” if the Executive was not acting in good faith or acting without reasonable belief that the Executive’s action or omission was in the best interests of the Company. Any act or failure to act based on authority given pursuant to a resolution duly adopted by the BOD, or based upon the advice of counsel for the Company shall be conclusively presumed to have been done by the Executive in good faith and in the best interests of the Company.

G) For purposes of this Agreement, “Disability” shall mean (A) Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or

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can be expected to last for a continuous period of not less than twelve (12) months, or (B) Executive is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under a Company-sponsored group disability plan. A determination of Disability shall be made in good faith by a majority vote of the Board, based on the opinion of one or more physicians mutually agreed to by Executive and the Company.

H) For the purposes of this Agreement, termination by the Executive of his employment for “Good Reason” shall mean termination based on:

(i) subsequent to a Change in Control of the Company (as hereinafter defined), and without the Executive’s express written consent, any material reduction in Executive’s duties or responsibilities compared to those prior to a Change in Control, or a material change in the Executive’s reporting responsibilities, titles or offices as in effect immediately prior to a Change in Control, or any material removal of the Executive from, or any material failure to re-elect the Executive, to any of his previously held positions with the Company, except in connection with the termination of the Executive’s employment for Cause, Disability or Retirement or as a result of the Executive’s death or by the Executive other than for Good Reason;

(ii) subsequent to a Change in Control of the Company, a reduction by the Company in the Executive’s base salary as in effect on the date hereof or as the same may be increased from time to time;

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(iii) subsequent to a Change in Control of the Company, a failure by the Company to continue any bonus plans in which the Executive is presently entitled to participate (the “Bonus Plans”) as the same may be modified from time to time but substantially in the form currently in effect, or a failure by the Company to continue the Executive as a participant in the Bonus Plans on at least the same basis as the Executive presently participates in accordance with the Bonus Plans;

(iv) subsequent to a Change in Control of the Company, without the Executive’s express written consent, the Company’s requiring the Executive to be based anywhere other than within fifty (50) miles of the Executive’s present office location, except for required travel on the Company’s business to an extent substantially consistent with the Executive’s present business travel obligations;

(v) subsequent to a Change in Control of the Company, the taking of any action by the Company which would adversely affect the Executive’s participation in or materially reduce the Executive’s benefits under any benefit plans or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control, or the failure by the Company to provide the Executive with the number of paid vacation days to which the Executive is then entitled in accordance with the Company’s normal vacation policy in effect on the date hereof; or

(vi) subsequent to a Change in Control of the Company, any purported termination of the Executive’s employment which is not effected pursuant to the terms of this Agreement. No such purported termination shall be effective.

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10. Change in Control

A) “Change in Control” of the Company shall mean the occurrence of any one of the following events with respect to the Company, but only to the extent each of the following is interpreted in a manner consistent with the meaning of “a change in the ownership or effective control of the corporation, or in the ownership of a substantial portion of the assets of the corporation” under Section 409A of Internal Revenue Code, as amended, (the “Code Section 409A”) and any successor statute, regulation and guidance thereto, and limited to the extent necessary so that it will not cause adverse tax consequences with respect to Code Section 409A:

(i) such time as the majority of the members of the BOD is replaced during any 12-month period (commencing no earlier than the Commencement Date) by directors whose appointment or election is not endorsed by a majority of the members of the BOD prior to the date of appointment or election;

(ii) the acquisition by any “Person” (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the “Exchange Act”) and as used in Section 13(d)(3) and 14(d)(2) of the Exchange Act) of the beneficial ownership of any capital stock of the Company if, after such acquisition, such person beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act) more than 50% of the combined voting power of the Company’s then outstanding securities eligible to vote for the election of the BOD (the “Company Voting Securities”); provided, however, that the event described in this paragraph (ii) shall not be deemed to be a Change in Control by virtue of any of the following: (a) an acquisition by the Company or any subsidiary of the Company; (b) an

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acquisition by any employee benefit plan sponsored or maintained by the Company or subsidiary of the Company; (c) an acquisition by any underwriter temporarily holding securities pursuant to an offering of such securities; or (d) an acquisition by any Person who, prior to such acquisition, already owned more than 50% of the Company Voting Securities;

(iii) the consummation of a merger, consolidation, statutory share exchange, a sale or other disposition of all or substantially all of the assets of the Company or similar form of corporate transaction involving the Company (a “Business Combination”), unless immediately following such Business Combination at least 50% of the total voting power of (x) the corporation resulting from such Business Combination (the “Surviving Corporation”), or (y) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors of the Surviving Corporation, is represented by Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, shares into which such Company Voting Securities were converted pursuant to such Business Combination); or

(iv) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company, but only if such approval is in connection with one of the events described in Section 10(A)(i)-(iii) above.

B) Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any Person acquires beneficial ownership of more than 50% of the Company Voting Securities as a result of the acquisition of Company

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Voting Securities by the Company which reduces the number of Company Voting Securities outstanding.

C) Upon a Change of Control, notwithstanding any other agreement, all stock, restricted stock, stock options or restricted stock options of the Executive shall become fully vested to 100%.

11. Benefits Upon Termination

A) If the Executive’s employment is terminated by the Company for Cause or by the Executive without Good Reason, the Company shall not be obligated to make any further payment to the Executive (other than accrued and unpaid base salary and expenses to the date of termination), or continue to provide any benefit (other than benefits which have accrued pursuant to any plan or by law) to the Executive under this Agreement. Accrued and unpaid base salary, expenses, and benefits which have accrued pursuant to any plan or by law are hereinafter referred to as “Accrued Obligations”.

B) If the Executive is terminated for Performance Reasons, then, in addition to the Accrued Obligations, Executive shall be entitled to: (i) salary continuation at the salary the Executive was receiving at the time of termination for a period of six (6) months following termination; and (ii) upon timely election of COBRA continuation coverage, the Executive’s continued participation in any employee health and welfare benefit plan to which the Executive was a participant prior to his termination, with the Company premiums paid at the same percentage as when the Executive had participated as an employee, for up to six (6) months following termination; provided, that the Company’s obligation to continue the Executive’s participation in any employee health and welfare benefit plan shall cease as of the date the Executive becomes eligible to

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participate in a similar benefit from another source. All payments shall begin as soon as practicable following the effective date of the separation agreement set forth in Section 11(E) below.

