10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2004

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 000-30975

TRANSGENOMIC, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	91-1789357
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification Number)

12325 Emmet Street Omaha, NE 68164	68164
(Address of Principal Executive Offices)	(Zip Code)

(402) 452-5400

(Registrant’s Telephone Number, Including Area Code)

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

Title of Each Class	Name of Each Exchange On Which Registered
None	N/A

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

Common Stock, par value $.01 per share

(Title of Class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form10-K    x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes ¨    No x

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant based on the last reported closing price per share of Common Stock as reported on The Nasdaq National Market on the last business day of the registrant’s most recently completed second fiscal quarter was approximately $38.37 million.

As of April 14, 2005, the registrant had 34,234,922 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement relating to the Registrant’s May 25, 2005 Annual Stockholders Meeting are incorporated by reference into Part III.

TRANSGENOMIC, INC.

Index to Form 10-K for the Fiscal Year Ended December 31, 2004

PART I
	Item 1.	Business	1
	Item 2.	Properties	8
	Item 3.	Legal Proceedings	9
	Item 4.	Submission of Matters to a Vote of Security Holders	9
	Item 4A.	Executive Officers	9
PART II
	Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters	10
	Item 6.	Selected Financial Data	10
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	19
	Item 8.	Financial Statements and Supplementary Data	20
		Independent Auditors’ Report	20
		Consolidated Balance Sheets as of December 31, 2004 and 2003	21
		Consolidated Statements of Operations for the Years Ended December 31, 2004, 2003 and 2002	22
		Consolidated Statements of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2004, 2003 and 2002	23
		Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002	24
		Notes to the Consolidated Financial Statements for the Years Ended December 31, 2004, 2003 and 2002	25
	Item 9.	Changes in and Disagreement with Accountants on Accounting And Financial Disclosure	39
	Item 9A.	Controls and Procedures	39
	Item 9B.	Other Information	39
PART III
	Item 10.	Directors and Executive Officers of the Registrant	39
	Item 11.	Executive Compensation	39
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	39
	Item 13.	Certain Relationships and Related Transactions	39
	Item 14.	Principal Accountant Fees and Services	39
PART IV
	Item 15.	Exhibits and Financial Statement Schedules	39
SIGNATURES			43

This annual report on Form 10-K references the following registered trademarks which are the property of Transgenomic: DNASEP^® Columns, WAVE^® System, WAVEMAKER^® Software, TRANSFORMING THE WORLD^® for Laboratory Equipment, TRANSGENOMIC^® and the Globe Logo^®; MutationDiscovery.com^® Website, OLIGOSEP^® for Systems and Reagents, OPTIMASE^® Polymerase, RNASEP^® Columns, WAVE OPTIMIZED^® reagents, and WAVE^® MD Systems. Additionally, this Annual report on Form 10-K references the following trademarks which are the property of Transgenomic: MitoScreen^™ Kits, ProtocolWriter^™ Software, Navigator^™ Software, THE POWER OF DISCOVERY^™ for Lab Reagents and Educational Programs, and Surveyor^™ Nuclease. All other trademarks or trade names referred to in this Annual Report on Form 10-K are the property of their respective owners.

PART I

FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K contains or incorporates by reference certain forward-looking statements. Many of these forward-looking statements refer to our plans, objectives, expectations and intentions, as well as our future financial results and are subject to risk and uncertainty. You can identify these forward-looking statements by words such as “expects,” “anticipates,” “intends,” “plans,” “may,” “will,” “believes,” “seeks,” “estimates” and similar expressions. Because these forward-looking statements involve risks and uncertainties, there are many factors that could cause our actual results to differ materially from those expressed or implied by these forward-looking statements, including those discussed under “Risks Related to Our Business” and other factors identified by cautionary language used elsewhere in the annual report on Form 10-K.

Item 1. Business

We provide innovative products and services for the synthesis, purification and analysis of nucleic acids. Our operations fall into two principal business units, BioSystems and Nucleic Acids. Our BioSystems products include our WAVE^® automated instrument systems, WAVE associated consumable products and other related consumable products. Our Nucleic Acids products consist principally of chemical building blocks for nucleic acid synthesis. Both business units have service offerings as well, including genetic variation discovery and analysis services and custom synthesis of specialty nucleic acids.

Our technologies center around three core competencies: separation chemistries, enzymology, and nucleic acid chemistries. We employ novel chemistries for separating nucleic acids, proteins, peptides, amino acids and carbohydrates. Our most significant separation technology is currently embodied in the WAVE System. The WAVE System is a versatile instrument that can be used for genetic variation detection, size-based double-strand DNA separation and analysis, single-strand DNA separation and analysis and DNA purification. The WAVE System requires the use of various consumable products that we manufacture and sell separately.

Our second core competency is expertise in developing novel enzymes. Enzymes are proteins that act as catalysts for biochemical reactions. Several of these reactions are useful in genomics. The ability to develop enzymes useful in the experimental manipulation of genes provides powerful tools for producing genetic material in the form needed for further analysis or incorporation into diagnostics and therapeutics. These products can also expand the sale of consumable products to WAVE System users and may also be sold for other applications. Our SURVEYOR^® product line of mutation detection kits allow for the cleaving of DNA at points where DNA sequence variations exists. The resulting DNA fragments can then be analyzed by our WAVE System, fluorescent capillary electrophoresis or standard gel electrophoresis. SURVEYOR Kits provide a simple and robust method of scanning relatively large DNA fragments for both known and novel sequence variations.

Our third core competency is nucleic acid chemistries. Our synthetic nucleic acid products consist of chemical building blocks of nucleic acids (known as phosphoramidites). We also manufacture related specialty chemicals such as fluorescent markers and molecular tags, dyes, quenchers, linkers, and solvents used to modify nucleic acids for subsequent detection or manipulation. These products are used by research organizations, diagnostic companies and pharmaceutical companies. These products are produced primarily in our Glasgow, Scotland facility. Prior to November 11, 2004, we had also manufactured synthesized segments of nucleic acids (known as oligonucleotides) in a facility in Boulder, Colorado. On November 11, 2004, we sold the assets associated with this facility to a subsidiary of Eyetech Pharmaceuticals, Inc. (“Eyetech”). As a result of this sale, we no longer manufacture and sell these specialized oligonucleotides.

Our operations are managed based upon the nature of the products and services provided. Accordingly, we operate in two reportable segments, BioSystems and Nucleic Acids. Operations for these segments are evaluated based upon specific identification of revenues and expenses associated with the business activities resulting in a segment operating income or loss. See Note K to the accompanying consolidated financial statements for detailed segment information.

Business Strategy

Since inception, our business strategy has been to provide products and services to biomedical researchers, medical institutions, diagnostic and pharmaceutical companies that are tied to advancements in the field of genetics. The movement in the field of genomics, and related market opportunities, has shifted from gene discovery to the analysis of variations in gene sequences. Researchers are beginning to link variations in the gene sequences to disorders and diseases. Accordingly, a principal component of our strategy has been to establish our WAVE System as the industry standard in the genetic research market and to develop additional

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markets for the WAVE System such as diagnostics. Through an expanding base of installed systems, we expect to increase the sales of consumable products used with the WAVE.

We have also historically sought to position ourselves as a partner to biopharmaceutical and pharmaceutical companies in the early stages of their efforts to develop genomic-based diagnostics and therapeutics, thereby allowing us to participate in future successes of products derived from the expanding knowledge of genomics. While we continue to believe that the long-term prospects for this business segment are favorable, we concluded that near-term revenues from this segment would generate neither positive cash flows nor profits from operations. Consequently, in the second quarter of 2004, our Board of Directors directed management to explore strategic alternatives for our Nucleic Acids operating segment, including the possible sale of one or both of the facilities in Glasgow, Scotland and Boulder, Colorado. On November 11, 2004, we sold the assets associated with our specialty oligonucleotide manufacturing facility in Boulder, Colorado. We continue to operate our facility in Glasgow, Scotland which primarily produces chemical building blocks used in the synthesis of nucleic acids. However, we have taken steps to consolidate these operations and to reduce costs in order to better align operating expenses with anticipated revenues.

Our business strategy going forward is to achieve revenue growth in our BioSystems operating segment and to better align our cost structure with anticipated revenues in both of our operating segments. We have already taken steps to implement this strategy as more fully discussed under “Significant 2004 Developments,” below.

Significant 2004 Developments

We determined that our Nucleic Acids operating segment was impaired and sold our specialty oligonucleotides manufacturing facility.

Based upon information obtained through the process of evaluating strategic alternatives for our Nucleic Acids segment, we determined that it was more likely than not that the value of the assets associated with this business were impaired. We engaged an external valuation firm to assist us in conducting an interim period impairment test that resulted in a non-cash charge of $11.97 million related to these assets during the three months ended June 30, 2004. The charge consisted of $9.87 million related to the impairment of goodwill and $2.10 million related to the impairment of property and equipment.

On November 11, 2004, we sold the assets associated with our specialty oligonucleotides manufacturing facility in Boulder, Colorado to Eyetech. The sale price was $3.00 million in cash plus the assumption of the lease on the Boulder facility and of certain equipment leases with a gross value of $2.38 million. Substantially all of the 27 employees at the Boulder facility became Eyetech employees. Net proceeds from the sale (after transaction expenses and fees paid to our investment advisors) equaled approximately $2.70 million. In conjunction with this transaction, we recorded a gain on sale of $1.47 million in the fourth quarter of 2004.

We implemented a restructuring plan to better align costs with expected revenues.

On November 13, 2004, our Board of Directors approved a restructuring plan designed to refocus the Company on its BioSystems operating segment and to better align our cost structure with anticipated revenues. The plan (which is incremental to the sale of our Boulder, Colorado facility) included a workforce reduction of approximately 60 positions and the closure of two domestic research and development facilities associated with our Nucleic Acids operating segment and two European field offices. Additionally, we eliminated approximately 10 positions at our chemical building blocks manufacturing facility in Glasgow, Scotland. In conjunction with these changes, we incurred a charge of $3.57 million during the quarter ended December 31, 2004 related primarily to severance, benefits and facility closures.

Together, the sale of our specialty oligonucleotide manufacturing facility and the implementation of our restructuring plan are expected to result in $10.00 million to $12.00 million in annual cost savings.

We revised our credit facilities with Laurus Master Funds, Ltd.

We have entered into a $7.50 million convertible line of credit (the ”Credit Line”) and a separate $2.75 million convertible note (the ”Term Note”) with Laurus Master Fund, Ltd. (“Laurus”)(collectively, the “Laurus Loans”). In February 2004, Laurus waived the borrowing base limitation on the Credit Line, thereby making the full $7.50 million facility available to the Company regardless of the available collateral. On August 31, 2004, Laurus agreed to extend the borrowing base waiver on the Credit Line through March 19, 2005. In addition, Laurus has deferred certain payments due under the Term Note and reduced the interest rate on both of the Laurus Loans to 0% for any day the closing sale price of the Company’s common stock is at or above $1.75 per share. In return, we lowered the conversion price on each of the Laurus Loans to $1.00 per share and issued a warrant to Laurus covering an additional 400,000

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common shares at an exercise price of $1.25 per share. The closing price of the Company’s common stock on August 31, 2004 was $1.20 per share.

Subsequent to December 31, 2004, we further amended our Credit Line. On March 18, 2005, Laurus agreed to extend the borrowing base waiver on the Credit Line through March 31, 2006. In addition, we agreed to allow Laurus to convert $1.87 million of the outstanding principal balance under the Credit Line into 3,600,000 shares of common stock on March 18, 2005 and $0.65 million of the outstanding principal balance of the Term Note into 1,250,000 shares of common stock on March 24, 2005. As a result, we have increased the amount available under the Credit Line by $1.87 million and have eliminated substantially all remaining 2005 scheduled principal payments on the Term Loan.

Sales and Marketing

We currently sell our products to customers in over 30 countries. We use a direct sales and support staff for sales in the U.S., U.K. and most countries in Western Europe. For the rest of the world, we sell our products through dealers and distributors located in those local markets. We currently have over 25 dealers and distributors. We also maintain regionally-based technical support staffs and applications scientists to support our sales and marketing activities throughout the U.S. and Europe.

Customers

Customers include numerous leading academic and medical institutions in the U.S. and abroad. In addition, our customers also include a number of large, established U.S. and foreign pharmaceutical, biotech and commercial companies.

During 2004, sales to Geron Corporation totaled $4.15 million and represented 12% of total consolidated net sales and 49% of total net sales within our Nucleic Acids operating segment. We do not have a long-term sales agreement with Geron Corporation and, accordingly, the amount of nucleic acid products we sell to it is subject to change. Revenues from our Nucleic Acids business would be substantially reduced if Geron Corporation’s need for our products declined or if it decided to obtain these products from other suppliers.

No other customer currently accounts for more than 10% of total consolidated or operating segment net sales.

Research and Development

We maintain an active program of research and development and expect to continue to incur significant expense for these activities going forward. Our research and development activities include the improvement of the DNA separation media used in our WAVE System, the refinement of the hardware and software components of the WAVE System, the creation of unique enzymes and WAVE-Optimized^® enzymes, and, to a lesser extent, the improvement of chemical and biochemical reaction techniques for synthetic nucleic acids.

Consistent with our business strategy discussed above, we have taken steps to reduce research and development expenditures to levels that are more consistent with our current levels of revenue. For 2004, our research and development expenditures were approximately $6.69 million. This represents a substantial reduction from our prior levels of expenditures that were $9.31 million, $12.20 million and $9.37 million in 2003, 2002 and 2001, respectively. We expect that we will further curtail our research and development activities until we are able to increase our revenues or otherwise improve our liquidity and working capital positions.

Manufacturing

We manufacture bioconsumable products including our separation columns, liquid reagents, enzymes and nucleic acid products. The major components of our WAVE systems are manufactured for us by a third party. We integrate our own hardware and software with these third party manufactured components. Our manufacturing facilities for our WAVE^® systems and bioconsumables are located in Omaha, Nebraska, San Jose, California, and Cramlington, England. Our phosphoramidites and related synthetic nucleic acid products are manufactured in our Glasgow, Scotland facility.

Intellectual Property

To establish and protect our proprietary technologies and products, we rely on a combination of patent, copyright, trademark and trade-secret laws, as well as confidentiality provisions in our contracts. We presently own rights to more than 80 issued patents and 50 pending applications in both the U.S. and abroad. Our BioSystems operating segment products, comprising the WAVE ^® System and related consumables, are protected by patents and in-licensed technologies with remaining lives of 9 to 18 years. Intellectual property related to our Synthetic Nucleic Acid business unit, other than production trade secrets, is almost entirely

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in-licensed. A number of these in-licensed patents have recently, or will soon, expire. As a result, we expect price competition in the Nucleic Acids operating segment to intensify in the next year. We will continue to file patent applications and seek new licenses as warranted to protect and develop new technologies of interest to our customer base in the coming years.

Competition

The markets in which our Biosystems operating segment operates are highly competitive, and characterized by rapidly changing technological advances. A number of Transgenomic’s competitors possess substantial resources and are able to develop and offer a much greater breadth of products and/or services, coupled with significant marketing and distribution capabilities. Transgenomic competes principally on the basis of uniquely enabling technical advantages in specific but significant market segments.

Competition for our WAVE Systems arises primarily from DNA sequencing and genotyping technologies. Competitors in these areas include Applied Biosystems, Beckman Coulter, Amersham (now part of GE Healthcare), Affymetrix, Agilent Technologies, Nanogen, Illumina, Sequenom, Pyrosequencing (now part of Biotage AB), Varian, and others. Competition for some of our non-WAVE consumable products comes from numerous well-diversified life sciences reagents providers, including, among others, Invitrogen, Qiagen, Roche, Stratagene, and Promega. Our Discovery Services unit faces competition from a number of companies offering contract DNA sequencing and other genomic analysis services, including Genaissance Pharmaceuticals, GeneLogic, Agencourt, SeqWright, Gentris, and Perlagen. In addition, several clinical diagnostics service providers, such as Labcorp, Quest, and Specialty Laboratories, also offer related laboratory services in support of clinical trials. Finally, additional competition arises from academic core laboratory facilities.

Competition is also intense in the markets in which our Nucleic Acids operating segment functions, and increasingly driven by price. Transgenomic competes on the basis of its ability to develop and manufacture synthetic nucleic acid building blocks used to make DNA and RNA oligonucleotides. Competitors include Proligo Degussa, Pierce Nucleic Acid Technologies, and Applied Byosystems. In addition, competition is expected in the future from new overseas entrants focusing on low cost production.

Employees

As of December 31, 2004 and 2003, we had 178 and 244 employees, respectively. Certain of those employees at December 31, 2004 were terminated during January and February 2005 in connection with the 2004 restructuring plan. As of February 28, 2005, we had 157 employees and expect our headcount to be relatively stable throughout the remainder of 2005. These employees are focused in the following areas of our operation:

	February 28, 2005	December 31, 2004	December 31, 2003
BioSysytems Operating Segment
Manufacturing	50	52	54
Sales, Marketing and Administration	68	75	90
Research and Development	18	19	31
	136	146	175
Nucleic Acids Operating Segment
Manufacturing	16	20	45
Sales, Marketing and Administration	5	6	8
Research and Development	0	6	16
	21	32	69
	157	178	244

We supplement our workforce through the use of independent contractors and consultants. As of February 28, 2005 and December 31, 2004, we have engaged independent contractors or consultants who provide services to us approximately equivalent to five and four full-time employees, respectively.

Our employees were employed in the following geographical locations.

	February 28, 2005	December 31, 2004	December 31, 2003
United States	93	106	166
Europe (other than the United Kingdom)	20	22	20
United Kingdom	44	50	58
	157	178	244

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General Information

We were incorporated in Delaware on March 6, 1997. Our principal office is located at 12325 Emmet Street, Omaha, Nebraska 68164 (telephone: 402-452-5400). We maintain manufacturing facilities in Omaha, Nebraska, San Jose, California, Glasgow, Scotland and Cramlington, England. We maintain research and development offices in Gaithersburg, Maryland and Omaha, Nebraska.

Our Internet address is www.transgenomic.com. We make our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports available free of charge through our website as soon as reasonably practicable after we file these documents with the Securities and Exchange Commission.

Risks Related to Our Business

We may not have adequate financial resources to execute our business plan and may be need to terminate some operations.

As of March 31, 2005, we had cash and cash equivalents of $1.37 million plus an additional $2.29 million available under our Credit Line. Despite our efforts to reduce costs and to obtain additional debt and equity financing, our liquidity and working capital positions continue at levels that may not be adequate to meet our needs for cash in the future. Our liquidity and working capital position is largely due to the operating losses that we have incurred, particularly in our Nucleic Acids operating segment, and to increased accounts receivable (largely from international sales), short-term investments, inventory, and to a lesser extent, purchases of property and equipment. We expect to continue to need substantial amounts of cash to fund our operations and capital expenditures and our existing cash balances, cash generated by operations, and our remaining borrowing capacity under our existing Credit Line may be insufficient to satisfy our liquidity requirements. In order to meet our cash needs for the remainder of 2005, it is essential that we achieve revenue growth in our BioSystems operating segment and manage costs according to our operating plan. There is no assurance that we will be able to achieve all of these steps or that any of these steps will allow us to meet our cash needs. Accordingly, our existing cash balances, cash generated by operations, and available borrowings under the Credit Line may be insufficient to satisfy our liquidity requirements. In addition, there is no assurance that we will be able to obtain additional debt or equity financing to meet future cash needs. If we are not able to meet our needs for working capital, we may not be able to execute parts or all of our business plan and may need to discontinue operations in one or both of our operating segments.

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

We have experienced losses from operations since inception of our operations. Our operating losses for each of the last three fiscal years were $29.06 million, $22.59 million and $21.70 million, respectively. These losses have been due principally to the high levels of research and development expenses and sales and marketing expenses that we have incurred in order to develop and market our products, restructuring charges and impairment charges. In addition, markets for our products have developed more slowly than expected in many cases and may continue to do so. As a result, we may incur operating losses in the future, and we may never be profitable.

We may issue a substantial amount of our stock in conversion of our debt and exercise of options and warrants and this could reduce the market price for our stock.

As of April 14, 2005, we had outstanding 34,234,922 million shares of common stock. We also had obligations to issue approximately 6.2 million shares of common stock under outstanding stock options and warrants. Additionally, we may issue shares of common stock upon conversion of all or part of the Laurus Loans. Currently, Laurus may acquire 2.8 million shares of our common stock upon conversion of this debt. The issuance of such additional shares of common stock may be dilutive to our current shareholders and could negatively impact the market price of our common stock.

Markets for our products and services may develop slowly.

There are many factors that affect the market demand for our products and services that we cannot control. This is especially true in our Nucleic Acids operating segment where the demand for our products depends to a large degree on the success that our customers and potential customers have in developing useful pharmaceutical products based on genetic intervention. A central strategy for our Nucleic Acids operating segment is to sell synthetic nucleic acid products to biopharmaceutical and pharmaceutical companies that are seeking to develop commercially viable genomic-based diagnostic and therapeutic products. We have invested a significant amount of capital into acquiring and developing manufacturing facilities and other assets to allow us to pursue this market. However, this is a new field of commercial development, and many of these biopharmaceutical and pharmaceutical companies are in the early stages of their efforts to develop genomic-based diagnostics and therapeutics and have encountered difficulties in these efforts. As a result, the demand for our synthetic nucleic acid products is difficult to forecast and may develop slowly or sporadically. In addition, we cannot

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assure you that these companies will not internally develop the chemistries and manufacturing capabilities to produce the products they could buy from us. Demand for our WAVE System is similarly affected by the needs and budgetary resources of research institutions, universities, hospitals and others who use the WAVE System for genetic-variation research. The WAVE System represents a significant expenditure by these types of customers and often requires a long sales cycle. If revenues from the sales of our products and services continue at current levels, we may need to take steps to further reduce operating expenses or raise additional working capital. We cannot assure you that sales will increase or that we will be able to reduce operating expenses or raise additional working capital.

A single customer accounts for a significant portion of consolidated net sales and net sales in our Nucleic Acids operating segment.

During 2004, sales to Geron Corporation totaled $4.15 million and represented 12% of total consolidated net sales and 49% of total net sales within our Nucleic Acids operating segment. We do not have a long-term sales agreement with Geron Corporation and, accordingly, the amount of nucleic acid products we sell to it is subject to change. Revenues from our Nucleic Acids operating segment business would be substantially reduced if Geron Corporation’s need for our products declined or if it decided to obtain these products from other suppliers.

No other customer currently accounts for more than 10% of total consolidated or operating segment net sales.

Customer clinical trials may be delayed or discontinued.

A significant percentage of our Nucleic Acids operating segment and Discovery Services revenues are generated by sales to customers involved in drug development. Our products and services are generally used by these customers in the manufacture of drug candidates in varying stages clinical trials. If these clinical trials are delayed or cancelled or are otherwise not successful, this could have a significant impact on revenues.

The sale of our products and business operations in international markets subjects us to additional risks.

During the last three fiscal years, our international sales have been approximately 55-65% of our net sales. As a result, a major portion of our revenues and expenses are subject to risks associated with international sales and operations. These risks include:

• payment cycles in foreign markets are typically longer than in the U.S. and capital spending budgets for research agencies can vary over time with foreign governments;

• changes in foreign currency exchange rates can make our products more costly and operating expenses higher in local currencies since our foreign sales and operating expenses are typically paid for in U.S. Dollars, British Pounds or the Euro; and

• the potential for changes in U.S. and foreign laws or regulations that result in additional import or export restrictions, higher tariffs or other taxes, more burdensome licensing requirements or similar impediments to our ability to sell products and services profitably in these markets.

Our WAVE System includes hardware components and instrumentation manufactured by a single supplier and if we are no longer able to obtain these components and instrumentation our ability to manufacture our products could be impaired.

We currently rely on a single supplier, Hitachi High Technologies America, to provide the basic instrument used in our WAVE Systems. While other suppliers of instrumentation and computer hardware are available, we believe that our arrangement with Hitachi offers strategic advantages. Hitachi is replacing its current instrument line with a new instrument line. While we presently plan to convert our technology and applications to this new instrument line, such conversion may not be successful and, therefore, we may incur additional costs for the custom manufacturing of the current instrument line. If we were required to seek alternative sources of supply, it could be time consuming or expensive or require significant and costly modification of our WAVE System. Also, if we were unable to obtain instruments from Hitachi in sufficient quantities or in a timely manner, our ability to manufacture our products could be impaired, which could limit our future revenues.

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We may not have adequate personnel to execute our business plan.

In order to reduce our operating costs, we have significantly reduced the number of employees, including reductions in our research and development staff and our sales and marketing personnel. In addition, we may lose other key management, scientific, technical, sales and manufacturing personnel from time to time. It may be very difficult to replace personnel if they are needed in the future, and the loss of key personnel could harm our business and operating results. We cannot assure you that our employee reductions will not impair our ability to continue to develop new products and refine existing products in order to remain competitive. In addition, these reductions could prevent us from successfully marketing our products and developing our customer base.

Our markets are very competitive.

As described above, we compete with many other companies in both our Biosystems and Nucleic Acids operating segments. Many of these competing companies have greater resources than we do or may enjoy other competitive advantages. This may allow them to more effectively market their products to our customers or potential customers, to develop products that make our products obsolete or to produce and sell products less expensively than us. As a result of these competitive factors, demand for and pricing of our products and services could be negatively affected.

The price for our common stock is volatile and may drop further.

The trading price for our common stock has fluctuated significantly over recent years. The volatility in the price of our stock is attributable to a number of factors, not all of which relate to our operating results and financial position. Nevertheless, continued volatility in the market price for our stock should be expected and we cannot assure you that the price of our stock will increase in the future. Fluctuations or further declines in the price of our stock may affect our ability to sell shares of our stock and to raise capital through future equity financing.

If we are unable to maintain our Nasdaq listing, your ability to trade shares of our common stock could suffer.

In order for our common stock to remain listed on the Nasdaq National Market (“Nasdaq”), we must meet the minimum listing requirements for continued listing, including, among other requirements, minimum bid price and market value of public float requirements. On March 31, 2005, we were notified that the bid price for our common stock over a 30-day period was below the $1.00 minimum required for continued listing of our common stock on the Nasdaq. In order to remain listed, the minimum bid price for our common stock must be at least $1.00 per share over ten consecutive business days before September 27, 2005. If we are not able to regain compliance with this listing requirement, we may be delisted from the Nasdaq. If our common stock is delisted from the Nasdaq, transactions in our common stock would likely be conducted only in the over-the counter market, or potentially on regional exchanges, which could negatively impact the trading volume and price of our common stock, and investors may find it more difficult to purchase or dispose of, or to obtain accurate quotations as to the market value of, our common stock. In addition, if our common stock were not listed on the Nasdaq and the trading price of our common stock fell below $1.00 per share, trading in our common stock would also be subject to the requirements of certain rules which require additional disclosures by broker-dealers in connection with any trades involving a stock defined as a “penny stock.” In such event, the additional burdens imposed on broker-dealers to effect transactions in our common stock could further limit the market liquidity of our common stock and the ability of investors to trade our common stock.

Our patents may not protect us from others using our technology that could harm our business and competitive position.

Patent law relating to the scope of claims in the technology fields in which we operate is still evolving. The degree of future protection for our proprietary rights is uncertain. Furthermore, we cannot be certain that others will not independently develop similar or alternative products or technology, duplicate any of our products, or, if patents are issued to us, design around the patented products developed by us. Our patents or licenses could be challenged by litigation and, if the outcome of such litigation were adverse to us, our competitors could be free to use our technology. We may not be able to obtain additional patents for our technology, or if we are able to do so, patents may not provide us with substantial protection or be commercially beneficial. In addition, we could incur substantial costs in litigation if we are required to defend ourselves in patent suits brought by third parties or if we initiate such suits.

We cannot be certain that other measures taken to protect our intellectual property will be effective.

We rely upon trade secret protection, copyright and trademark laws, non-disclosure agreements and other contractual provisions for some of our confidential and proprietary information that is not subject matter for which patent protection is being sought. Such measures, however, may not provide adequate protection for our trade secrets or other proprietary information. If they do not protect our rights, third parties could use our technology and our ability to compete in the market would be reduced.

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We are dependent upon our licensed technologies and may need to obtain additional licenses in the future to offer our products and remain competitive.

We have licensed key components of our technologies from third parties. If these agreements were to terminate prematurely due to our breach of the terms of these licenses or we otherwise fail to maintain our rights to such technology, we may lose the right to manufacture or sell a substantial portion of our products. In addition, we may need to obtain licenses to additional technologies in the future in order to keep our products competitive. If we fail to license or otherwise acquire necessary technologies, we may not be able to develop new products that we need to remain competitive.

The patent underlying our nonexclusive license to manufacture standard nucleic acid building blocks expired as of March 15, 2005. The expiration of this patent could result in additional manufacturers entering the market for these products. Some of these manufacturers may have lower cost structures or other competitive advantages which may reduce our market share and/or our operating margins related to these products.

The protection of intellectual property in foreign countries is uncertain.

A significant percentage of our sales are to customers located outside the U.S. The patent and other intellectual property laws of some foreign countries may not protect our intellectual property rights to the same extent as U.S. laws. We may need to bring proceedings to defend our patent rights or to determine the validity of our competitors’ foreign patents. These proceedings could result in substantial cost and diversion of our efforts. Finally, some of our patent protection in the U.S. is not available to us in foreign countries due to the laws of those countries.

Our products could infringe on the intellectual property rights of others.

There are a significant number of U.S. and foreign patents and patent applications submitted for technologies in, or related to, our area of business. As a result, any application or exploitation of our technology could infringe patents or proprietary rights of others and any licenses that we might need as a result of such infringement might not be available to us on commercially reasonable terms, if at all. This may lead others to assert patent infringement or other intellectual property claims against us.

Our failure to comply with any applicable government regulations or otherwise respond to claims relating to improper handling, storage or disposal of hazardous chemicals that we use may adversely affect our results of operations.

Our research and development and manufacturing activities involve the controlled use of hazardous materials and chemicals. We are subject to federal, state, local and international laws and regulations governing the use, storage, handling and disposal of hazardous materials and waste products. If we fail to comply with applicable laws or regulations, we could be required to pay penalties or be held liable for any damages that result and this liability could exceed our financial resources. We cannot assure you that accidental contamination or injury will not occur. Any such accident could damage our research and manufacturing facilities and operations, resulting in delays and increased costs.

Item 2. Properties

We own one facility in Glasgow, Scotland and lease 14 facilities throughout the world under non-cancelable leases with various terms. As a result of restructuring initiatives initiated in 2004 and 2002, a significant amount of leased space is currently unoccupied, and may in certain cases be sublet, to independent third parties.

The following table summarizes occupied locations. Annual rent amounts presented in the table are reflected in thousands.