C) If the Executive’s employment is terminated by the Company for Disability, or without Cause, if employment terminates because of the Executive’s death, or if the Executive terminates his employment for Good Reason, then, in addition to the Accrued Obligations, Executive shall be entitled to: (i) salary continuation at the salary the Executive was receiving at the time of termination for a period of twelve (12) months following termination; (ii) a lump sum payment equal to the pro rata portion of the Executive’s target annual non-equity award under the Executive Incentive Plan (“EIP”); (iii) notwithstanding any other agreement, vesting of all restricted stock, stock option or other equity awards granted to Executive prior to termination shall continue for a period of twelve (12) months following termination, or if such continuation is not permitted with respect to such awards following termination, then those portions, if any, of such awards that would otherwise have vested within such twelve (12) month period but for the termination of Executive’s employment shall become fully vested as of the date of termination; and (iv) upon timely election of COBRA continuation coverage, the Executive’s continued participation in any employee health and welfare benefit plan to which the Executive was a participant prior to his termination, with the Company premiums paid at the same percentage as when the Executive had participated as an employee, for up to twelve (12) months following termination; provided, that the Company’s obligation to continue the Executive’s participation in any employee health and welfare benefit plan shall cease as of the date that the Executive becomes eligible to

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participate in a similar benefit from another source. All payments shall begin as soon as practicable following the effective date of the separation agreement set forth in Section 11(E) below.

D) Notwithstanding any other provision with respect to payments under Section 11(B), if the Executive’s employment is terminated by the Company within twelve (12) months of a Change of Control for reasons other than Cause, Disability, or his death or if the Executive terminates his employment for Good Reason within twelve (12) months of a Change of Control, then, in lieu of the payments set forth in paragraph (C), the Executive shall be entitled to (i) salary continuation at the salary the Executive was receiving at the time of termination for a period of twenty-four (24) months following termination; (ii) an amount equal to two times the Executive’s target annual bonus, paid in a lump sum; and (iii) upon timely election of COBRA continuation coverage, the Executive’s continued participation, subject to COBRA, in any employee health and welfare benefit plan to which the Executive was a participant prior to his termination, with the Company premiums paid at the same percentage as when the Executive had participated as an employee, for up to twenty-four (24) months following termination; provided that, if COBRA continuation coverage is otherwise earlier terminated under applicable law, then, in lieu of coverage, the Company will pay its share of the monthly Company premium in effect prior to the termination of COBRA continuation coverage directly to the Executive each month for the remainder of the relevant period. All payments shall begin as soon as practicable following the effective date of the separation agreement set forth in Section 11(E) below.

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E) All payments and benefits set forth in Sections 11(B)-(D) are contingent upon the Executive’s execution (without revocation) of a separation agreement that is in a form acceptable to the Company and contains a full waiver and release of claims against the Company within twenty-one (21) days of the date such separation agreement is provided to the Executive.

F) Notwithstanding any other provision with respect to the timing of payments under Sections 11(A)-(D), as applicable, if, at the time of the Executive’s termination, the Executive is deemed to be a “specified employee” (within the meaning of Code Section 409A, and any successor statute, regulation and guidance thereto) of the Company, then only to the extent necessary to comply with the requirements of Code Section 409A, any payments to which the Executive may become entitled under Sections 11(A)-(D), as applicable, will be withheld until the first business day of the seventh month following the termination of the Executive’s employment, at which time the Executive shall be paid an aggregate amount equal to six months of payments otherwise due to the Executive under the terms of Sections 11(A)-(D), as applicable. After the first business day of the seventh month following the termination of the Executive’s employment and continuing each month thereafter, the Executive shall be paid the regular monthly payments otherwise due to the Executive in accordance with the terms of Sections 11(A)-(D), as applicable. In addition, in the event that the Company is obligated to make cash payments directly to the Executive in lieu of COBRA continuation coverage pursuant to the terms of Section 11(D), then, to the extent necessary to comply with the requirements of Code Section 409A, such cash payments will be withheld, if applicable, in the same manner as described above in this paragraph.

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12. Arbitration

A) Any dispute under this Agreement, including any dispute as to cause or good reason for termination, shall be submitted to binding arbitration subject to the rules of the American Arbitration Association. EACH OF THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY SUCH ACTIONS, SUIT OR PROCEEDING. The Company shall bear all costs associated with the Arbitration, including filing fees and any stipend for the arbitrator. The Company and the Executive shall each bear its own attorneys’ fees. However, if the Executive prevails in a challenge to the Company’s determination for Cause or for Performance Reasons, the Executive shall be entitled to be reimbursed for all attorney fees.

B) Nothing in this section shall be read to preclude the Company seeking injunctive relief for the Executive’s breach of Section 7, Proprietary and Trade Secret Information or Section 8, Covenant Not to Compete.

13. Injunctive Relief

The Executive acknowledges that the services rendered by him under this Agreement are of a special, unique and extraordinary character and, in connection with such services, he will have access to confidential information concerning the Company’s business. By reason of this access to confidential information, the Executive consents and agrees that if he violates any of the provisions of this Agreement with respect to Proprietary and Trade Secret Information or the Covenant Not to Compete, the Company would sustain irreparable harm and, therefore, in addition to any other remedies which the Company may have under this Agreement or otherwise, the Company shall be

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entitled to an injunction to be issued by any court of competent jurisdiction restraining the Executive from committing or continuing to commit any such violation of this Agreement.

14. Miscellaneous

A) This Agreement shall be governed by and construed in accordance with the laws of the State of Connecticut, applicable to agreements made and to be performed in Connecticut, and shall be construed without regard to any presumption or other rule requiring construction against the party causing the Agreement to be drafted.

B) This Agreement contains a complete statement of all the arrangements between the Company and the Executive with respect to its subject matter, supersedes all previous agreements, written or oral, among them relating to its subject matter and cannot be modified, amended or terminated orally. Amendments may be made to this Agreement at any time if mutually agreed upon in writing.

C) Any amendment, notice or other communication under this Agreement shall be in writing and shall be considered given when received and shall be delivered personally or mailed by Certified Mail, Return Receipt Requested, to the parties at their respective addresses set forth in this Agreement, or at such other address as a party may specify by written notice to the other.

D) The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. Any waiver must be in writing.

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E) Each of the parties irrevocably submits to the exclusive jurisdiction of any court of the State of Connecticut or the Federal District Court of Connecticut over any action, suit or proceeding relating to or arising out of this Agreement and the transactions contemplated hereby. Each party hereby irrevocably waives any objections, including, without limitation, any objection to the laying of venue or based on the grounds of forum non conveniens which such party may now or hereafter have to the bringing of any such actions, suit or proceeding in any such court and irrevocably agrees that process in any such actions, suit or proceeding may be served upon that party personally or by Certified or Registered Mail, Return Receipt Requested.