Location	Function	Square Footage	Annual Rent		Lease Term Expires
Owned
Glasgow, Scotland	Phospheramadite Manufacturing	44,212		N/A	N/A
Leased and Occupied
Omaha, Nebraska	WAVE® and Consumable Manufacturing	25,000	$	130	June 2007
San Jose, California	Consumable Manufacturing	14,360	$	139	October 2010
Cramlington, England	Consumable Manufacturing	8,500	$	53	March 2006
Omaha, Nebraska	Multi Functional (1)	18,265	$	187	July 2007
Paris, France	Multi Functional (1)	4,843	$	109	January 2007
Gaithersburg, Maryland	Multi Functional (1)	6,560	$	114	May 2006
Cambridge, Massachusetts	Multi Functional (1)	2,500	$	70	January 2007
Leased and Not Occupied (2)	Multi Functional (1)	55,759	$	505	2005 – 2007

⁽¹⁾ Multi Functional facilities include functions related to manufacturing, services, sales and marketing, research and development and/or administration.

⁽²⁾ Leased and not occupied facilities represent six facilities with gross annual rents of $0.82 million. Certain of these facilities are sublet to independent third parties. Annual rents from these subtenants are expected to total $0.32 million in 2005. We are pursuing sublet tenants for remaining vacated space.

8

Item 3. Legal Proceedings

We have been named as a defendant in a lawsuit filed in Spain by a prospective distributor who claims that the Company breached a promise to grant the plaintiff a distributorship for certain of the Company’s products in a specific geographic area in Europe. The plaintiff is seeking monetary relief of approximately $0.50 million. We believe the lawsuit is without merit and intend to vigorously defend this matter.

We are subject to a number of other claims of various amounts, which arise out of the normal course of business. In our opinion, the disposition of claims currently pending will not have a material adverse effect on our financial position, results of operations or cash flows, after considering amounts already reflected in the consolidated financial statements.

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

We did not submit any matters to our stockholders for a vote or other approval during the fourth quarter of the fiscal year covered by this report.

Item 4A. Executive Officers.

Our executive officers are appointed annually by the Board of Directors at the first meeting following the annual stockholders’ meeting. Other officers are appointed by the Board of Directors from time to time. Each officer holds office until a successor has been duly appointed and qualified or until the death, resignation or removal of such officer.

Our current officers and their ages as of December 31, 2004 are listed below followed by a brief biography.

Name	Age	Position
Collin J. D’Silva	47	Chairman of the Board, Chief Executive Officer and Director
Michael A. Summers	40	Chief Financial Officer
Keith A. Johnson	46	Vice President, General Counsel
Mitchell L. Murphy	48	Vice President, Secretary and Treasurer

Collin J. D’Silva. Mr. D’Silva has served as our Chairman of the Board and Chief Executive Officer since 1997 and is also a Director. Mr. D’Silva, a co-founder of Transgenomic, has worked for the Company and its predecessors since 1988. Mr. D’Silva was employed by AT&T from 1980 to 1988. At AT&T, he held various positions in engineering, materials management, sales support and business development. His last position at AT&T was Business Unit Manager and Engineering Manager for a network distribution products division. Mr. D’Silva holds a B.S. degree and a M.Eng. degree in industrial engineering from Iowa State University and an M.B.A. from Creighton University.

Michael A. Summers. Mr. Summers joined Transgenomic, Inc. in August 2004 and currently serves as Chief Financial Officer. Mr. Summers was employed with C&A Industries, Inc. from 2003 to 2004 where as General Manager he was responsible for the operations of various divisions that provided human capital management and consulting services. From 2001 to 2003, he was

9

Executive Vice President and Chief Financial Officer for Nexterna, Inc., a wholly-owned technology subsidiary of the Union Pacific Corporation. From 2000 to 2001, he was the Chief Accounting Officer for Able Telcom Holding Corp., a publicly-owned project management and construction company. Prior to 2000, Mr. Summers held various positions including eight years as an auditor for the Omaha, Nebraska office of Deloitte & Touche, LLP. Mr. Summers graduated from Creighton University in 1987 with a B.S. degree in business administration with an accounting major. He is a Certified Public Accountant.

Keith A. Johnson. Mr. Johnson joined us in 2002 as Vice President, General Counsel. Mr. Johnson has a B.A. in Biochemistry from Kalamazoo College, an M.B.A. in International Business and Marketing from Michigan State, and a law degree from the University of San Diego. Before joining Transgenomic Mr. Johnson was Director of Intellectual Property, Technology Development and Licensing at Integra LifeSciences in Plainsboro, NJ, from 1999 to 2001. Mr. Johnson’s previous experience also includes Senior Licensing Manager, Rutgers University, from 1998 to 1999 and Technology Licensing Officer, Washington State University, from 1995 to 1998. Mr. Johnson is a member of the state bars of California, Washington, New Jersey and Nebraska and is admitted to practice before the United States Patent and Trade Office.

Mitchell L. Murphy. Mr. Murphy joined us in 1992. His current duties include the overall corporate administration and shareholder relations. Prior to joining Transgenomic, he held accounting and financial management positions for 15 years with companies involved in manufacturing, steel distribution and rebar fabrication. He spent over two years as an auditor for the Omaha, Nebraska office of Deloitte, Haskins & Sells (now Deloitte & Touche LLP) working in a broad range of industries. Mr. Murphy graduated with honors from Creighton University in 1978 with a B.S. degree in business administration with an accounting major.

Part II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters.

Our common stock is listed for trading on the Nasdaq under the symbol TBIO. The following table sets forth the high and low closing prices for our common stock during each of the quarters of 2003 and 2004.

	High		Low
Year Ended December 31, 2003
First Quarter	$	4.22	$	1.40
Second Quarter	$	2.43	$	0.93
Third Quarter	$	2.14	$	1.03
Fourth Quarter	$	2.98	$	1.45
Year Ended December 31, 2004
First Quarter	$	3.23	$	1.96
Second Quarter	$	1.87	$	1.24
Third Quarter	$	1.58	$	1.07
Fourth Quarter	$	1.52	$	1.06

At April 14, 2005, there were 34,234,922 shares of our common stock outstanding and approximately 3,200 holders of record.

We have never declared or paid any cash dividends on our common stock and we do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently expect to retain all earnings, if any, for investment in our business. Dividends on our common stock will be paid only if and when declared by our Board of Directors. The Board’s ability to declare a dividend is subject to limits imposed by Delaware corporate law. In determining whether to declare dividends, the Board may consider our financial condition, results of operations, working capital requirements, future prospects and other relevant factors.

Item 6. Selected Financial Data.

The statement of operations data for the years ended December 31, 2004, 2003 and 2002 and the balance sheet data as of December 31, 2004 and 2003 are derived from our historical consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K, which have been audited by Deloitte & Touche LLP, our independent registered public accounting firm. The statement of operations data for the years ended December 31, 2001 and 2000 and the balance sheet data as of December 31, 2002, 2001 and 2000 are derived from our audited historical consolidated financial statements that are not included in this Annual Report on Form 10-K.

10

The following selected financial data should be read in conjunction with our consolidated financial statements and the related notes thereto and the information under “Management Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Annual Report on Form 10-K.

	Year Ended December 31,
	2004			2003			2002			2001(1)			2000(1)
	In thousands, except per share data
Statement of Operations Data:
Net sales	$	33,789		$	33,866		$	37,554		$	38,467		$	25,883
Cost of good sold		24,596			24,315			19,569			17,198			12,800
Gross profit		9,193			9,551			17,985			21,269			13,083
Selling, general and administrative		17,499			17,324			24,199			21,636			14,908
Research and development		6,685			9,305			12,201			9,372			7,652
Restructuring charges (2)		3,570			738			3,282			—			—
Impairment charges (3)		11,965			4,772			—			—			—
Gain on sale of facility (4)		(1,466	)		—			—			—			—
Gain on sale of product line		—			—			—			—			(784	)
Operating expenses		38,253			32,139			39,682			31,008			21,776
Other income (expense) (5)		(5,406	)		(305	)		437			2,362			212
Loss before income taxes		(34,466	)		(22,893	)		(21,260	)		(7,377	)		(8,481	)
Income tax (benefit) expense		(94	)		65			105			24			180
Net loss	$	(34,372	)	$	(22,958	)	$	(21,365	)	$	(7,401	)	$	(8,661	)
Basic and diluted loss per share	$	(1.19	)	$	(0.94	)	$	(0.91	)	$	(0.33	)	$	(0.52	)
Basic and diluted weighted average shares outstanding		29,066			24,484			23,583			22,560			16,630
	As of December 31,
	2004			2003			2002			2001			2000
	In thousands
Balance Sheet Data:
Total assets (6)	$	37,458		$	57,306		$	74,035		$	89,286		$	77,863
Borrowing under Credit Line		6,514			2,142			—			—			—
Current portion of long-term debt		825			1,693			63			—			—
Long-term debt, less current portion		2,199			—			1,499			—			—
Total stockholders’ equity (deficit)		16,535			45,058			61,515			82,104			73,966

⁽¹⁾ In May 2001, we acquired Annovis, Inc., a specialty chemicals company that develops, manufactures and markets a wide variety of nucleic acid-based products and services for the life science industry, for a total purchase price of approximately $16.91 million. Annovis’ results of operations have been included in the accompanying financial statements beginning on May 1, 2001. Additionally, our consolidated financial statements include the results from our non-life sciences product line which was sold effective April 1, 2000.

⁽²⁾ In 2004 and 2002 plans were developed and implemented to reduce expenses thereby better aligning our expense structure with current business prospects. The plans included employee terminations, office closures, termination of collaborations and write-offs of abandoned intellectual property. As a result, restructuring charges were recorded and are included in operating expenses. See Note N to the accompanying consolidated financial statements.

⁽³⁾ Impairment charges relate primarily to the impairment of goodwill, and in 2004, also include a charge of $2.10 million related to the impairment of property and equipment. See Note C to the accompanying consolidated financial statements.

⁽⁴⁾ Gain on sale of facility relates to the sale of our specialty olignucleotide manufacturing facility in Boulder, Colorado during the fourth quarter of 2004. See note M to the accompanying consolidated financial statements.

⁽⁵⁾ Other income (expense) for all years presented primarily includes interest expense and in 2004 it includes a loss on debt extinguishment of $2.86 million resulting from certain modifications to our Laurus Loans that were treated as extinguishments for financial reporting purposes. See Note E to the accompanying consolidated financial statements.

⁽⁶⁾ The reduction in total assets from December 31, 2003 to December 31, 2004 related primarily to impairment charges of $11.97 million in our Nucleic Acids operating segment (see Notes C and K to the accompanying consolidated financial statements) and the sale of our specialty oligonucleotide manufacturing facility in Boulder, Colorado (see Note M to the accompanying consolidated financial statements). The reduction in total assets from December 31, 2002 to December 31, 2003 related primarily to operating losses that were funded by reductions in cash and cash equivalents and short term investments.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

Since 2000 (the year of our initial public offering), we have incurred net losses of $94.76 million generally related to our Nucleic Acids operating segment, research and development and selling, general and administrative costs. Our liquidity and working capital positions continued to deteriorate during 2004 predominately due to operating losses that were funded during the year primarily by borrowings under our Credit Line and the sale of our specialty oligonucleotides facility in Boulder, Colorado. At December 31, 2004, we had an accumulated deficit of $107.10 million.

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To respond to changes in the overall business climate for our products, our liquidity position and our demand for capital, we instituted significant changes during 2004 designed to, among other things, align our cost structure with projected revenues, focus on opportunities in our BioSystems operating segment, and minimize the adverse financial effect of our Nucleic Acids operating segment. While the primary goals of these changes were to provide the foundation for a self-sustaining, growth-oriented company with positive cash flows and earnings, there can be no assurances that we can achieve these goals.

We determined that our Nucleic Acids operating segment was impaired and sold our specialty oligonucleotide facility.

Based upon information obtained through the process of evaluating strategic alternatives for our Nucleic Acids operating segment, we determined that it was more likely than not that the value of the assets associated with this business were impaired. We engaged an external valuation firm to assist us in conducting an interim period impairment test that resulted in a non-cash charge of $11.97 million related to these assets during the three months ended June 30, 2004. The charge consisted of $9.87 million related to the impairment of goodwill and $2.10 million related to the impairment of property and equipment.

On November 11, 2004, we sold the assets associated with our specialty oligonucleotides manufacturing facility in Boulder, Colorado to a subsidiary of Eyetech Pharmaceuticals, Inc. (“Eyetech”). The sale price was $3.00 million in cash plus the assumption of the lease on the Boulder facility and certain equipment leases with a gross value of $2.38 million. Substantially all of the 27 employees at the Boulder facility became Eyetech employees. Net proceeds from the sale (after transaction expenses and fees paid to our investment advisors) equaled approximately $2.70 million. In conjunction with this transaction, we recorded a gain on sale of $1.47 million in the fourth quarter of 2004.

We implemented a restructuring plan to better align costs with expected revenues.

On November 13, 2004, our Board of Directors approved a restructuring plan designed to refocus the Company on its BioSystems business segment and to better align our cost structure with anticipated revenues. The plan (which is incremental to the sale of our Boulder, Colorado facility) included a workforce reduction of approximately 60 positions and the closure of two domestic research and development facilities associated with our nucleic acids operating segment and two European field offices. Additionally, we eliminated 11 positions at our chemical building blocks manufacturing facility in Glasgow, Scotland. In conjunction with these changes, we incurred a charge of $3.57 million during the quarter ending December 31, 2004 related primarily to severance, benefits and facility closures.

We expect the 2004 restructuring plan and the sale of our specialty oligonucleotide manufacturing facility to have a significant impact on our ongoing costs. The pro forma effects on our 2004 loss from operations are as follows.

	2004 As Reported			Sale of Oligonucleotide Facility			Restructuring Plan (1)			Impairment Charges (2)			2004 Pro Forma
	In thousands
Net sales	$	33,789		$	2,051		$	—		$	—		$	31,738
Cost of goods sold		24,596			5,456			706			—			18,434
Gross profit (loss)		9,193			(3,405	)		(706	)		—			13,304
Selling, general and administrative		17,499			33			1,304			—			16,162
Research and development		6,685			4			3,068			—			3,613
Restructuring charges		3,570			—			3,570			—			—
Impairment charges (2)		11,965			—			—			11,965			—
Gail on sale of facility (3)		(1,466	)		(1,466	)		—			—			—
Operating expenses		38,253			37			7,942			10,498			19,776
Loss from operations	$	(29,060	)	$	(3,442	)	$	(8,648	)	$	(10,498	)	$	(6,472	)

⁽¹⁾ These restructuring plan pro forma adjustments include the restructuring charge incurred in the fourth quarter of 2004 (see Note N to the accompanying consolidated financial statements) plus actual 2004 direct and identifiable expenses associated with terminated employees and closed offices that were incurred and recorded as costs of goods sold or operating expense prior to the implementation of the restructuring plan. For example, they include personnel costs associated with severed employees, rent associated with closed facilities and other specifically identifiable costs. These costs are not expected to recur in the future. They do not include anticipated additional savings from indirect costs (travel, supplies, etc.) associated with fewer employees and facilities.

⁽²⁾ The impairment charges in 2004 related to the write-off of all goodwill and impairment of property and equipment in our Nucleic Acids operating segment. We do not expect these charges to recur. Our December 31, 2004 consolidated balance sheet reflects goodwill of $0.64 million that related entirely to our BioSystems operating segment.

⁽³⁾ The gain on sale of facility related to the sale of our specialty olignucleotide manufacturing facility in Boulder, Colorado.