F) The invalidity or unenforceability of any term or provision of this Agreement shall not affect the validity or enforceability of the remaining terms or provisions of this Agreement which shall remain in full force and effect and any such invalid or unenforceable term or provision shall be given full effect as is legally permissible. If any term or provision of this Agreement is invalid or unenforceable in one jurisdiction, it shall not affect the validity or enforceability of that term or provision in any other jurisdiction.

G) This Agreement is not assignable by either party except that it shall inure to the benefit of and be binding upon any successor to the Company by merger or consolidation or the acquisition of all or substantially all of the Company’s assets, provided such successor assumes all of the obligations of the Company, and shall inure to the benefit of the heirs and legal representatives of the Executive.

H) The Executive hereby acknowledges and agrees that the Company makes no representations or warranties regarding the tax treatment or tax consequences of any

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compensation, benefits or other payments under the Agreement, including, without limitation, by operation of Code Section 409A, or any successor statute, regulation and guidance thereto. Notwithstanding the foregoing, in the event it shall be determined that any payment, award, benefit or distribution by the Company to or for the benefit of the Executive would be subject to Section 280G of the Internal Revenue Code of 1986, as amended, (the “Code”) or the excise tax imposed by Section 4999 of the Code or any corresponding provisions of state or local tax laws as a result of a payment to Executive upon a change of control, or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), the Executive shall receive the greater of (i) the total value of the payments to be paid to Executive upon a change of control reduced to an amount that shall avoid triggering the Excise Tax or (ii) the total value of the payments to be paid to Executive upon a change in control with the application of the Excise Tax.

I) The Company and the Executive agree that they will negotiate in good faith and jointly execute an amendment to modify this Agreement to the extent necessary to comply with the requirements of Code Section 409A, or any successor statute, regulation and guidance thereto; provided that no such amendment shall increase the total financial obligation of the Company under this Agreement.

By: /s/ Robert E. Patricelli	By: /s/ Timothy M. Shannon
Robert E. Patricelli Chairman of the Board CuraGen Corporation 322 East Main Street Branford, CT 06405	Timothy M. Shannon, M.D. President & Chief Executive Officer CuraGen Corporation 322 East Main Street Branford, CT 06405

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SCHEDULE A (ANNUAL COMPENSATION)

The Executive shall receive the following compensation for services beginning September 17, 2007.

1) The Executive’s base salary shall be $375,000 per year, payable in bi-weekly installments, subject to increases by the Board of Directors, which shall review the salary periodically, but not prior to January, 2009.

2) The Executive, if otherwise eligible, shall participate in any incentive compensation plan, pension, profit sharing, stock purchase or stock option plan, annuity, or group insurance plan, medical plan and other benefits, maintained by the Company for its employees.

3) The Executive shall be eligible to receive non-equity annual performance-based awards under the Company’s Executive Incentive Program (EIP) based on the attainment of goals set by the Board of Directors.

4) For calendar year 2008 and thereafter, the Executive shall be eligible to receive an annual performance-based equity award under the (EIP) based on the attainment of goals set by the Board of Directors.

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SCHEDULE B (APPOINTMENT PAYMENTS)

1) Appointment Bonus: The Executive will receive a cash bonus of $30,000 in the next regular payroll processed following his appointment as President & CEO. In the event the Executive voluntarily terminates his employment or if his employment is terminated by the Company for Cause during the twelve-month period following the Commencement Date, the Executive will be required to repay the Appointment Bonus to the Company in full within twelve (12) months of the Executive’s employment termination. Termination of employment for Good Reason or the Executive’s death shall be deemed an involuntary termination.

2) Equity Grants:

a. a stock option for 250,000 shares of common stock of the Company, with an exercise price set at the stock price at the close of business on the date of grant, which option shall vest as to 25% of the underlying shares on the first anniversary of the date of grant, and as to 6.25% of the underlying shares at the end of each quarter following the first anniversary of the date of grant until fully vested. This option grant will be subject to the terms, definitions and provisions of the Company’s 2007 Stock Incentive Plan and the stock option agreement under which it is granted.

b. a stock option for 250,000 shares of common stock of the Company, with an exercise price set at the stock price at the close of business on the date of grant, which option shall vest as to 25% of the underlying shares on the first anniversary of the date of grant, and as to 6.25% of the underlying shares at the end of each quarter following the first anniversary of the date of grant; provided, however, the vesting of all such shares shall accelerate upon the Company’s common stock reaching $3.00 per share and maintaining that price for at least 10 consecutive days, all prior to January 1, 2009. This option grant will be subject to the terms, definitions and provisions of the Company’s 2007 Stock Incentive Plan and the stock option agreement under which it is granted.

3) Legal Expenses:

The Executive shall receive up to $2,000 for reimbursement of reasonable legal expenses incurred in the review of this Amendment.

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EX-10.3

Exhibit 10.3

CURAGEN CORPORATION

Nonstatutory Stock Option Agreement

Granted Under 2007 Stock Incentive Plan

1. Grant of Option.

This agreement evidences the grant by CuraGen Corporation, a Delaware corporation (the “Company”), on September 25, 2007 (the “Grant Date”) to Timothy M. Shannon, an employee of the Company (the “Participant”), of an option to purchase, in whole or in part, on the terms provided herein and in the Company’s 2007 Stock Incentive Plan (the “Plan”), a total of two hundred and fifty thousand shares (250,000) (the “Shares”) of common stock, $.01 par value per share, of the Company (“Common Stock”) at $1.34 per Share. Unless earlier terminated, this option shall expire at 5:00 p.m., Eastern time, on September 25, 2017 (the “Final Exercise Date”).

It is intended that the option evidenced by this agreement shall not be an incentive stock option as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the “Code”). Except as otherwise indicated by the context, the term “Participant”, as used in this option, shall be deemed to include any person who acquires the right to exercise this option validly under its terms.

2. Vesting Schedule.

This option will become exercisable (“vest”) as to:

(I) the date when the Company’s common stock has been at least $3.00 per share for at least 10 consecutive days before January 1, 2009; or

(II) 62,500 Shares on the first anniversary of the date of the Agreement; and

15,625 Shares (of 187,500 total remaining balance) each quarter end after the first anniversary through the fourth anniversary of the date of the Agreement;

The right of exercise shall be cumulative so that to the extent the option is not exercised in any period to the maximum extent permissible it shall continue to be exercisable, in whole or in part, with respect to all Shares for which it is vested until the earlier of the Final Exercise Date or the termination of this option under Section 3 hereof or the Plan.

3. Exercise of Option.

(a) Form of Exercise. Each election to exercise this option shall be in writing, signed by the Participant, and received by the Company at its principal office, accompanied by this agreement, and payment in full in the manner provided in the Plan. The Participant may

purchase less than the number of shares covered hereby, provided that no partial exercise of this option may be for any fractional share.

(b) Continuous Relationship with the Company Required. Except as otherwise provided in this Section 3, this option may not be exercised unless the Participant, at the time he or she exercises this option, is, and has been at all times since the Grant Date, an employee or officer of, or consultant or advisor to, the Company or any other entity the employees, officers, directors, consultants, or advisors of which are eligible to receive option grants under the Plan (an “Eligible Participant”).

(c) Termination of Relationship with the Company. If the Participant ceases to be an Eligible Participant for any reason, then, except as provided in paragraphs (d) and (e) below, the right to exercise this option shall terminate twelve (12) months after such cessation (but in no event after the Final Exercise Date), provided that this option shall be exercisable only to the extent that the Participant was entitled to exercise this option on the date of such cessation. Notwithstanding the foregoing, if the Participant, prior to the Final Exercise Date, violates the non-competition or confidentiality provisions of any employment contract, confidentiality and nondisclosure agreement or other agreement between the Participant and the Company, the right to exercise this option shall terminate immediately upon written notice to the Participant from the Company describing such violation.

(d) Exercise Period Upon Death or Disability. If the Participant dies or becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to the Final Exercise Date while he or she is an Eligible Participant and the Company has not terminated such relationship for “cause” as specified in paragraph (e) below, this option shall be exercisable, within the period of one year following the date of death or disability of the Participant, by the Participant (or in the case of death by an authorized transferee), provided that this option shall be exercisable only to the extent that this option was exercisable by the Participant on the date of his or her death or disability, and further provided that this option shall not be exercisable after the Final Exercise Date.

(e) Termination for Cause. If, prior to the Final Exercise Date, the Participant’s employment or other relationship with the Company is terminated by the Company for Cause (as defined below), the right to exercise this option shall terminate immediately upon the effective date of such termination of employment or other relationship. If the Participant is party to an employment, consulting or severance agreement with the Company that contains a definition of “cause” for termination of employment or other relationship, “Cause” shall have the meaning ascribed to such term in such agreement. Otherwise, “Cause” shall mean willful misconduct by the Participant or willful failure by the Participant to perform his or her responsibilities to the Company (including, without limitation, breach by the Participant of any provision of any employment, consulting, advisory, nondisclosure, non-competition or other similar agreement between the Participant and the Company), as determined by the Company, which determination shall be conclusive. The Participant shall be considered to have been discharged for Cause if the Company determines, within 30 days after the Participant’s resignation, that discharge for cause was warranted.

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4. Withholding. No Shares will be issued pursuant to the exercise of this option unless and until the Participant pays to the Company, or makes provision satisfactory to the Company for payment of, any federal, state or local withholding taxes required by law to be withheld in respect of this option.

5. Nontransferability of Option.

This option may not be sold, assigned, transferred, pledged or otherwise encumbered by the Participant, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the lifetime of the Participant, this option shall be exercisable only by the Participant.

6. Provisions of the Plan.

This option is subject to the provisions of the Plan, a copy of which is furnished to the Participant with this option.

IN WITNESS WHEREOF, the Company has caused this option to be executed under its corporate seal by its duly authorized officer. This option shall take effect as a sealed instrument.

CURAGEN CORPORATION
By:	/s/ David M. Wurzer
Name: Title:	David M. Wurzer EVP, CFO, and Treasurer

PARTICIPANT’S ACCEPTANCE

The undersigned hereby accepts the foregoing option and agrees to the terms and conditions thereof. The undersigned hereby acknowledges receipt of a copy of the Company’s 2007 Stock Incentive Plan.

PARTICIPANT:
By:	/s/ Timothy M. Shannon
Name: Address:	Timothy M. Shannon

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EX-10.4

Exhibit 10.4

ASSIGNMENT AND ASSUMPTION OF LEASE

WITH LANDLORD’S CONSENT AND RELEASE

This ASSIGNMENT AND ASSUMPTION OF LEASE WITH LANDLORD’S CONSENT AND RELEASE (“Agreement”) made and entered into as of August 1, 2007, by and among ZFI GROUP, LLC, having a place of business at 182 Cedar Street, Branford, CT 06405 (hereinafter known as “Landlord”), CURAGEN CORPORATION, a Connecticut corporation, having a place of business at 322 East Main Street, Branford, Connecticut 06405 (hereinafter known as “Assignor”) and 454 LIFE SCIENCES CORPORATION, a Delaware Corporation, having a place of business at 16 Commercial Street, Branford, Connecticut 06405 (hereinafter known as “Assignee”).

WITNESETH:

WHEREAS, Landlord and Assignor entered into a certain Lease Agreement dated as of January 12, 2004 (the “Lease”) with respect to certain real property with improvements thereon known as 15 Commercial Street Branford, Connecticut (the “Premises”); and

WHEREAS, Assignor is desirous of assigning its rights as tenant under the Lease to Assignee; and

WHEREAS, Assignee is desirous of assuming the Lease and all obligations, as tenant, arising thereunder; and

WHEREAS, Assignor is desirous of being released from any future obligations, as tenant, arising under the Lease;

NOW THEREFORE, for the premises set forth above, the promises contained herein and the consideration of one ($1.00) Dollar and other good and valuable considerations received to Assignor’s full satisfaction of Assignee, the parties hereto agree as follows:

1. Capitalized Terms. Except as otherwise defined herein, any and all defined terms used herein shall have the meaning set forth in the Lease.

2. Assignment and Assumption

A. Assignor, as tenant, does herby sell and assign, without recourse, and set over unto Assignee all of the Assignor’s rights and obligations under the Lease, together with all of Assignor’s rights to the leasehold improvements located therein.

B. Assignee hereby unconditionally and absolutely assumes and agrees to perform all of the terms, covenants and conditions of the Lease on the part of the tenant therein required to be performed.

C. Assignor represents to its actual knowledge, without independent investigation, that (a) the Lease is now in full force and effect and has not been amended

or modified in any material respect, except as set forth herein; (b) no rent has been paid for any period commencing after July 31, 2007; and (c) no default exists by Landlord or Assignor under the Lease.

3. Release. Upon the full execution of this Agreement, Landlord and Assignee hereby agree that Assignor is hereby released from any and all obligations and liabilities arising under the Lease on or after the date of this Agreement, except for the payment of rent and any other expenses and costs required to be paid by the Assignee under the Lease. All obligations and liabilities of Assignor for such payments required to be paid under the Lease after the date of this Agreement shall terminate, if not sooner terminated, on March 31, 2009.