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Results of Operations

Changes in Results of Operations

	Amounts in Thousands
									Dollar Change						Percent Change
	2004			2003			2002		2003 to 2004			2002 to 2003			2003 to 2004		2002 to 2003
Net Sales
Bioinstruments	$	14,385		$	17,916		$	19,098	$	(3,581	)	$	(1,182	)	(20	)%	(6	)%
Bioconsumables		8,838			7,260			5,137		1,578			2,123		22	%	41	%
Discovery Services		2,020			868			—		1,152			868		133	%	—
Total BioSystems operating segment		25,243			26,044			24,235		(801	)		1,809		(3	)%	7	%
Chemical Building Blocks		6,488			6,631			13,319		(143	)		(6,688	)	(2	)%	(50	)%
Specialty Oligonucleotides		2,058			1,191			—		867			1,191		73	%	—
Total Nucleic Acids operating segment		8,546			7,822			13,319		724			(5,497	)	9	%	(41	)%
Total Net Sales		33,789			33,866			37,554		(77	)		(3,688	)	(1	)%	(10	)%
Cost of Goods Sold
Bioinstruments		6,382			7,343			7,650		85			250		1	%	3	%
Bioconsumables		4,012			3,475			2,284		537			1,191		15	%	52	%
Discovery Services		1,603			557			—		1,046			557		188	%	—
Total BioSystems operating segment		11,997			11,375			9,934		622			1,441		5	%	15	%
Chemical Building Blocks		7,165			6,937			9,635		228			(2,698	)	3	%	(28	)%
Specialty Oligonucleotides		5,434			6,003			—		(569	)		6,003		(9	)%	—
Total Nucleic Acids operating segment		12,599			12,940			9,635		(341	)		3,305		(3	)%	34	%
Total Cost of Goods Sold		24,596			24,315			19,569		(281	)		4,746		(1	)%	24	%
Selling, General and Administrative Expenses		17,499			17,324			24,199		175			(6,875	)	1	%	(28	)%
Research and Development Expenses		6,685			9,305			12,201		(2,620	)		(2,896	)	(28	)%	(24	)%
Restructuring Charges		3,570			738			3,282		2,832			(2,544	)	384	%	(78	)%
Impairment Charges		11,965			4,772			—		5,726			4,772		120	%	—
Gain on sale of facility		1,466			—			—		1,466			—		—		—
Other Income (Expense)		(5,406	)		(305	)		437		5,102			742		1673	%	170	%

Years Ended December 31, 2004 and 2003

Net Sales. Net sales during 2004 decreased $0.08 million or 1% from 2003 as a result of a $0.80 million or 3% decrease in sales in our BioSystems operating segment offset by a $0.72 million or 9% increase in sales in our Nucleic Acids operating segment.

The decrease in sales in our BioSystems operating segment resulted from a decrease of $3.58 million or 20% from bioinstruments that was partially offset by increases in sales of bioconsumables of $1.58 million or 22% and Discovery Services of $1.15 million or 133%. The decrease of bioinstrument sales was primarily the result of a decline in the number of Wave Systems sold from 122 in 2003 to 107 in 2004. The selling prices of our instruments vary based on the specific model and optional accessories. We had an installed base of approximately 1,200 units at December 31, 2004. The increase in the installed base of instruments continues to drive increases in sales of bioconsumables used with these instruments. The increase in Discovery Services revenue during 2004 was primarily attributable to the discovery services agreements that we entered into with pharmaceutical companies to support their clinical development of oncology therapeutics. We plan to continue to seek opportunities to provide genetic variation discovery and analysis services to pharmaceutical and other customers and believe that these services provide us a significant opportunity to expand revenues in the future.

Nucleic Acids operating segment sales increased by $0.72 million or 9% in 2004 compared to 2003 as a result of a substantial increase in sales of specialty oligonucleotides produced by our facility in Boulder, Colorado as raw materials in DNA-based drug candidates. As a result of the sale of this facility in November 2004, we will no longer manufacture or sell oligonucleotides. Sales of our chemical building block products produced in our Glasgow, Scotland facility were essentially the same in 2004 as in 2003. During 2004, sales of chemical building blocks to Geron Corporation totaled $4.15 million and represented 12% of total consolidated net sales, 49% of total net sales within our Nucleic Acids operating segment and 61% of chemical building blocks revenue. We do not have long-term sales commitments from Geron Corporation and, accordingly, the amount we sell them is subject to change. Revenues from our Nucleic Acids operating segment would be substantially reduced if Geron’s need for our products declined or if it decided to obtain these products from other suppliers.

Costs of Goods Sold. Costs of goods sold include material costs for the products that we sell and substantially all other costs associated with our manufacturing facilities (primarily personnel costs, rent and depreciation). It also includes direct costs (primarily

13

personnel costs and supplies) associated with our Discovery Services product line. Depreciation expense included in costs of goods sold totaled $2.10 million and $1.74 million in 2004 and 2003, respectively.

Costs of goods sold during 2004 decreased $0.28 million or 1% from 2003 as a result of a $0.62 million or 5% increase in our BioSystems operating segment offset by a $0.34 million or 3% decrease in our Nucleic Acids operating segment. The overall decrease is consistent with the decrease in net sales.

Gross profit was $9.19 million or 27% of total net sales during 2004 compared to $9.55 million and 28% during 2003. A summary of margins by operating segment follows (dollars in thousands):

	2004				2003
	Dollars		Percent		Dollar		Percent
BioSystems operating segment	$	13,246	52	%	$	14,669	56	%
Nucleic Acids operating segment		(4,053)	(47	)%		(5,118)	(65	)%
	$	9,193	27	%	$	9,551	28	%

We expect gross profits from our BioSystems operating segment to be within historic ranges of 50% to 60%. As a result of the sale of our Boulder, Colorado facility and the restructuring plan implemented in November 2004, we anticipate that our cost of goods sold will be significantly improved. However, our Nucleic Acids operating segment continues to have excess capacity in its Glasgow, Scotland manufacturing facility that will adversely impact costs of goods sold and margins until demand for our Nucleic Acids building block products increase.

Selling, General and Administrative Expenses. Selling, general and administrative expenses primarily include personnel costs, marketing, travel and entertainment costs, professional fees, and facility costs. These costs totaled $17.50 million in 2004 compared to $17.32 million in 2003, an increase of $0.18 million or 1%. This increase related to a $1.26 million increase in selling expenses offset by a $1.09 million reduction in general and administrative expenses. As a percentage of revenue, selling, general and administrative expenses totaled just over 51% in both 2004 and 2003. Depreciation expense include in selling, general and administrative expenses totaled $1.02 million and $1.28 million in 2004 and 2003, respectively.

Research and Development Expenses. Research and development expenses primarily include personnel costs, supplies, and facility costs. These costs totaled $6.69 million in 2004 compared to $9.31 million in 2003, a decrease of $2.62 million or 28%. As a percentage of revenue, research and development expenses totaled 20% and 27% of revenue in 2004 and 2003, respectively. These decreases related to our focus on expense control, the sale of our Boulder, Colorado facility and the restructuring plan implemented in November 2004. Depreciation expense included in research and development expenses included $0.88 million and $0.89 million in 2004 and 2003, respectively. We expect to continue to invest a substantial portion of our revenues in research and development activities primarily associated with our BioSystems operating segment. Research and development costs are expensed in the year in which they are incurred.

Restructuring Charges. On November 13, 2004, our Board of Directors approved a restructuring plan designed to refocus on the BioSystems operating segment and to better align the Company’s cost structure with anticipated revenues. The plan (which is incremental to the sale of the specialty oligonucleotide manufacturing facility in Boulder, Colorado) included a workforce reduction of approximately 60 positions and the closure of two domestic research and development facilities associated with our Nucleic Acids operating segment and two European field offices. Additionally, we eliminated approximately 10 positions at its chemical building blocks manufacturing facility in Glasgow, Scotland. In conjunction with these changes, we incurred a charge of $3.57 million during the quarter ending December 31, 2004 consisting of severance benefits of $1.41 million, future rents on closed facilities (net of projected sublease rents) of $1.24 million, the write-off of property and equipment specifically attributable to closed facilities of $0.74 million and other costs of $0.18 million. We had accrued expenses associated with this restructuring plan of $1.91 million at December 31, 2004 of which $1.49 million is expect to be paid in 2005.

Impairment Charges. During the second quarter of 2004, our Board of Directors directed us to explore strategic alternatives for the Nucleic Acids operating segment. The process included significant due diligence by us, our advisors and prospective independent buyers and other interested parties. Based upon information obtained through this process, we determined that it was more likely than not that the value of the assets associated with this business were impaired. We engaged an external valuation firm to assist us in conducting an interim period impairment test that resulted in us recording a non-cash charge of $11.97 million related to these assets during the three months ended June 30, 2004. The charge consisted of $9.87 million related to the impairment of goodwill and $2.10 million related to the impairment of property and equipment.

Gain on Sale of Facility. On November 11, 2004, we sold the assets associated with our specialty oligonucleotides manufacturing facility in Boulder, Colorado to a subsidiary of Eyetech Pharmaceuticals, Inc. (“Eyetech”). The sale price was $3.00 million in cash plus the assumption of the lease on the Boulder facility and of certain equipment leases with a gross value of $2.38 million. Net proceeds from the sale (after transaction expenses and fees paid to our investment advisors) equaled approximately $2.70 million. In conjunction with this transaction, we recorded a gain on sale of $1.47 million in the fourth quarter of 2004.

14

Other Income (Expense). Other expense during 2004 of $5.41 million consisted of interest expense of $2.38 million, loss on debt extinguishment of $2.86 million, and other net expense of $0.16 million which consisted primarily of net investment losses associated with available-for-sales securities (Geron stock). Other expense during 2003 of $0.31 million consisted of interest income of $0.20 million, interest expense of $0.31 million and other net expenses of $0.20 million.

The increase in interest expense resulted from higher average debt balances and interest rates. Gross debt totaled $8.95 million at December 31, 2004 compared to $4.69 million at December 31, 2003. Our Credit Line and Term Note had average balances during 2004 of $5.69 million and $2.73 million, respectively, with weighted average interest rates of 6.39% and 6.48%, respectively. The high and low borrowings under our Credit Line during 2004 were $7.23 million and $2.63 million, respectively. Interest expense in 2004 and 2003 includes amortization of related premiums and discounts of $1.64 million and $0, respectively.

Loss on debt extinguishment totaled $2.86 million during 2004. As described in Note E to the accompanying consolidated financial statements, certain August 31, 2004 modifications to our Laurus Loans were treated as extinguishments for financial reporting purposes since the change in present value of expected cash flows between the original and modified agreements is greater than 10%. As such, we recorded a loss on extinguishment of debt of $2.86 million at August 31, 2004 reflecting the difference between (i) the recorded amount of debt, net of related discounts, of $7.43 million and (ii) the fair value of the new debt instrument of $10.29 million plus the fair value of the new warrants of $0.11 million. The difference between the fair value of the new debt of $10.29 million and the face value of the debt of $8.57 million represents a premium, which will be reflected as a reduction of interest expense over the life of the new debt.

Income Tax Expense. Income tax expense relates solely to our operations in certain foreign countries and certain states. In addition to income tax expense in these jurisdictions, we do not record any income tax benefits due to our cumulative losses in recent years, expected losses in future years and the uncertainty as to whether we will be able to utilize any additional losses as carrybacks. We will continue to assess the recoverability of deferred tax assets and the related valuation allowance. We expect to continue to incur losses and expect to continue to provide valuation allowances against deferred tax assets. To the extent we begin to generate income in future years and it is determined that such valuation allowance is no longer required, the tax benefit of the remaining deferred tax assets will be recognized. Our deferred tax assets as of December 31, 2004 were $38.29 million and were entirely offset by a valuation allowance. As of December 31, 2004, we had federal net operating loss carryforwards of approximately $91.47 million. Our net operating loss carryforwards will expire at various dates from 2008 through 2024, if not utilized. We also had state income tax loss carryforwards of $37.62 million at December 31, 2004. These carryforwards will also expire at various dates beginning in 2005 if not utilized.

Years Ended December 31, 2003 and 2002

Net Sales. Net sales decreased in 2003, as compared to 2002, due to a significant decline in demand for our Nucleic Acids products. Sales in our Nucleic Acids operating segment decreased due to a significant decline in demand for our chemical building block products. These products are used by our biopharmaceutical and pharmaceutical customers as raw materials in DNA based drug candidates. The decrease in demand is largely attributable to the timing of completion and/or failure of Phase III clinical trials by certain of our large customers. This decrease in demand for DNA building blocks in 2003 was partially offset by sales of oligonucleotides generated by our start-up manufacturing facility in Boulder, Colorado.

Sales in our BioSystems operating segment increased in 2003. Revenues from sales of WAVE systems and related services were relatively flat with 2002. However, bioconsumable product sales strength resulted from increased WAVE related consumable usage as the installed base of WAVE Systems has increased and as researchers begin to use them more extensively in place of other methods of DNA analysis. Also contributing to the increase were revenues generated by new product sales including our Optimase product line that was launched in 2002 and began to see increased usage in 2003. Sales of WAVE systems declined slightly from 2002 to 2003 offset by an increase in related services revenues. The slight decline in systems sales was mainly due to continued low sales volumes to our North American customer base. Increased services revenue was attributable to our focus on providing genetic variation discovery and analysis services to our pharmaceutical base of customers.

Cost of Goods Sold. Cost of goods sold increased in 2003 over 2002 despite the decline in our revenues. This increase was anticipated and was attributable mainly to excess manufacturing capacity in our Nucleic Acids operating segment. The BioSystems operating segment cost of goods sold as a percentage of sales declined year over year but remained within historical ranges at approximately 43%. The margins in our Nucleic Acids operating segment were negatively impacted by higher manufacturing costs and excess capacity due largely to our plant expansion efforts in Glasgow, Scotland and Boulder, Colorado.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased significantly from 2002 to 2003 as a result of our restructuring activities and focus on expense control. Nearly half of the total decrease was in personnel and personnel related expenses as we significantly reduced our employee headcount. Additionally, reductions in outside services, advertising, sales promotions, depreciation and travel expenses accounted for approximately 30% of the total decrease.

15

Research and Development Expenses. Research and development expenses decreased significantly as a result of our restructuring activities and focus on expense control. Over 60% of the total decrease was in personnel and personnel related expenses as we significantly reduced our employee headcount. Additionally, significant reductions in outside services, supplies, depreciation and travel expenses were realized. During 2003 there were no capitalized software costs, whereas in the prior year we capitalized approximately $1.13 million of development costs. Research and development expenses consist of salaries and related personnel costs of researchers and software developers, material costs for prototypes and test units, legal expenses relating to intellectual property research and application development activities, testing and enhancement of our products, and amortization of intellectual property. We expense our research and development costs in the year in which they are incurred with the exception of certain capitalized software development costs.

Restructuring Charges. During the fourth quarter of 2002 management formulated and executed a significant portion of a restructuring plan. The plan was developed to reduce expenses thereby better aligning the Company’s expense structure with current business prospects. The plan included employee terminations, office closures, termination of collaborations and write-offs of abandoned intellectual property. We continued to execute the plan during the first half of 2003 resulting in the additional charges recorded in 2003. These charges consisted of mainly employee severance costs and the write-off of a note receivable related to the abandonment of a product development collaboration. The note receivable write-off was a non-cash charge of $0.35 million.

Goodwill Impairment Charge. Statement of Financial Accounting Standard (SFAS) No. 142, Goodwill and Other Intangible Assets, establishes guidelines for accounting for goodwill and other intangible assets and provides that goodwill and other intangible assets with indefinite lives will not be amortized, but will be evaluated for impairment annually. The Company engaged an external valuation firm to assist with the completion of its annual impairment test during the fourth quarter of 2003. As a result of this test we recorded a non-cash goodwill impairment charge of $4.77 million related to our nucleic acids segment.