4. Notices. Whenever notice is required by conditions of the Lease, such notice shall be given or served in person, or sent by a nationally recognized overnight carrier, or by registered or certified mail, return receipt requested, and addressed as follows:

To Assignor at:

CuraGen Corporation

322 East Main Street

Branford, CT 06405

Attn: Elizabeth Whayland

To Tenant at:

Peter Dacey, Vice President of Finance and Operations

454 Life Sciences Corporation

16 Commercial Street

Branford, Connecticut 06405

5. Landlord’s Consent. Landlord by its signature below hereby consents to the Assignment of the Lease by Assignor to Assignee and agrees to the provisions of Paragraph 3.

6. Notice of Assignee/Tenant Default. Landlord agrees to give written notice to Tenant within five (5) days of any default committed under the Lease by Assignee or any other tenant under the Lease. Any notice which is to be given to Assignor shall be deemed sufficiently given if sent by Certified or Registered Mail, postage prepaid, addressed as follows:

Assignor: CuraGen Corporation

322 East Main Street

Branford, Connecticut 06405

Attn: Elizabeth Whayland

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In Witness Whereof, the Assignor, Assignee and Landlord have made, executed and delivered the within instrument as of the _______ day of _______, 2007.

In the Presence of:

/s/ Elizabeth A. Whayland	ASSIGNOR: CURAGEN CORPORATION
/s/ Laura E. Davis	By:	/s/ David M. Wurzer
		David M. Wurzer Its EVP/CFO

/s/ Agnieszka Cayado	ASSIGNEE: 454 LIFE SCIENCES CORPORATION
	By:	/s/ Peter J. Dacey
		Peter J. Dacey Its Vice President of Finance and Operations

/s/ Robert T. Harrington	LANDLORD: ZFI GROUP, LLC
/s/ Angela Gold	By:	/s/ Christopher Zane
		Name: Christopher Zane Its: Member

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STATE OF CONNECTICUT )
)	ss: Branford	July 30, 2007
COUNTY OF NEW HAVEN )

Personally appeared David M. Wurzer, member of CuraGen Corporation, signer and sealer of the foregoing instrument, and acknowledged the same to be his free act and deed as such officer, and the free act and deed of said corporation, before me.

Meghan L. Benson                            

COMMISSIONER OF THE SUPERIOR COURT

NOTARY PUBLIC

MY COMMISSION EXPIRES OCT. 31, 2009

STATE OF CONNECTICUT )
)	ss: Branford	July 30, 2007
COUNTY OF NEW HAVEN )

Personally appeared Peter J. Dacey, member of 454 Life Sciences Corporation, signer and sealer of the foregoing instrument, and acknowledged the same to be his free act and deed as such officer, and the free act and deed of said corporation, before me.

Meghan L. Benson                            

COMMISSIONER OF THE SUPERIOR COURT

NOTARY PUBLIC

MY COMMISSION EXPIRES OCT. 31, 2009

STATE OF CONNECTICUT )
)	ss:	July 27, 2007
COUNTY OF NEW HAVEN )

Personally appeared Christopher Zane, member of ZFI Group, LLC, signer and sealer of the foregoing instrument, and acknowledged the same to be his free act and deed as such officer, and the free act and deed of said corporation, before me.

Robert T. Harrington                            

COMMISSIONER OF THE SUPERIOR COURT

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EX-10.5

Exhibit 10.5

INDEMNITY AGREEMENT

This INDEMNITY AGREEMENT is entered into as of August 1, 2007 (this “Agreement”), by and between 454 LIFE SCIENCES CORPORATION, a Connecticut stock corporation (“454”), and CURAGEN CORPORATION (“CuraGen”).

WHEREAS, CuraGen is the tenant under a certain Lease Agreement dated January 12, 2004 by and between CuraGen, as tenant, and ZFI Group, LLC, as landlord (“Landlord”), with respect to certain premises located at 15 Commercial Street, Branford, Connecticut (the “Lease”); and

WHEREAS, pursuant to an Assignment and Assumption of Lease with Landlord’s Consent and Release dated August 1, 2007 (the “Effective Date”) by and among Landlord, CuraGen and 454 (the “Assignment”), CuraGen has assigned and 454 has assumed all liabilities and obligations of CuraGen as tenant under such Lease arising from and after the Effective Date; and

WHEREAS, as an inducement for CuraGen to assign the Lease to 454, and as an inducement for 454 to assume the liabilities and obligations of CuraGen thereunder, the parties have agreed to indemnify each other as provided herein;

NOW, THEREFORE, for one dollar and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged and in consideration of the premises and the covenants contained herein, CuraGen and 454 do hereby covenant and agree as follows:

1. Indemnification. 454 hereby agrees to indemnify and hold harmless CuraGen, and its successors and assigns, from and against any and all claims, liabilities, actions, causes of action, losses, costs or expenses (including, without limitation, any reasonable legal, accounting and other expenses of experts or third party professionals for defending any actions or threatened actions) incurred by CuraGen, or any of such successors or assigns, as a result of 454 defaulting in or failing to perform any of the tenant’s obligations under the Lease arising on or after the Effective Date. Curagen hereby agrees to indemnify and hold harmless 454, and its successors and assigns, from and against any and all claims, liabilities, actions, causes of action, losses, costs or expenses (including, without limitation, any reasonable legal, accounting and other expenses of experts or third party professionals for defending any actions or threatened actions) incurred by 454, or any of such successors or assigns, as a result of CuraGen defaulting in or failing to perform any of the tenant’s obligations under the Lease arising prior to the Effective Date.

2. Indemnification Procedure. Whenever any demand shall be made upon a party (the “Indemnified Party”) under the Lease or Assignment for which the other party (the “Indemnifying Party”) is required to indemnify the Indemnified Party, the Indemnified Party shall promptly notify the Indemnifying Party of such demand in writing and provide a copy of any written document delivered to the Indemnified Party relating to such demand. No notice need be given by the Indemnified Party unless and until it has received written notice of the demand. Within fifteen (15) days of written notice to the Indemnifying Party of any such

demand, the Indemnified Party shall either satisfy and pay in full such demand or assume the defense of such demand at its sole cost and expense with counsel approved by the Indemnified Party in its reasonable discretion. If the Indemnifying Party shall fail to satisfy any such demand or fail to assume in a reasonable manner the defense of any demand arising under the Lease or Assignment, as applicable, within the time period set forth above, the Indemnified Party shall be free to defend, settle, litigate, appeal and otherwise act in its reasonable discretion, and the Indemnifying Party shall be obligated to reimburse in full any settlement, judgment or similar liability and all costs associated therewith including reasonable out-of-pocket legal fees and disbursements and shall not have any defense based on the reasonableness or necessity of the Indemnified Party’s actions or its failure to defend effectively such demand.