Income Taxes. The Company’s tax expense relates to its operations in certain foreign countries and certain states. No tax benefits are being recorded due to our cumulative losses in recent years, expected losses in future years and the uncertainty as to whether we will be able to utilize any additional losses as carrybacks. We will continue to assess the recoverability of deferred tax assets and the related valuation allowance. We expect to continue to incur losses and expect to continue to provide valuation allowances against deferred tax assets. To the extent we begin to generate income in future years and it is determined that such valuation allowance is no longer required, the tax benefit of the remaining deferred tax assets will be recognized. Our deferred tax assets as of December 31, 2003 were $30.60 million and were entirely offset by a valuation allowance. As of December 31, 2003, we had federal net operating loss carryforwards of approximately $78.50 million. We also had state income tax loss carryforwards of $28.70 million at December 31, 2003.

Liquidity and Capital Resources

Our working capital positions at December 31, 2004 and 2003 were as follows:

	December 31,
	2004			2003		Change
	In thousands
Current assets (1)	$	17,908		$	24,378	$	(6,470	)
Current liabilities		18,724			12,248		6,476
Working Capital	$	(816	)	$	12,130	$	(12,946	)

⁽¹⁾ Current assets include cash and cash equivalents of $1.00 million and $1.24 million at December 31, 2004 and 2003, respectively.

The deterioration of our working capital position during 2004 was predominately due to operating losses that were funded primarily by borrowings under our Credit Line, the sale of our specialty oligonucleotides facility in Boulder, Colorado and the reclassification at December 31, 2004 of a portion of our chemical building blocks inventory with a book value of $2.86 million as a long-term asset rather than as a current asset. The reclassification of these inventories was based on sales forecasts for these products. As of March 31, 2005, we had cash and cash equivalents of $1.37 million plus an additional $2.29 million available under our Credit Line.

While we expect our existing sources of liquidity to be sufficient to meet our cash needs for 2005, there can be no assurances that they will be, especially if we do not generate net positive cash flows from operations in 2005. It is essential that we achieve revenue growth in our BioSystems operating segment and manage costs according to our existing plan. Our projected liquidity needs may or may not be realized based upon actual operating results and capital project requirements. Accordingly, if our existing cash balances, cash generated by operations, and available borrowings under the Credit Line are insufficient to satisfy our liquidity requirements, we may need to sell additional equity or debt securities or obtain additional credit arrangements, sell certain assets or further reduce expenses. We are monitoring our liquidity position and are prepared to take appropriate measures, as needed, to address liquidity. We cannot assure you that any financing arrangement will be available in amounts or on terms acceptable to us. Our failure to raise additional capital, if needed, would harm our financial condition, results of operations and our business.

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Laurus Loans. The Credit Line is a $7.50 million line of credit that we entered into with Laurus in December 2003. The term of the Credit Line is three years carrying an interest rate of 2.0% over the prime rate or a minimum of 6.0%. Funds available under the Credit Line are determined by a borrowing base equal to 90% of eligible accounts receivable balances plus up to $1.00 million related to inventory balances. The Credit Line is secured by most of our assets. Prior to amendments to the Credit Line discussed below, payment of interest and principal could, under certain circumstances, be made with shares of our common stock at a fixed conversion price of $2.20 per share. Conversion of this debt to common stock may be made at the election of Laurus or the Company. We could elect to convert only if our shares trade at a price exceeding $2.42 per share for ten consecutive trading days, and such conversion is further subject to trading volume limitations and a limitation on the total beneficial ownership by Laurus of our common stock. Upon entering into the Credit Line, we issued warrants to Laurus to acquire 550,000 shares of the our common stock at an exercise price exceeding the average trading price of our common stock over the ten trading days prior to the date of the warrant.

In February 2004, we entered into the $2.75 million Term Note with Laurus. The Term Note carries an interest rate of 2.0% over the prime rate or a minimum of 6.0% and has a term of 3 years. Prior to amendments to the Term Note discussed below, the principal and interest on the Term Note could be converted into our common stock at a fixed conversion price of $2.61 per share. Upon entering the Term Note, we issued warrants to Laurus to acquire 125,000 shares of our common stock. Borrowings under the Term Note were primarily used to retire the mortgage debt on our Glasgow, Scotland facility. Remaining borrowings of approximately $0.75 million were used to complete the build-out of the Glasgow facility, complete the consolidation our Glasgow operations into the new facility and provide funds for operations.

In February 2004, Laurus waived the borrowing base limitation on the Credit Line, thereby making the full $7.50 million facility available to us regardless of the available collateral. On August 31, 2004, Laurus agreed to extend the borrowing base waiver on the Credit Line through March 19, 2005. In addition, Laurus deferred certain payments due under the Term Note and reduced the interest rate on both of the Laurus Loans to 0% for any day the closing sale price of our common stock is at or above $1.75 per share. In return, we lowered the conversion price on each of the Laurus Loans to $1.00 per share and issued a warrant to Laurus covering an additional 400,000 common shares at an exercise price of $1.25 per share. The closing price of our common stock on August 31, 2004 was $1.20 per share.

On March 18, 2005, Laurus agreed to further extend the borrowing base waiver on the Credit Line until March 31, 2006. In connection with this waiver, we agreed to allow Laurus to convert $1.87 million of the outstanding principal balance under the Credit Line into 3,600,000 shares of common stock. In addition, on March 24, 2005 we agreed to allow Laurus to convert $0.65 million of the outstanding principal balance of the Term Note into 1,250,000 shares of common stock. As a result, we have increased the amount available under the Credit Line by $1.87 million and have eliminated substantially all remaining 2005 scheduled principal payments on the Term Loan.

Analysis of Cash Flows

Cash flows used in operating activities totaled $9.10 million during 2004 compared to $13.25 million during 2003. The use in 2004 related primarily to a net loss of $34.37 million offset by non-cash charges of $21.18 million. Non-cash charges consisted of depreciation and amortization, certain restructuring charges, impairment charges, certain financing costs and loss on debt extinguishment. Working capital and other adjustments increased cash flows from operating activities by $4.09 million.

Cash flows from investing activities totaled $2.38 million during 2004 compared to cash flows used in investing activities of $2.72 million during 2003. The investing cash flows generated in 2004 were from the sale of our specialty oligoneucleotide manufacturing facility and reductions in other assets that were offset by purchases of property and equipment.

Cash flows from financing activities totaled $6.00 million during 2004 compared to $7.30 million during 2003. The cash from financing activities in 2004 relate primarily to net draws on our Credit Line and proceeds from the Term Note that were offset by payments of long-term debt.

Obligations and Commitments

Our ongoing capital commitments consist of debt service requirements and obligations under capital leases. The following table sets forth our contractual obligations as of December 31, 2004 along with cash payments due in each period indicated:

	Payments Due by Period
	2005		2006		2007		2008		2009 and Thereafter
	In thousands
Credit Line (1)	$	5,948	$	—	$	—	$	—	$	—
Term Note (1)		850		900		850		—		—
Operating lease payments (2)		1,958		1,382		486		187		372
Total contractual obligations	$	8,756	$	2,282	$	1,336	$	187	$	372

⁽¹⁾ Interest payments under the Laurus Loans are paid monthly based on outstanding debt and prevailing interest rates. We currently expect to pay total interest on these loans of between $0.60 million and $0.75 million during 2005.

⁽²⁾ These are gross lease commitments. Certain facilities underlying these commitments are sublet to independent third parties. Annual rents from these tenants are expected to total $0.32 million, $0.17 million and $0.02 million in 2005, 2006 and thereafter, respectively.

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At December 31, 2004, we had firm commitments totaling $0.80 million to Hitachi High Technologies America to purchase components used in our WAVE Systems. These commitments will be fulfilled during 2005.

Off Balance Sheet Arrangements

At December 31, 2004 and 2003, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies

Accounting policies used in the preparation of the consolidated financial statements may involve the use of management judgments and estimates. Certain of the Company’s accounting policies are considered critical as they are both important to the portrayal of the Company’s financial statements and they require significant or complex judgments on the part of management. Our judgments and estimates are based on experience and assumptions that we believe are reasonable under the circumstances. Further, we evaluate our judgments and estimates from time to time as circumstances change. Actual financial results based on judgment or estimates may vary under different assumptions or circumstances. The following are certain critical accounting policies that may involve the use of judgment or estimates.

Allowance for Doubtful Account. Accounts receivable are shown net of an allowance for doubtful accounts. In determining an allowance for doubtful accounts, we consider the following.

• The age of the accounts receivable,

• Customer credit history,

• Customer financial information,

• Reasons for non-payment, and

• Our knowledge of the customer.

If our customers’ financial condition were to deteriorate, resulting in a change in their ability to make payment, additional allowances may be required.

Inventories. Inventories are stated at the lower of cost or market. Cost is computed using standard costs for finished goods and average or latest actual cost for raw materials and work in process.

Depreciation and Amortization of Long-Lived Assets. The Company’s long-lived assets consist primarily of property, plant and equipment, goodwill, patents, intellectual property and capitalized software development costs. We believe the useful lives we assigned to these assets are reasonable. If our assumptions about these assets change as a result of events or circumstances and we believe the assets may have declined in value we may record impairment charges resulting in lower profits. Property and equipment are carried at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the related assets ranging from 3 to 15 years. The Company capitalizes the external and in-house legal costs and filing fees associated with obtaining patents on its new discoveries and amortizes these costs using the straight-line method over the shorter of the legal life of the patent or its economic life, generally 17 years, beginning on the date the patent is issued. Intellectual property, which is purchased technology, is recorded at cost and is amortized over its estimated useful life.

Impairment of Long-Lived Assets. The Company evaluates goodwill for impairment on an annual basis. The Company assesses the recoverability of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. These computations utilize judgments and assumptions inherent in management’s estimate of future undiscounted

18

and discounted cash flows to determine recoverability of these assets. If management’s assumptions about these assets were to change as a result of events or circumstances, the Company may be required to record an impairment loss.

Revenue Recognition. Revenue on the sales of products is recognized in accordance with the terms of the sales arrangement. Such recognition is based on receipt of an unconditional customer order and transfer of title and risk of ownership to the customer, typically upon shipment of the product. Our sales terms do not provide for the right of return unless the product is damaged or defective. Revenues from certain services associated with our analytical instruments, to be performed subsequent to shipment of the products, is deferred and recognized when the services are provided. Such services, mainly limited to installation and training services that are not essential to the functionality of the instruments, typically are performed in a timely manner subsequent to shipment of the instrument.

Recently Issued Accounting Pronouncements

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (“SFAS”) No. 123R, Share-Based Payment. SFAS No.123R addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuace of such equity instruments. SFAS No. 123R eliminates the ability to account for share-based compensation transactions using Accounting Principles Board Opinion No. 25 and generally requires that such transactions be accounted for using a fair-value-based method. We expect to adopt this standard on January 1, 2006. We are currently assessing the final impact of this standard on our financial position, results of operations or cash flows. This assessment includes evaluating option valuation methodologies and assumptions as well as potential changes to compensation strategies.

On November 24, 2004, the FASB issued SFAS No. 151, Inventory Costs – an amendment of ARB No. 43. SFAS No. 151 requires idle facility expenses, freight, handling costs, and wasted material (spoilage) costs to be excluded from the cost of inventory and expensed when incurred. It also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 will be effective at the beginning of 2006. We are currently assessing the final impact of this standard on our financial position, results of operations or cash flows

Impact of Inflation

We do not believe that price inflation had a material adverse effect on our financial condition or results of operations during the periods presented.

Foreign Currency Rate Fluctuations

During the last three fiscal years, our international sales have represented approximately 50-65% of our net sales. These sales of products in foreign countries are mainly completed in either British Pounds Sterling or the Euro. Additionally, we have two wholly owned subsidiaries, Transgenomic, LTD., and Cruachem, LTD., whose operating currency is British Pounds Sterling and the Euro. Results of operations for the Company’s foreign subsidiaries are translated using the average exchange rate during the period. Assets and liabilities are translated at the exchange rate in effect on the balance sheet dates. As a result we are subject to exchange rate risk. The operational expenses of our foreign subsidiaries help to reduce the currency exposure we have based on our sales denominated in foreign currencies by converting foreign currencies directly into goods and services. As such management feels we do not have a material exposure to foreign currency rate fluctuations at this time.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Our Laurus Loans carry a variable interest rate of 2% over the prime rate or a minimum of 6%, and therefore, expose us to interest rate risk. Based on the outstanding balance of these loans at December 31, 2004 of $8.50 million, a 1% increase in the prime rate would increase our interest expense by approximately $0.09 million annually.

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Item 8. Financial Statements and Supplementary Data.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Transgenomic, Inc.

Omaha, Nebraska

We have audited the accompanying consolidated balance sheets of Transgenomic, Inc. and subsidiaries (the “Company”) as of December 31, 2004 and 2003, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2004. Our audit also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Transgenomic, Inc. and subsidiaries at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note O, during the first quarter of 2005, the Company obtained an extension of the waiver of the borrowing base limit through March 31, 2006.

/S/    DELOITTE & TOUCHE LLP

Omaha, Nebraska

April 14, 2005

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TRANSGENOMIC, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

As of December 31, 2004 and 2003

(Dollars in thousands except per share data)

	2004			2003
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1,002		$	1,241
Accounts receivable (net of allowances for bad debts of $1,051 and $549)		10,197			10,877
Inventories		5,366			10,584
Prepaid expenses and other current assets		1,343			1,676
Total current assets		17,908			24,378
PROPERTY AND EQUIPMENT:
Land and buildings		2,427			2,239
Equipment		19,263			20,362
Furniture and fixtures		5,781			9,054
		27,471			31,655
Less: accumulated depreciation		13,946			12,951
		13,525			18,704
GOODWILL		638			10,503
OTHER ASSETS		5,387			3,721
	$	37,458		$	57,306
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	3,431		$	3,580
Other accrued expenses		7,318			3,874
Accrued compensation		636			959
Line of credit		6,514			2,142
Current portion of long-term debt		825			1,693
Total current liabilities		18,724			12,248
Long-term debt		2,199			—
Total liabilities		20,923			12,248
COMMITMENTS AND CONTINGENCIES (Note F)
STOCKHOLDERS’ EQUITY:
Preferred stock, $.01 par value, 15,000,000 shares authorized, none outstanding		—			—
Common stock, $.01 par value, 60,000,000 shares authorized, 29,330,874 and 28,119,122 shares outstanding in 2004 and 2003, respectively		299			286
Additional paid-in capital		120,798			115,904
Accumulated other comprehensive income		2,539			1,597
Accumulated deficit		(107,101	)		(72,729	)
Total stockholders’ equity		16,535			45,058
	$	37,458		$	57,306

See notes to consolidated financial statements.

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TRANSGENOMIC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

	2004			2003			2002
NET SALES	$	33,789		$	33,866		$	37,554
COST OF GOODS SOLD		24,596			24,315			19,569
Gross profit		9,193			9,551			17,985
OPERATING EXPENSES:
Selling, general and administrative		17,499			17,324			24,199
Research and development		6,685			9,305			12,201
Restructuring charges (Note N)		3,570			738			3,282
Impairment charges (Note C)		11,965			4,772			—
Gain on sale of facility (Note M)		(1,466	)		—			—
		38,253			32,139			39,682
LOSS FROM OPERATIONS		(29,060	)		(22,588	)		(21,697	)
OTHER INCOME (EXPENSE):
Interest expense		(2,383	)		(315	)		(62	)
Loss on debt extinguishment		(2,859	)		—			—
Other—net		(164	)		10			499
		(5,406	)		(305	)		437
LOSS BEFORE INCOME TAXES		(34,466	)		(22,893	)		(21,260	)
CURRENT INCOME TAX EXPENSE (BENEFIT)		(94	)		65			105
NET LOSS	$	(34,372	)	$	(22,958	)	$	(21,365	)
BASIC AND DILUTED LOSS PER SHARE	$	(1.19	)	$	(0.94	)	$	(0.91	)
BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING		29,006,241			24,483,861			23,582,687

See notes to consolidated financial statements.

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TRANSGENOMIC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

	Common Stock				Additional Paid in Capital		Unearned Compensation			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
	Outstanding Shares		Par Value
Balance, January 1, 2002	23,606,003		$	239	$	113,260	$	(158	)	$	(28,406	)	$	(81	)	$	(2,750	)	$	82,104
Net loss	—			—		—		—			(21,365	)		(21,365	)		—			(21,365	)
Other comprehensive income (loss):
Foreign currency translation adjustment	—			—		—		—			—			493			—			493
Unrealized gain on available for sale securities	—			—		—		—			—			(34	)		—			(34	)
Comprehensive loss	—			—		—		—			—			(20,906	)		—
Issuance and exercise of stock options or warrants	81,900			1		460		(51	)								—			410
Issuance of shares for employee stock purchase plan	56,842			—		214		—			—			—			—			214
Deferred compensation	—			—		—		131			—			—			—			131
Purchase of treasury stock	(232,700	)		—		—		—			—			—			(438	)		(438	)
Balance, December 31, 2002	23,512,045			240		113,934		(78	)		(49,771	)		378			(3,188	)		61,515
Net loss	—			—		—					(22,958	)		(22,958	)		—			(22,958	)
Other comprehensive income (loss):																	—
Foreign currency translation adjustment	—			—		—		—			—			1,219			—			1,219
Comprehensive loss	—			—		—		—			—			(21,739	)		—
Issuance of stock options and warrants	—			—		386		—			—			—			—			386
Beneficial Conversion Premium	—			—		480		—			—			—			—			480
Issuance of shares	4,500,000			45		969		—			—			—			3,188			4,202
Issuance of shares for employee stock purchase plan	107,077			1		135		—			—			—			—			136
Amortization of unearned compensation								78			—			—			—			78
Balance, December 31, 2003	28,119,122			286		115,904		—			(72,729	)		1,597			—			45,058
Net loss	—			—		—		—			(34,372	)		(34,372	)					(34,372	)
Other comprehensive income (loss):
Foreign currency translation adjustment	—			—		—		—			—			942			—			942
Comprehensive loss	—			—		—		—			—			(33,430	)		—
Issuance of stock options and warrants	—			—		189		—			—			—			—			189
Beneficial Conversion Premium	—			—		2,420		—			—			—			—			2,420
Issuance of shares	1,134,850			12		2,198		—			—			—			—			2,210
Issuance of shares for employee stock purchase plan	76,902			1		87		—			—			—			—			88
Balance, December 31, 2004	29,330,874		$	299	$	120,798	$	—		$	(107,101	)	$	2,539		$	—		$	16,535

See notes to consolidated financial statements.

23

TRANSGENOMIC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

	2004			2003			2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(34,372	)	$	(22,958	)	$	(21,365	)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization		4,009			3,981			3,993
Non-cash restructuring charges (Note N)		2,027			364			1,698
Impairment charges (Note C)		11,965			4,772			—
Gain on sale of facility (Note M)		(1,466	)		—			—
Non-cash financing costs		1,642			—			—
Loss on debt extinguishment		2,859			—			—
(Gain)/Loss on sale of securities		128			(64	)		—
Other		18			93			131
Changes in operating assets and liabilities, net of acquisitions:
Trading securities acquired in settlement of accounts receivable		(4,397	)		(1,843	)		—
Proceeds from sale of trading securities		4,269			1,907			—
Accounts receivable		1,063			619			794
Inventories		2,611			2,887			(5,767	)
Prepaid expenses and other current assets		(130	)		334			527
Accounts payable		(268	)		(1,509	)		2,249
Accrued expenses		941			(1,828	)		(204	)
Net cash flows from operating activities		(9,101	)		(13,245	)		(17,944	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the maturities and sale of available for sale securities		—			3,612			39,355
Purchases of available for sale securities		—			—			(19,088	)
Purchase of property and equipment		(1,758	)		(6,413	)		(11,468	)
Change in other assets		1,138			73			(2,871	)
Proceeds from sale of specialty oligonuceotide manufacturing facility (Note M)		3,000			—			—
Proceeds from asset sales		—			9			—
Net cash flows from investing activities		2,380			(2,719	)		5,928
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in line of credit		4,956			2,992			—
Proceeds from long-term debt		2,750			—			1,559
Payments on long-term debt		(1,779	)		(35	)		—
Issuance of common stock, net of expenses		71			4,338			624
Purchase of treasury stock		—			—			(438	)
Net cash flows from financing activities		5,998			7,295			1,745
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH		484			175			393
NET CHANGE IN CASH AND CASH EQUIVALENTS		(239	)		(8,494	)		(9,878	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		1,241			9,735			19,613
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	1,002		$	1,241		$	9,735
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest	$	560		$	314		$	30
Income taxes, net		(94	)		70			120
Non-cash transactions:
Conversions of debt to equity		2,226			—			—

See notes to consolidated financial statements.

24

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business Description.

Transgenomic, Inc., a Delaware corporation, and its subsidiaries (the “Company”) provide innovative products and services for the synthesis, purification and analysis of nucleic acids. The Company’s products and services include automated instrument systems, associated consumables, nucleic acid chemical building blocks, nucleic acid synthesis products, novel chemistry development for nucleic acids, and genetic variation discovery services. The Company develops, assembles, manufactures and markets its products and services to the life sciences industry to be used in research focused on molecular genetics of humans and other organisms. Such research could lead to development of new diagnostics and therapeutics. The Company’s business plan is to participate in the value chain associated with these activities by providing key technology, tools, consumables, biochemical reagents and services to those entities engaged in basic biomedical research and the development of diagnostics and therapeutic agents.

The Company operates in two reportable segments, BioSystems and Nucleic Acids. The BioSystems operating segment generates revenue from the sale of automated instrument systems and associated consumable products and services. The Nucleic Acids operating segment generates revenue from the sale of nucleic acid-based products and services.

The Company markets and sells these products primarily through a direct sales and support group in North America and Europe and through a network of distributors in the Pacific Rim and other international markets. These sales efforts are directed from the Company headquarters in Omaha, Nebraska and through a series of sales and support offices strategically located throughout the United States, Europe and Japan.

Principles of Consolidation.

The consolidated financial statements include the accounts of Transgenomic, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Cash and Cash Equivalents.

For purposes of reporting cash flows, cash and cash equivalents include cash and temporary investments with original maturities at acquisition of three months or less.

Short Term Investments.

The Company classifies all of its short-term investments with maturities at acquisition of greater than three months as available for sale securities. Such short-term investments consist primarily of United States government and federal agency securities, corporate commercial paper and corporate debt that are stated at market value, with unrealized gains and losses on such securities reflected, net of tax, as other comprehensive income in stockholders’ equity. Realized gains and losses on short term investments are included in earnings and are derived using the specific identification method for determining the cost of securities. It is the Company’s intent to maintain a liquid portfolio to take advantage of investment opportunities; therefore, all securities are considered to be available for sale and are classified as current assets.

During 2003 and 2004, the Company accepted common stock from one of its customers (Geron Corporation) as payment for goods and services. These shares were classified as available-for-sale securities. Net losses on these securities of $128 during 2004 and net gains of $64 during 2003 were reflected as other expense on the consolidated statement of operations. Proceeds from the sales of these securities were reflected as cash flows from operating activities.

25

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

Accounts Receivable.

Accounts receivable are shown net of allowance for doubtful accounts. The following is a summary of activity for the allowance for doubtful accounts during each of the three years ended December 31, 2004:

	Beginning Balance		Additional Charges to Income		Deductions from Reserve		Ending Balance
Year Ended December 31, 2004	$	549	$	534	$	32	$	1,051
Year Ended December 31, 2003	$	450	$	174	$	75	$	549
Year Ended December 31, 2002	$	213	$	418	$	181	$	450

While payment terms are generally 30 days, the Company has also provided extended payment terms of up to 90 days in certain cases.

Inventories.

Inventories are stated at the lower of cost or market. Cost is computed using standard costs for finished goods and average or latest actual cost for raw materials and work in process.

Property and Equipment.

Property and equipment are carried at cost. Depreciation is computed by the straight-line method over the estimated useful lives of the related assets as follows:

Buildings	15 years
Leasehold improvements	3 to 7 years
Furniture and fixtures	5 to 7 years
Production equipment	5 to 7 years
Computer equipment	3 to 5 years
Research and development equipment	3 to 5 years
Demonstration equipment	3 to 5 years

Depreciation of property and equipment totaled $4,009, $3,983 and $3,993 in 2004, 2003 and 2002, respectively.

Goodwill and other Intangible Assets

The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets, beginning on January 1, 2002. SFAS No. 142 provides that goodwill and other intangible assets with indefinite lives will not be amortized, but will be tested for impairment annually. Impairment occurs when the fair value of the asset is less than its carrying amount. If impaired, the asset’s carrying value is reduced to its fair value. Identifiable intangible assets with definite lives are amortized over their estimated useful lives and tested for impairment as events or changes in circumstances indicate the carrying amount of the asset may be impaired. Impairment occurs when the carrying value is not recoverable and the fair value of the asset is less than the carrying value.

The Company has not amortized goodwill for any period presented. Accordingly, there are no differences between reported net loss and loss per share related to goodwill amortization.

Other Assets.

Other assets include long-term inventory, patents, intellectual property, deferred financing costs and capitalized software development costs. The Company capitalizes the external and in-house legal costs and filing fees associated with obtaining patents on its new discoveries and amortizes these costs using the straight-line method over the shorter of the legal life of the patent or its economic life, generally 17 years, beginning on the date the patent is issued. The Company capitalized software development costs for products offered for sale in accordance with SFAS No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed. This Standard allows for the capitalization of certain development costs once a software product has reached technological feasibility. Development costs capitalized totaled $0 in 2004 and 2003 and $1,127 in 2002.

26

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

Stock Based Compensation.

The Company accounts for its employee stock option grants under the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, which utilizes the intrinsic value method. Accordingly, compensation cost for stock options is measured as the excess, if any, of the fair market value of the Company’s common stock at the date of grant over the stock option exercise price. Stock option grants to non-employees are accounted for using the fair value method of accounting in accordance with SFAS No. 123, Accounting for Stock-Based Compensation, using the Black-Scholes model.

The following table illustrates the effect on net loss and loss per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock based employee compensation.

	2004			2003			2002
Net Loss:
As reported	$	(34,372	)	$	(22,958	)	$	(21,365	)
Pro forma	$	(35,432	)	$	(24,794	)	$	(23,274	)
Basic and diluted loss per share:
As reported		(1.19	)		(0.94	)		(0.91	)
Pro forma		(1.22	)		(1.01	)		(0.99	)

Income Taxes.

Deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities at each balance sheet date using tax rates expected to be in effect in the year the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent that it is unlikely they will be realized.

Revenue Recognition.

Revenue on the sales of products is recognized in accordance with the terms of the sales arrangement. Such recognition is based on receipt of an unconditional customer order and transfer of title and risk of ownership to the customer, typically upon shipment of the product. Our sales terms do not provide for the right of return unless the product is damaged or defective. Revenues from certain services associated with our analytical instruments, to be performed subsequent to shipment of the products, is deferred and recognized when the services are provided. Such services, mainly limited to installation and training services that are not essential to the functionality of the instruments, typically are performed in a timely manner subsequent to shipment of the instrument. The Company also enters into various service contracts that cover installed WAVE systems. These contracts cover specific time periods and revenue associated with these contracts is deferred and recognized over the service period. At December 31, 2004 and 2003, deferred revenue, mainly associated with the Company’s service contracts, included on the Company’s balance sheet was approximately $1,478 and $1,792 respectively.

Research and Development.

Research and development costs are charged to expense when incurred.

Translation of Foreign Currency.

Financial statements of subsidiaries outside the U.S. are measured using the local currency as the functional currency. The adjustments to translate those amounts into U.S. dollars are accumulated in a separate account in stockholders’ equity and are included in other comprehensive income. Foreign currency transaction gains or losses resulting from changes in currency exchange rates are included in the determination of net income. Foreign currency transaction adjustments decreased net loss approximately $328 in 2004 and $1,089 in 2003 and 2002.

Comprehensive Income.

Accumulated other comprehensive income at December 31, 2004 and 2003 consisted of foreign currency translation adjustments, net of applicable tax of $0. For all previous periods presented, accumulated other comprehensive income consists of foreign currency translation adjustments and unrealized gains or losses on available for sale investments, net of applicable

27

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

tax of $0. The Company deems its foreign investments to be permanent in nature and does not provide for taxes on currency translation adjustments arising from converting its investments in a foreign currency to U.S. dollars. There were no reclassification adjustments to be reported in the periods presented.

Fair Value of Financial Instruments.

The carrying amount of the Company’s cash and cash equivalents, receivables, accounts payable and accrued expenses approximate fair value because of the short maturity of those instruments. The Company derives the fair value of its short-term investments based on quoted market prices. The carrying value of long-term debt and the line of credit approximates fair value based upon existing interest rates available to the Company for similar debt.

Earnings Per Share.

Basic earnings per share are calculated based on the weighted-average number of common shares outstanding during each period. Diluted earnings per share include shares issuable upon exercise of outstanding stock options and warrants or conversion of convertible notes, where dilutive. Potentially dilutive securities totaling 13,484,072, 7,671,771 and 5,158,672 in 2004, 2003 and 2002, respectively, have been excluded from the computation of diluted earnings per share as they have an antidilutive effect due to the Company’s net loss.

Recently Issued Accounting Pronouncements

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123R, Share-Based Payment. SFAS No. 123R addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. SFAS No. 123R eliminates the ability to account for share-based compensation transactions using Accounting Principles Board Opinion No. 25 and generally requires that such transactions be accounted for using a fair-value-based method. The Company expects to adopt this standard on January 1, 2006. The Company is currently assessing the final impact of this standard on its financial position, results of operations or cash flows. This assessment includes evaluating option valuation methodologies and assumptions as well as potential changes to compensation strategies.

On November 24, 2004, the FASB issued SFAS No. 151, Inventory Costs – an amendment of ARB No. 43. SFAS No. 151 requires idle facility expenses, freight, handling costs, and wasted material (spoilage) costs to be excluded from the cost of inventory and expensed when incurred. It also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 will be effective at the beginning of 2006. The Company is currently assessing the final impact of this standard on its financial position, results of operations or cash flows.

Use of Estimates.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications.

Certain reclassifications may have been made to prior period financial statements to conform to the current year presentation.

28

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

B. INVENTORIES

Inventories consisted of the following at December 31:

	Biosystems Operating Segment				Nucleic Acids Operating Segment				Total
	2004		2003		2004		2003		2004		2003
Finished goods	$	2,637	$	2,875	$	2,380	$	2,247	$	5,017	$	5,122
Raw materials and work in process		780		1,223		2,275		3,851		3,055		5,074
Demonstration inventory		153		388		—		—		153		388
		3,570		4,486		4,655		6,098		8,225		10,584
Less inventory classified as a long-term asset		—		—		2,859		—		2,859		—
Net Inventory	$	3,570	$	4,486	$	1,796	$	6,098	$	5,366	$	10,584

The Nucleic Acids operating segment inventory at December 31, 2004 and 2003 consisted primarily of phosphoramadites and the raw materials to produce phosphoramadites which are used and produced at the Company’s facility in Glasgow, Scotland. As of December 31, 2004, the Company has classified a portion of this inventory as a long-term other asset based on its existing sales forecasts for these products.

The Company periodically evaluates its inventory of chemical building blocks to determine whether they continue to meet quality and other specifications and over what time period such products are expected to be sold. Product that does not meet quality and other specifications can generally be re-worked to enhance purity. Costs to purify such product and related yield losses are expensed as incurred.