3. Other Rights to Indemnification. The rights to indemnification and advances provided by this Agreement shall not be deemed exclusive of any other rights to which the Indemnified Party may now or in the future be entitled under any other agreement or any provision of applicable law.

4. Enforcement.

a. Each party unconditionally and irrevocably agrees that its execution of this Agreement shall also constitute a stipulation by which it shall be irrevocably bound in any court in which a proceeding by the other party for enforcement of its rights shall have been commenced, continued or appealed that obligations of each party set forth in this Agreement are unique and special, and that failure of either party to comply with the provisions of this Agreement will cause irreparable and irremediable injury to the other party, for which a remedy at law will be inadequate. As a result, in addition to any other right or remedy each party may have at law or in equity with respect to a violation of this Agreement, each party shall be entitled to injunctive or mandatory relief directing specific performance by the other party of its obligations under this Agreement. Each party further irrevocably stipulates and agrees that it shall not, except in good faith, raise any objections not specifically relating to the merits of the other party’s claim.

b. In the event that either party is subject to or intervenes in any legal action in which the validity or enforceability of this Agreement is at issue or institutes any legal action, for specific performance or otherwise, to enforce its rights under, or to recover damages for breach of, this Agreement, such party shall, within thirty (30) days after written request to the other party therefore, be indemnified by or receive advances from the other party in respect of all costs and expenses (including reasonable attorney’s fees and disbursements) incurred by it in connection therewith; provided, however, that in connection with any such action between CuraGen and 454, the prevailing party shall be entitled to all costs, expenses and reasonable attorney’s fees that may be incurred or paid by the prevailing party in enforcing the covenants and agreements of the other party in this Agreement.

5. Duration of Agreement; Amendment to Lease Agreement.

a. This Agreement shall continue until and shall only terminate upon the termination of all of the terms, covenants and agreements of CuraGen set forth in the Lease

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according to its terms. 454 agrees that it will not exercise any extension options or increase the liability of the tenant or otherwise amend the Lease without the prior written consent of CuraGen which may be withheld in its sole discretion.

b. This Agreement shall be binding upon 454 and its successors and assigns and shall inure to the benefit of CuraGen and its successors and assigns.

6. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable under any particular circumstances or for any reason whatsoever (i) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, all other portions of any Section, paragraph or clause of this Agreement that contains any provision that has been found to be invalid, illegal or unenforceable), or the validity, legality or enforceability under any other circumstances shall not in any way be affected or impaired thereby and (ii) to the fullest extent possible consistent with applicable law, the provisions of this Agreement (including, without limitation, all other portions of any Section, paragraph or clause of this Agreement that contains any such provision that has been found to be invalid, illegal or unenforceable) shall be deemed revised, and shall be construed so as to give effect to the intent manifested by this Agreement (including the provision held invalid, illegal or unenforceable).

7. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original, but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.

8. Headings. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

9. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

10. Notification and Defense of Claim. Each party agrees to promptly notify the other party in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any matter which may be subject to indemnification covered hereunder, whether civil, criminal or investigative; provided, however, that the failure of a party to give such notice to the other party shall not adversely affect such party’s rights under this Agreement so long as the other party is not prejudiced as a result of such failure.

11. Notices and Payments. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given upon delivery thereof if (i) delivered by hand, or sent via telecopy, facsimile, email or other electronic transmission, in each case receipted for by the party to whom such notice or other communication shall have been

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directed or transmitted, (ii) mailed by certified or registered mail with postage prepaid or (iii) delivered by overnight courier service:

a. if to CuraGen:

CuraGen Corporation

322 East Main Street

Branford, CT 06405

Attn: Elizabeth Whayland

and

b. if to 454:

454 Life Sciences Corporation

16 Commercial Street

Branford, Connecticut 06405

Attn: Peter Dacey, Vice President of Finance and Operations

or to such other address as may have been furnished to any party by any other party.

All payments by an Indemnifying Party hereunder to the Indemnified Party shall be effected by payment of cash or delivery of a certified or official lender check in the amount of the claim or liability within five (5) days after demand therefore and if interest must be paid by the Indemnified Party on the liability for which indemnity is due, the Indemnifying Party shall deliver an amount adequate to pay interest to the date on which funds are available to the Indemnified Party for payment of such liability. Payments required to be made by an Indemnifying Party pursuant to this Agreement to a party other than the Indemnified Party shall be made promptly upon demand, without deduction, withholding or set-off, and free and clear of any claim, counterclaim or defense against the Indemnified Party.

12. Governing Law. The parties hereto agree that this Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Connecticut without regard to conflict of law principles thereunder.

13. Due Authorization. This Agreement has been duly authorized by the Board of Directors of 454 and CuraGen, as evidenced by the Board of Directors resolutions attached hereto as Exhibit A and Exhibit B, respectively.

14. Assignment. 454 may not assign its interest in this Agreement without the prior written consent of CuraGen, which may be withheld in its sole discretion.

15. Representation. Each party warrants and represents to the other that:

(a) this Agreement has been duly authorized, executed and delivered by such party.

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(b) such party has not previously assigned any interest in the Assignment to any party.

16. Conflicts. Notwithstanding any term or provision of any agreement to the contrary, in the event that any term or provision of any such instrument or agreement conflicts or is inconsistent with the terms and provisions of this Agreement, the terms and provisions of this Agreement shall control.

[signature page follows]

5

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

454 LIFE SCIENCES CORPORATION
By:	/s/ Peter J. Dacey
	Name: Peter J. Dacey Title: Vice President of Finance Duly Authorized

CURAGEN CORPORATION
By:	/s/ David M. Wurzer
	Name: David M. Wurzer Title: EVP & CFO Duly Authorized

6

STATE OF CONNECTICUT )
)	ss:	Sept. 18, 2007
COUNTY OF NEW HAVEN )

Personally appeared David M. Wurzer, Chief Financial Officer of CuraGen Corporation, signer and sealer of the foregoing instrument, and acknowledged the same to be his free act and deed as such officer, and the free act and deed of said corporation, before me.

Laura E. Davis                                        

COMMISSIONER OF THE SUPERIOR COURT

NOTARY PUBLIC

MY COMMISSION EXPIRES AUG. 31, 2012

STATE OF CONNECTICUT )
)	ss:	Sept. 18, 2007
COUNTY OF NEW HAVEN )

Personally appeared Peter J. Dacey, Vice President of Finance and Operations of 454 Life Sciences Corporation, signer and sealer of the foregoing instrument, and acknowledged the same to be his free act and deed as such officer, and the free act and deed of said corporation, before me.