C. GOODWILL

At December 31, 2004 and 2003, goodwill by operating segment consist of the following:

	Biosystems Operating Segment		Nucleic Acids Operating Segment			Total
Net balance December 31, 2002	$	638	$	14,637		$	15,275
Goodwill impairment charge		—		(4,772	)		(4,772	)
Net balance December 31, 2003		638		9,865			10,503
Goodwill impairment charge		—		(9,865	)		(9,865	)
Net Balance December 31, 2004	$	638	$	0		$	638

The Company recorded charges of $9,865 and $4,772 during 2004 and 2003, respectively, related to the impairment of goodwill associated with the Nucleic Acids operating segment. In each case, the amount of the impairment charge was based, in part, on independent valuations performed by the same unaffiliated valuation firm. The 2003 charge resulted from the Company’s annual impairment test that was performed in the fourth quarter of 2003. The 2004 charge resulted from an interim period impairment test performed during the second quarter of 2004.

The interim period impairment test became necessary after the Company’s Board of Directors directed management during the second quarter of 2004 to explore strategic alternatives for the Nucleic Acids operating segment. This process included significant due diligence by management, third-party advisors and prospective independent buyers and other interested parties. Information obtained through this process indicated that it was more likely than not that the assets associated with the Nucleic Acids operating segment were impaired.

The Company also recorded a charge of $2,100 during the second quarter of 2004 related to the impairment of property and equipment associated with the Nucleic Acids operating segment.

29

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

D. OTHER ASSETS

At December 31, 2004 and 2003, finite lived intangible assets and other assets consisted of the following:

	2004						2003
	Cost		Accumulated Reserve		Net Book Value		Cost		Accumulated Reserve		Net Book Value
Capitalized software	$	2,132	$	1,468	$	664	$	2,132	$	758	$	1,374
Intellectual property		765		476		289		765		165		600
Patents		1,071		194		877		1,035		170		865
Deferred Financing Costs		576		183		393		409		—		409
Long Term Inventory		4,797		1,938		2,859		—		—		—
Other		452		147		305		656		183		473
Total	$	9,793	$	4,406	$	5,387	$	4,997	$	1,276	$	3,721

Amortization expense for intangible assets was $1,197, $825 and $150 during 2004, 2003 and 2002, respectively. Amortization expense for intangible assets is expected to be approximately $1,009 in 2005, $342 in 2006, $320 in 2007, $62 in 2008 and $130 in 2009.

E. DEBT

Debt consisted of the following at December 31:

	2004			2003
Credit Line
Gross amount due (2% above prime, due December 2006)	$	5,948		$	2,992
Debt premium		1,004			—
Debt discount - warrants		(85	)		(370	)
Debt discount - beneficial conversion premium		(353	)		(480	)
	$	6,514		$	2,142
Long-Term Debt
Convertible debt (2% above prime, due February 2007)	$	2,550		$	—
Debt Premium		474			—
Mortgage debt		—			1,693
Less current portion		(825	)		(1,693	)
	$	2,199		$	—

In December 2003, the Company entered into a $7,500 line of credit (the “Credit Line”) with Laurus Master Fund, Ltd. (“Laurus”). The term of the Credit Line is three years carrying an interest rate of 2.0% over the prime rate or a minimum of 6.0% (7.25% at December 31, 2004). Funds available under the Credit Line are determined by a borrowing base equal to 90% of eligible accounts receivable balances plus up to $1,000 related to inventory balances. The Credit Line is secured by most of the Company’s assets. Prior to amendments to the Credit Line discussed below, payment of interest and principal could, under certain circumstances, be made with shares of the Company’s common stock at a fixed conversion price of $2.20 per share. Conversion of this debt to common stock may be made at the election of Laurus or the Company. The Company could elect to convert only if its shares trade at a price exceeding $2.42 per share for ten consecutive trading days, and such conversion is further subject to trading volume limitations and a limitation on the total beneficial ownership by Laurus of the Company’s common stock. Upon entering into the Credit Line, the Company issued warrants to Laurus to acquire 550,000 shares of the Company’s common stock at an exercise price exceeding the average trading price of the Company’s common stock over the ten trading days prior to the date of the warrant.

In February 2004, the Company entered into a separate $2,750 convertible note with Laurus (the “Term Note”). The Term Note carries an interest rate of 2.0% over the prime rate or a minimum of 6.0% (7.25% at December 31, 2004) and has a term of 3 years. Prior to amendments to the Term Note discussed below, the principal and interest on the Term Note could be converted into common stock of the Company at a fixed conversion price of $2.61 per share. Upon entering the Term Note, the Company issued warrants to Laurus to acquire 125,000 shares of its common stock. Borrowings under the Term Note were primarily used to retire the mortgage debt on the Company’s Glasgow facility. Remaining borrowings of approximately $750 were used to complete the build-out of the Glasgow facility, complete the consolidation the Company’s Glasgow operations into the new facility and provide funds for operations.

Certain features of the Credit Line and Term Note (collectively, the “Laurus Loans”) require the Company to separately account for the value of certain amounts related to the warrants issued and the conversion feature of the Laurus Loans. Specifically, Emerging

30

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

Issues Task Force (“EITF”) No. 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments, requires the Company to separately value the warrants issued and the “beneficial conversion premium” related to the Laurus Loans. Any borrowings under the Credit Line may result in additional beneficial conversion premiums. The values of the warrants and the beneficial conversion premium have been recorded on the balance sheet as a debt discount and an increase to additional paid in capital. The debt discount recorded for these items will be amortized as expense to the income statement over the terms of the Laurus Loans or as the warrants are exercised or the debt is converted into common stock thereby increasing the effective interest rate on the Laurus Loans. In January and February 2004, Laurus exercised its conversion rights on the Credit Line and converted $2,000 of amounts outstanding on the Credit Line into approximately 910,000 shares of common stock of the Company. In connection with this conversion, the Company accelerated the amortization of approximately $480 of the beneficial conversion premium.

In February 2004, Laurus waived the borrowing base limitation on the Credit Line, thereby making the full $7,500 facility available to the Company regardless of the available collateral. On August 31, 2004, Laurus agreed to extend the borrowing base waiver on the Credit Line through March 19, 2005. In addition, Laurus deferred certain payments due under the Term Note and reduced the interest rate on both of the Laurus Loans to 0% for any day the closing sale price of the Company’s common stock is at or above $1.75 per share. In return, the Company lowered the conversion price on each of the Laurus Loans to $1.00 per share and issued a warrant to Laurus covering an additional 400,000 common shares at an exercise price of $1.25 per share. The closing price of the Company’s common stock on August 31, 2004 was $1.20 per share.

The August 31, 2004 Laurus modifications were treated as extinguishments for financial reporting purposes since the change in present value of expected cash flows between the original and modified agreements is greater than 10%. As such, the Company recorded a loss on extinguishment of debt of $2,859 at August 31, 2004 reflecting the difference between (i) the recorded amount of debt, net of related discounts, of $7,427 and (ii) the fair value of the new debt instrument of $10,287 plus the fair value of the new warrants of $111. The difference between the fair value of the new debt of $10,287 and the face value of the debt of $8,572 represents a premium, which will be reflected as a reduction of interest expense over the life of the new debt.

Prospectively, draws on the Credit Line may result in beneficial conversion charges to the extent the price of the Company’s common stock exceeds the conversion price on the day of the draw. Such beneficial charges will be amortized as expense to the income statement during the period the draw remains outstanding or up to the point the debt is converted into common stock thereby increasing the effective interest rate on the Credit Line.

Principal repayments under the Term Note are scheduled as follows: $850 in 2005, $900 in 2006, and $800 in 2007.

Amortization of debt premiums and discounts totaled $1,644 during 2004 and $0 in each 2003 and 2002 and is reflected as interest expense in the accompanying statement of operations.

During 2002, Cruachem Ltd., a wholly owned subsidiary of the Company, entered into a mortgage loan with The Royal Bank of Scotland. The original principal amount of the loan was £1.0 million. Principal and interest were payable in quarterly installments. The loan carried a 15-year term and a fixed annual interest rate of 6.77%. Security for this loan was the Company’s 45,000 square foot manufacturing facility located in Glasgow, Scotland. The loan carried certain financial and non-financial covenants that included a minimum net cash flow requirement. The net book value of the facility was approximately $2,000 at December 31, 2003. During February 2004, the Company repaid the principal balance of the mortgage loan and therefore, the Company included the entire outstanding principal balance of this loan at December 31, 2003 within current liabilities.

F. COMMITMENTS AND CONTINGENCIES

The Company has been named as a defendant in a lawsuit filed in Spain by a prospective distributor who claims that the Company breached a promise to grant the plaintiff a distributorship for certain of the Company’s products in a specific geographic area in Europe. The plaintiff is seeking monetary relief of approximately $500. The Company believes the lawsuit is without merit and intends to vigorously defend this matter.

31

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

The Company is subject to a number of other claims of various amounts, which arise out of the normal course of business. In the opinion of management, the disposition of claims currently pending will not have a material adverse effect on the Company’s financial position, results of operations or cash flows, after considering amounts already reflected in the consolidated financial statements.

The Company leases certain equipment, vehicles and operating facilities. The Company’s leases related to its operating facilities currently expire on various dates through 2010. At December 31, 2004, the future minimum lease payments required under non-cancellable lease provisions are approximately $1,958 in 2005, $1,382 in 2006, $486 in 2007, $187 in 2008, $191 in 2009, and $181 in 2010. Rent expense related to all operating leases for the years ended December 31, 2004, 2003 and 2002 was approximately $2,007, $2,487 and $2,266, respectively.

At December 31, 2004, the Company had firm commitments totaling $798 to a vendor to purchase components used in WAVE Systems.

G. INCOME TAXES

Loss before income taxes consists of the following:

	Years ended December 31,
	2004			2003			2002
United States	$	(30,467	)	$	(19,809	)	$	(19,640	)
International		(3,999	)		(3,084	)		(1,620	)
	$	(34,466	)	$	(22,893	)	$	(21,260	)

The Company’s provision for income taxes for the years ended December 31, 2004, 2003 and 2002 differs from the amounts determined by applying the statutory Federal income tax rate to loss before income taxes for the following reasons:

	2004			2003			2002
Benefit at Federal Rate	$	(11,718	)	$	(7,784	)	$	(7,228	)
Increase (decrease) resulting from:
State income taxes—net of federal benefit		(595	)		(485	)		(518	)
Foreign subsidiary tax rate difference		493			427			224
Research and development tax credit		(141	)		(250	)		(188	)
Impairment charges		3,569			—			—
Other—net		78			82			137
Valuation allowance		8,220			8,075			7,678
Total income tax expense (benefit)	$	(94	)	$	65		$	105

The Company’s deferred income tax asset at December 31, 2004 and 2003 is comprised of the following temporary differences:

	2004			2003
Net operating loss carryforward	$	35,587		$	29,292
Research and development credit carryforwards		1,328			1,188
Deferred revenue		708			400
Accrued vacation		81			134
Other		583			(422	)
		38,287			30,592
Less valuation allowance		(38,287	)		(30,592	)
	$	—		$	—

At December 31, 2004, the Company had total used federal tax net operating loss carryforwards of $91,474 of which $1,770 expire in 2008, $3,698 expire in 2009, $2,970 expire in 2010, $943 expire in 2011, $3,425 expire in 2012, $1,838 expire in 2018,

32

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

$8,182 expire in 2019, $9,662 expire in 2020, $8,228 expire in 2021, $16,862 expire in 2022; $16,173 expire in 2023 and $17,723 expire in 2024. Of these federal net operating loss carryforwards, $11,820 were obtained in the acquisition of Annovis, Inc. and may be subject to certain restrictions. At December 31, 2004, the Company had unused state tax net operating loss carryforwards of approximately $37,619 that expire at various times between 2005 and 2024. At December 31, 2004, the Company had unused research and development credit carryforwards of $1,328 that expire at various times between 2008 and 2024. A valuation allowance has been provided for the remaining deferred tax assets, due to the Company’s cumulative losses in recent years, expected losses in future years and an inability to utilize any additional losses as carrybacks. The Company will continue to assess the recoverability of deferred tax assets and the related valuation allowance. To the extent the Company begins to generate income in future years and it is determined that such valuation allowance is no longer required, the tax benefit of the remaining deferred tax assets will be recognized at such time.

H. EMPLOYEE BENEFIT PLAN

The Company maintains an employee 401(k) retirement savings plan that allows for voluntary contributions into designated investment funds by eligible employees. The Company matches the employees’ contributions at the rate of 50% on the first 6% of contributions. The Company may at the discretion of its Board of Directors, make additional contributions on behalf of the Plan’s participants. Company contributions were approximately $500 for each of the three years ended December 31, 2004.

I. STOCKHOLDERS’ EQUITY

Preferred Stock.

The Company’s Board of Directors is authorized to issue up to 15,000,000 shares of preferred stock in one or more series, from time to time, with such designations, powers, preferences and rights and such qualifications, limitations and restrictions as may be provided in a resolution or resolutions adopted by the Board of Directors. The authority of the Board of Directors includes, but is not limited to, the determination or fixing of the following with respect to shares of such class or any series thereof: (i) the number of shares; (ii) the dividend rate, whether dividends shall be cumulative and, if so, from which date; (iii) whether shares are to be redeemable and, if so, the terms and amount of any sinking fund providing for the purchase or redemption of such shares; (iv) whether shares shall be convertible and, if so, the terms and provisions thereof; (v) what restrictions are to apply, if any, on the issue or reissue of any additional preferred stock; and (vi) whether shares have voting rights. The preferred stock may be issued with a preference over the common stock as to the payment of dividends. The Company has no current plans to issue any series of preferred stock. Classes of stock such as the preferred stock may be used, in certain circumstances, to create voting impediments on extraordinary corporate transactions or to frustrate persons seeking to effect a merger or otherwise to gain control of the Company. For the foregoing reasons, any preferred stock issued by the Company could have an adverse effect on the rights of the holders of the common stock.

Common Stock.

During 2004, the Company issued 1,134,850 shares of common stock in conjunction with conversions under the Laurus Loans.

Date	Price		Shares Issued	Net Proceeds		Facility	Applied To
January 2004	$	2.20	650,000	$	1,422	Credit Line	Principal
February 2004	$	2.20	259,091		570	Credit Line	Principal
December 2004	$	1.00	150,000		146	Term Note	Principal
December 2004	$	1.00	75,759		72	Term Note	Interest
			1,134,850	$	2,210

In September 2003, the Company issued 1,780,000 shares of its common stock and in November 2003, the Company issued 2,720,000 shares of its common stock in privately-negotiated sales. These shares were sold pursuant to the terms of a Securities Purchase Agreement, dated August 27, 2003. The sale of these shares was exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”) as a sale not involving a public offering. These shares have been registered for resale under the Securities Act. The net proceeds to the Company, after payment of transaction fees and other expenses of the offering, were approximately $4,202.

In May 2001, Company shareholders approved the adoption of the Transgenomic, Inc. 2001 Employee Stock Purchase Plan that was subsequently implemented in November 2001. Substantially all of the Company’s U.S. employees are eligible to participate in the Plan. Eligible employees authorize payroll deductions to be made for the purchase of shares. Such deductions are accumulated during

33

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

a defined participation period at the end of which each participant is deemed to have been granted an option to purchase shares of stock from the Company at 85% of the fair market value of the Company stock as measured by the closing price of the stock on either the first or last business day of the participation period, whichever is lower. The number of shares purchased under the option is based upon the participants elected withholding amount. At the end of the participation period such option is automatically exercised. This plan is structured to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code of 1986, as amended. During 2004, 2003 and 2002 there were 76,902, 107,077 and 56,842 shares issued under this plan, respectively.

Common Stock Warrants.

The following is a summary of the 1,159,421 common stock warrants outstanding at December 31, 2004. No warrants expired or were exercised during 2004.