Meghan L. Benson                                

COMMISSIONER OF THE SUPERIOR COURT

NOTARY PUBLIC

MY COMMISSION EXPIRES OCT. 31, 2009

7

EX-10.6

Exhibit 10.6

CURAGEN CORPORATION

Restricted Stock Agreement

Name of Recipient:	NAME
Number of shares of restricted common stock awarded:	#
Grant Date:	May 25, 2007

CuraGen Corporation (the “Company”) has selected you to receive the restricted stock award described above, which is subject to the provisions of the Company’s 2007 Stock Incentive Plan (the “Plan”) and the terms and conditions contained in this Restricted Stock Agreement. Please confirm your acceptance of this restricted stock award and of the terms and conditions of this Agreement by signing a copy of this Agreement where indicated below.

CURAGEN CORPORATION
By:
	David M. Wurzer
	Executive Vice President, Chief Financial Officer, and Treasurer

Accepted and Agreed:

Employee Name

Date:

CURAGEN CORPORATION

Restricted Stock Agreement

The terms and conditions of the award of shares of restricted common stock of the Company (the “Restricted Shares”) made to the Recipient, as set forth on the cover page of this Agreement, are as follows:

1. Issuance of Restricted Shares. The Restricted Shares are issued to the Recipient, effective as of the Grant Date (as set forth on the cover page of this Agreement), in consideration of employment services rendered and to be rendered by the Recipient to the Company. The Restricted Shares will be held in book entry by the Company’s transfer agent in the name of the Recipient. The Recipient agrees that the Restricted Shares shall be subject to the forfeiture provisions set forth in Section 2(b) of this Agreement and the restrictions on transfer set forth in Section 4 of this Agreement.

2. Vesting.

(a) The Restricted Shares shall vest and become free from the forfeiture provisions in Section 2(b) hereof and become free from the transfer restrictions in Section 4 hereof as follows, provided in each case that the Recipient is employed with the Company as of the applicable vesting date:

(i) on December 31, 2008, provided that the Board of Directors of the Company certifies that the closing price of the Company’s common stock on the Nasdaq Global Market has equaled or exceeded $5.00 per share over a period of 20 consecutive trading days beginning at any time on or after the Grant Date (such price to be adjusted in the event of a stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off or other similar change in capitalization or event); or

(ii) immediately prior to the consummation of a merger, consolidation, statutory share exchange, a sale or other disposition of all or substantially all of the assets of the Company or similar form of corporate transaction involving the Company (a “Business Combination”), provided that such Business Combination has the following characteristics (a “Qualifying Change in Control”):

1. Occurs on or prior to December 31, 2008.

2. Provides for payment of gross proceeds to the Company’s stockholders of $5.00 or more per share (such price to be adjusted in the event of a stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off or other similar change in capitalization or event). Proceeds to the Company’s stockholders shall be calculated for this purpose without regard to deductions for applicable taxes. In the event any consideration payable in connection with the Business Combination consists of securities of another entity, such securities shall be valued at their fair market value as determined by (or in a manner approved by) the Company’s Board of Directors (“Fair Market Value”).

3. Immediately following such Business Combination, voting securities of the Company that were outstanding immediately prior to such Business Combination (or, if applicable, shares into which such Company voting securities were converted pursuant to such Business Combination) represent less than 50% of the total voting power of (x) the corporation resulting from such Business Combination (the “Surviving Corporation”) or (y) if applicable, the ultimate parent corporation that directly or indirectly has the beneficial ownership of 100% of the voting securities eligible to elect directors of the Surviving Corporation.

(b) In the event that (i) the Recipient ceases to be employed by the Company prior to the date that the Restricted Shares vest under Section 2(a)(i) or Section 2(a)(ii) hereof, for any reason or no reason, with or without cause, or (ii) the Restricted Shares otherwise do not vest in accordance with the conditions set forth in Section 2(a)(i) or Section 2(a)(ii) hereof on or before December 31, 2008, then all of the Restricted Shares shall be forfeited immediately and automatically to the Company for no consideration effective as of either the date of termination of employment or January 1, 2009 whichever is earlier, and the Recipient shall have no further rights with respect to such Restricted Shares. The Recipient hereby authorizes the Company to take any actions necessary or appropriate to cancel any stock certificate(s) representing forfeited Restricted Shares and transfer ownership of such forfeited Restricted Shares to the Company; and if the Company or its transfer agent requires an executed stock power or similar confirmatory instrument in connection with such cancellation and transfer, the Recipient shall promptly execute and deliver the same to the Company. For purposes of this Agreement, employment with the Company shall include employment with a parent or subsidiary of the Company, or any successor to the Company.

3. Acknowledgment regarding Employment Agreement. The Recipient and the Company hereby acknowledge and agree that the Restricted Shares will vest in accordance with the conditions set forth in Section 2(a)(ii) above only upon a Qualifying Change in Control, notwithstanding anything to the contrary in that certain Amended and Restated Employment Agreement dated September 1, 2006 between the Recipient and the Company, as amended.

4. Restrictions on Transfer.

The Recipient shall not sell, assign, transfer, pledge, hypothecate or otherwise dispose of, by operation of law or otherwise (collectively “transfer”) any Restricted Shares, or any interest therein, until such Restricted Shares have vested, except that the Recipient may transfer such Restricted Shares: (a) to or for the benefit of any spouse, children, parents, uncles, aunts, siblings, grandchildren and any other relatives approved by the Compensation Committee of the Company’s Board of Directors (collectively, “Approved Relatives”) or to a trust established solely for the benefit of the Recipient and/or Approved Relatives, provided that such Restricted Shares shall remain subject to this Agreement (including without limitation the forfeiture provisions set forth in Section 2(b) and the restrictions on transfer set forth in this Section 4) and such permitted transferee shall, as a condition to such transfer, deliver to the Company a written instrument confirming that such transferee shall be bound by all of the terms and conditions of this Agreement; or (b) as part of the sale of all or substantially all of the shares of capital stock of the Company (including pursuant to a merger or consolidation). The Company shall not be required (i) to transfer on its books any of the Restricted Shares which have been transferred in

violation of any of the provisions of this Agreement or (ii) to treat as owner of such Restricted Shares or to pay dividends to any transferee to whom such Restricted Shares have been transferred in violation of any of the provisions of this Agreement.

5. Restrictive Legends.

All certificates representing Restricted Shares shall have affixed thereto legends in substantially the following forms, in addition to any other legends that may be required under applicable law:

(A) “These shares of stock are subject to forfeiture provisions and restrictions on transfer set forth in a certain Restricted Stock Agreement between the corporation and the registered owner of these shares (or his or her predecessor in interest), and such Agreement is available for inspection without charge at the office of the Secretary of the corporation.”

(B) “These shares of stock have not been registered under the Securities Act of 1933, as amended, and may not be sold, transferred or otherwise disposed of in the absence of an effective registration statement under such Act or an opinion of counsel satisfactory to the corporation to the effect that such registration is not required.”

6. Rights as a Stockholder.

Except as otherwise provided in this Agreement, for so long as the Recipient is the registered owner of the Restricted Shares, the Recipient shall have all rights as a stockholder with respect to the Restricted Shares, whether vested or unvested, including, without limitation, any rights to receive dividends and distributions with respect to the Restricted Shares and to vote the Restricted Shares and act in respect of the Restricted Shares at any meeting of stockholders.

7. Provisions of the Plan.

This Agreement is subject to the provisions of the Plan, a copy of which is furnished to the Recipient with this Agreement.

8. Tax Matters.

(a) The Recipient acknowledges and agrees that the Company has the right to deduct from payments of any kind otherwise due to the Recipient any federal, state, local or other taxes of any kind required by law to be withheld with respect to the vesting of the Restricted Shares. On each date on which Restricted Shares vest, the Company shall deliver written notice to the Recipient of the amount of withholding taxes due with respect to the vesting of the Restricted Shares that vest on such date; provided, however, that the total tax withholding cannot exceed the Company’s minimum statutory withholding obligations (based on minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income). The Recipient may satisfy such tax obligations by making a cash payment to the Company on the date of vesting of the Restricted Shares, in the amount of the Company’s withholding obligation in connection with such vesting.

(b) The Recipient has reviewed with the Recipient’s own tax advisors the federal, state, local and other tax consequences of the acquisition of the Restricted Shares. The Recipient is relying solely on such advisors and not on any statements or representations of the Company or any of its agents with respect to the tax consequences relating to the Restricted Shares. The Recipient understands that the Recipient (and not the Company) shall be responsible for the Recipient’s own tax liability that may arise in connection with the acquisition, vesting and/or disposition of the Restricted Shares.

THE RECIPIENT AGREES NOT TO FILE AN ELECTION UNDER SECTION 83(B) OF THE INTERNAL REVENUE CODE WITH RESPECT TO THE ISSUANCE OF THE SHARES.

9. Miscellaneous.

(a) No Right to Continued Employment. The Recipient acknowledges and agrees that, notwithstanding the fact that the vesting of the Restricted Shares is contingent upon his or her continued employment by the Company, this Agreement does not constitute an express or implied promise of continued employment or confer upon the Recipient any rights with respect to continued employment by the Company.

(b) Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law.

(c) Waiver. Any provision for the benefit of the Company contained in this Agreement may be waived, either generally or in any particular instance, by the Board of Directors of the Company.

(d) Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Company and the Recipient and their respective heirs, executors, administrators, legal representatives, successors and assigns, subject to the restrictions on transfer set forth in Section 4 of this Agreement.

(e) Notice. Each notice relating to this Agreement shall be in writing and delivered in person or by first class mail, postage prepaid, to the address as hereinafter provided. Each notice shall be deemed to have been given on the date it is received. Each notice to the Company shall be addressed to it at its offices at 322 East Main Street, Branford, CT 06405. Each notice to the Recipient shall be addressed to the Recipient at the Recipient’s last known address.

(f) Entire Agreement. This Agreement and the Plan constitute the entire agreement between the parties, and supersede all prior agreements and understandings, relating to the subject matter of this Agreement.

(g) Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Recipient.

(h) Governing Law. This Agreement shall be construed, interpreted and enforced in accordance with the internal laws of the State of Delaware without regard to any applicable conflicts of laws provisions.

(i) Interpretation. The interpretation and construction of any terms or conditions of the Plan or of this Agreement or other matters related to the Plan by the Compensation Committee of the Board of Directors of the Company shall be final and conclusive.

(j) Recipient’s Acknowledgments. The Recipient acknowledges that he: (i) has read this Agreement, has received and read the Plan, and understands the terms and conditions of this Agreement and the Plan; (ii) has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of the Recipient’s own choice or has voluntarily declined to seek such counsel; (iii) understands the terms and consequences of this Agreement; (iv) is fully aware of the legal and binding effect of this Agreement; and (v) understands that the law firm of Wilmer Cutler Pickering Hale and Dorr LLP is acting as counsel to the Company in connection with the transactions contemplated by the Agreement, and is not acting as counsel for the Recipient.

(k) No Deferral. Notwithstanding anything herein to the contrary, neither the Company nor the Recipient may defer the delivery of the Restricted Shares.

STOCK POWER AND ASSIGNMENT SEPARATE FROM

CERTIFICATE

FOR VALUE RECEIVED, I hereby sell, assign and transfer unto CuraGen Corporation (the “Corporation”)                                          shares of Common Stock, $0.01 par value per share, of the Corporation standing in my name on the books of the Corporation represented by Certificate(s) Number                                         , and do hereby irrevocably constitute and appoint the                                          of the Corporation as attorney to transfer the said stock on the books of the Corporation with full power of substitution in the premises.

Dated:

By:

IN THE PRESENCE OF:

NOTICE: The signature(s) to this assignment must correspond with the name as written upon the face of the certificate, in every particular, without alteration, enlargement, or any change whatever.

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS UNDER SECTION 302

I, Timothy M. Shannon, certify that:

1. I have reviewed this quarterly report on Form 10-Q 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 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 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: November 9, 2007

/s/ Timothy M. Shannon, M.D.

Timothy M. Shannon, M.D.

Chief Executive Officer and President

(principal executive officer of the registrant)

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS UNDER SECTION 302

I, David M. Wurzer, certify that:

1. I have reviewed this quarterly report on Form 10-Q 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 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 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: November 9, 2007

/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)

In connection with the Quarterly Report on Form 10-Q of CuraGen Corporation (the “Company”) for the period ended September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Timothy M. Shannon, M.D., Chief Executive Officer and President of the Company, and David M. Wurzer, Executive Vice-President, Chief Financial Officer and Treasurer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 9, 2007	By:	/s/ Timothy M. Shannon, M.D.
		Timothy M. Shannon, M.D.
		Chief Executive Officer and President
		(principal executive officer of the registrant)
Dated: November 9, 2007	By:	/s/ David M. Wurzer
		David M. Wurzer
		Executive Vice-President, Chief Financial Officer and Treasurer
		(principal financial and accounting officer of the registrant)