Warrant Holder	Issue Year	Expiration Year	Underlying Shares	Exercise Price
Laurus Master Fund, Ltd. (1)	2003	2010	200,000	$	2.25
Laurus Master Fund, Ltd. (1)	2003	2010	200,000	$	2.44
Laurus Master Fund, Ltd. (1)	2003	2010	150,000	$	2.32
Laurus Master Fund, Ltd. (1)	2004	2011	125,000	$	3.11
Laurus Master Fund, Ltd. (1)	2004	2011	400,000	$	1.25
TN Capital Equities, Ltd. (1)	2003	2008	45,918	$	2.94
TN Capital Equities, Ltd. (1)	2004	2009	15,566	$	3.18
GE Capital (2)	2002	2007	13,762	$	3.27
GE Capital (2)	2003	2008	9,175	$	3.27

⁽¹⁾ These warrants were issued in conjunction with the Laurus Loans and subsequent modifications. Refer to Note E.

⁽²⁾ These warrants were issued in conjunction with operating leases with GE Capital. While the leases have since been terminated, the warrants are still outstanding.

J. STOCK OPTIONS

The Company’s 1997 Stock Option Plan, as amended (the “Stock Option Plan”), allows the Company to grant both incentive stock options and nonqualified stock options to acquire shares of the Company’s common stock to employees and directors of the Company and to nonemployee advisors. Either incentive or non-qualified stock options may be granted to employees of the Company, but only nonqualified stock options may be granted to nonemployee directors and advisors. The maximum number of shares for which options may be granted under the Stock Option Plan is 7,000,000. The Stock Option Plan is administered by the Compensation Committee of the Board of Directors (the “Committee”) which has the authority to set the number, exercise price, term and vesting provisions of the options granted under the Stock Option Plan, subject to the terms thereof. The options must be granted at exercise prices not less than the fair market value of the common stock on the date of the grant. Generally, the stock options vest at a rate of either 20% per year over a five-year period or 33 ¹/₃% per year over a three-year period and expire 10 years after the date the option was granted. If the option holder ceases to be employed by the Company, the Company will have the right to terminate any outstanding but unexercised options.

The following table summarizes activity under the Stock Option Plan during the three years ended December 31, 2004:

	Number of Options		Weighted Average Exercise Price
Balance at January 1, 2002	5,133,831			6.90
Granted	632,000			5.09
Exercised	(81,900	)		5.01
Canceled	(539,021	)		7.69
Balance at December 31, 2002:	5,144,910			6.62
Granted	1,282,000			1.64
Exercised	—			—
Canceled	(733,994	)		7.25
Balance at December 31, 2003:	5,692,916			6.62
Granted	360,000			1.70
Exercised	—			—
Canceled	(964,879	)		5.24
Balance at December 31, 2004:	5,088,037		$	5.09
Exercisable at December 31, 2004	4,214,214		$	5.55

34

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

The weighted average fair value per share of options granted in 2004, 2003 and 2002 was $0.40, $0.93 and $2.92, respectively.

The Company has elected to follow the measurement provisions of APB No. 25, under which no recognition of expense is required in accounting for stock options granted to employees for which the exercise price equals or exceeds the deemed fair market value of the stock at the grant date. In those cases where options have been granted with an exercise price below the deemed fair market value, the Company recognizes compensation expense using the straight-line method over the vesting periods of the individual stock options.

Stock-based compensation expense recorded by the Company represents amortization of unearned compensation related to options granted to employees with an exercise price less than the deemed fair market value at the date of grant and options granted to non-employees. During 2004, 2003 and 2002, the Company recorded compensation expense of $0, $93 and $131, respectively. The expense amounts were calculated using the Black-Scholes option pricing model with the following assumptions: no common stock dividends, risk-free interest rates ranging from 3.10% to 6.53%; volatility ranging from 35% to 85%; and an expected option life of 1 to 7.5 years.

The following table summarizes information about options outstanding as of December 31, 2004:

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted-Average Remaining Contractual Life	Weighted-Average Exercise Price		Number Exercisable	Weighted-Average Exercise Price
		(in years)
$  1.00—$  1.30	408,335	6.8	$	1.30	155,011	$	1.30
$  1.31—$  2.60	1,009,167	7.9	$	1.89	551,850	$	1.90
$  2.61—$  3.90	50,002	5.5	$	2.90	38,336	$	2.90
$  3.91—$  5.20	2,142,200	3.0	$	5.00	2,142,200	$	5.00
$  5.21—$  6.50	768,182	6.1	$	6.16	692,633	$	6.15
$  6.51—$  9.10	10,000	6.4	$	9.00	10,000	$	9.00
$  9.11—$10.40	396,420	5.6	$	9.88	358,253	$	9.88
$10.41—$13.00	303,731	5.2	$	12.80	265,931	$	12.81
	5,088,037	5.1	$	5.09	4,214,214	$	5.55

K. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION

The Company operates in two reportable segments, BioSystems and Nucleic Acids. Operations for these segments are evaluated based upon specific identification of revenues and expenses associated with the business activities resulting in a segment operating income. Expenses that cannot be directly identified to an operating activity or are considered corporate overhead are not allocated to the segments in arriving at operating income for the segment. Generally, decisions regarding asset allocation, financing, taxes or other items impacting the Company’s Balance Sheet are made at the corporate level and, accordingly, operating segment Balance Sheet information is not typically reviewed by operating decision makers.

The BioSystems operating segment generates revenue from the sale of automated instrument systems and associated consumable products and services. This segments products are based upon two of the Company’s three core competencies, separations chemistries and enzymology. Specifically, this segment’s main products are the WAVE system, related bioconsumables and research services.

The Nucleic Acids operating segment generates revenue from the sale of products and services based upon all three of the Company’s core competencies, nucleic acid chemistries, separations chemistries and enzymology. Specifically, this segments main

35

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

products are nucleic acid building blocks or “phosphoramidites”, fluorescent markers, dyes and associated reagents and novel chemistry and process development services.

The following is information for net sales and operating income by segment.

	2004			2003			2002
Net Sales
BioSystems	$	25,243		$	26,044		$	24,235
Nucleic Acids		8,546			7,822			13,319
Total	$	33,789		$	33,866		$	37,554
Loss from operations
BioSystems	$	(2,294	)	$	(2,786	)	$	(9,417	)
Nucleic Acids		(17,623	)		(12,440	)		(1,004	)
Corporate		(9,143	)		(7,362	)		(11,276	)
Total	$	(29,060	)	$	(22,588	)	$	(21,697	)

During 2004, sales to Geron Corporation totaled $4,151 and represented 49% of net sales within our Nucleic Acids operating segment and 12% of total consolidated net sales. During 2003 and 2002 no single customer accounted for more than 10% of operating segment or consolidated net sales.

The following is information for fixed assets and fixed asset additions by segment. Fixed assets are tracked by location and department and thus can be identified to operating segments even though specific segment Balance Sheets are not produced.

	2004		2003
Fixed Assets
BioSystems	$	2,695	$	3,412
Nucleic Acids		10,150		13,991
Corporate		680		1,301
Total	$	13,525	$	18,704
Fixed Asset Additions
BioSystems	$	901	$	1,000
Nucleic Acids		848		5,393
Corporate		9		20
Total	$	1,758	$	6,413

The following is supplemental information for net sales by geographic area.

	2004		2003		2002
Sales by Geographic Area:
United States	$	13,580	$	12,251	$	16,805
Europe		15,392		15,955		16,011
Pacific Rim		2,794		3,335		4,129
Other		2,023		2,325		609
Total	$	33,789	$	33,866	$	37,554

Long-lived assets by geographic area as of December 31 are as follows:

	2004		2003
United States	$	7,754	$	20,935
Europe		7,564		9,705
Pacific Rim		11		32
Total	$	15,329	$	30,672

36

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

L. QUARTERLY RESULTS (UNAUDITED)

The following table contains selected unaudited consolidated statements of operations data for each quarter for fiscal years 2004 and 2003.

	2004
	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter			Total
Net Sales	$	8,629		$	9,011		$	8,194		$	7,955		$	33,789
Gross Profit	$	2,861		$	3,153		$	1,337		$	1,842		$	9,193
Net loss	$	(3,859	)	$	(15,132	)	$	(8,442	)	$	(6,939	)	$	(34,372	)
Basic & Diluted Loss Per Share	$	(0.13	)	$	(0.52	)	$	(0.29	)	$	(0.24	)	$	(1.19	)
Basic and Diluted Weighted Average Shares Outstanding		28,728			29,053			29,078			29,338			29,006

	2003
	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter			Total
Net Sales	$	9,505		$	8,481		$	7,537		$	8,343		$	33,866
Gross Profit	$	3,691		$	2,556		$	775		$	2,529		$	9,551
Net loss	$	(3,596	)	$	(4,670	)	$	(6,097	)	$	(8,595	)	$	(22,958	)
Basic & Diluted Loss Per Share	$	(0.15	)	$	(0.20	)	$	(0.25	)	$	(0.32	)	$	(0.94	)
Basic and Diluted Weighted Average Shares Outstanding		23,519			23,540			24,177			26,723			24,484

Earnings per share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly per share losses may not equal the annual loss per share.

M. SALE OF SPECIALTY OLIGONUCLEOTIDE MANUFACTURING FACILITY

On November 11, 2004, the Company sold the assets associated with its specialty oligonucleotides manufacturing facility in Boulder, Colorado to a subsidiary of Eyetech Pharmaceuticals, Inc. (“Eyetech”). The sale price was $3,000 in cash plus the assumption of the lease on the Boulder facility and of certain equipment leases with a gross value of $2,377. Substantially all of the 27 employees at the Boulder facility became Eyetech employees. Net proceeds from the sale (after transaction expenses and fees paid to our investment advisors) equaled approximately $2,700. In conjunction with this transaction, we recorded a gain on sale of $1,466 in the fourth quarter of 2004.

N. RESTRUCTURING PLANS

On November 13, 2004, the Company’s Board of Directors approved a restructuring plan designed to refocus on the BioSystems operating segment and to better align the Company’s cost structure with anticipated revenues. The plan (which is incremental to the sale of the specialty oligonucleotide manufacturing facility in Boulder, Colorado facility) included a workforce reduction of approximately 60 positions and the closure of two domestic research and development facilities associated with our Nucleic Acids operating segment and two European field offices. Additionally, the Company eliminated approximately 10 positions at its chemical building blocks manufacturing facility in Glasgow, Scotland. In conjunction with these changes, the Company incurred a charge of $3,570 during the quarter ending December 31, 2004 consisting of severance benefits of $1,406, future rents on closed facilities (net of projected sublease rents) of $1,241, the write-off property and equipment specifically attributable to closed facilities of $740 and other costs of $183. The Company had accrued expenses associated with this restructuring plan of $1,909 at December 31, 2004 of which $1,486 is expected to be paid 2005 and $423 in 2006.

During the fourth quarter of 2002 management formulated and executed a significant portion of a restructuring plan. The plan was developed to reduce expenses thereby better aligning the Company’s expense structure with current business prospects. The plan included employee terminations, office closures, termination of collaborations and write-offs of abandoned intellectual property. Specifically, in the fourth quarter of 2002 the Company notified approximately 60 employees of their termination, notified landlords of our intent to close four facilities and reduce our space commitment under lease at two other facilities, terminated certain consulting and collaboration agreements and abandoned certain patents. As a result of the plan $3,282 in restructuring charges were recorded and are included in operating expenses. These charges consisted of approximately $775 of employee severance costs, $1,200 in office closure

37

TRANSGENOMIC, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands except per share data)

related costs, $400 of collaboration and other agreement termination charges and $900 in write-offs of abandoned intellectual property. Approximately 45% of the total charges were for non-cash items. Additional restructuring charges totaling $741 were incurred in the first half of 2003. The Company had accrued expenses associated with these restructuring activities of $0 at December 31, 2004 and $227 at December 31, 2003.

O. SUBSEQUENT EVENTS

On March 18, 2005, Laurus agreed to further extend the borrowing base waiver on the Credit Line until March 31, 2006. In connection with this waiver, the Company agreed to allow Laurus to convert $1,872 of the outstanding principal balance under the Credit Line into 3,600,000 shares of its common stock. In addition, on March 24, 2005 the Company agreed to allow Laurus to convert $650 of the outstanding principal balance of the Term Note into 1,250,000 shares of common stock. As a result, the Company increased the amount available under the Credit Line by $1,872 and eliminated substantially all remaining 2005 scheduled principal payments on the Term Loan.

38

Item 9. Changes in and Disagreement With Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures

A review and evaluation was performed by the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this annual report. Based on that review and evaluation, the CEO and CFO concluded that the Company’s current disclosure controls and procedures, as designed and implemented, were effective. There have been no changes in the Company’s internal controls subsequent to the date of their evaluation.

Item 9B. Other Information

None

Part III

Item 10. Directors and Executive Officers of the Registrant.

We will file a definitive Proxy Statement relating to our 2004 Annual Meeting of Stockholders with the Securities Exchange Commission not later than April 29, 2005. Information required by this item is incorporated by reference to our definitive Proxy Statement.

Item 11. Executive Compensation.

Information required by this Item is incorporated by reference to our definitive Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

Information required by this Item is incorporated by reference to our definitive Proxy Statement.

Item 13. Certain Relationships and Related Transactions

Information required by this Item is incorporated by reference to our definitive Proxy Statement.

Item 14. Principal Accountant Fees and Services

Information required by this Item is incorporated by reference to our definitive Proxy Statement.

Part IV

Item 15. Exhibits and Financial Statement Schedules.

(a) The following documents are filed as part of this report:

1. Financial Statements. The following financial statements of the Registrant are included in response to Item 8 of this report:

Report of Independent Registered Public Accounting Firm.	20
Consolidated Balance Sheets of the Registrant and Subsidiaries as of December 31, 2004 and 2003.	21
Consolidated Statements of Operations of the Registrant and Subsidiaries for the years ended December 31, 2004, 2003 and 2002.	22
Consolidated Statements of Stockholders’ Equity (Deficit) of the Registrant and Subsidiaries for the years ended December 31, 2004, 2003 and 2002.	23
Consolidated Statements of Cash Flows of the Registrant and Subsidiaries for the years ended December 31, 2004, 2003 and 2002.	24
Notes to Consolidated Financial Statements of the Registrant and Subsidiaries.	25

39

2. Financial Statement Schedules. The following financial statement scheduled is included in response to Item 8 of this report:

Schedule II-Valuation and Qualifying Accounts

3. Exhibits. The following exhibits were filed as required by Item 15(a)(3) of this report. Exhibit numbers refer to the paragraph numbers under Item 601 of Regulation S-K:

2.1	Agreement and Plan of Merger, dated as of April 30, 2001, by and among Registrant, TBIO Nebraska, Inc., TBIO, Inc. and Annovis, Inc. (incorporated by reference to Exhibit 2.1 to Registrant’s Report on Form 8-K filed on May 31, 2001)
2.2	Addendum to Agreement and Plan of Merger, dated as of May 18, 2001, by and among Registrant, TBIO Nebraska, Inc., TBIO, Inc. and Annovis, Inc. (incorporated by reference to Exhibit 2.2 to Registrant’s Report on Form 8-K filed on May 31, 2001)
2.3	Asset Purchase Agreement, dated as of November 8, 2004, by and between Registrant and Eyetech Boulder Inc.
3.1	Second Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 2 to Amendment No. 1 to Registration Statement on Form S-1 (Registration No. 333-32174) filed on May 17, 2000)
3.2	Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to Registration Statement on Form S-1 (Registration No. 333-32174) filed on March 10, 2000)
4.1	Form of Certificate of the Registrant’s Common Stock (incorporated by reference to Exhibit 4 to Registration Statement on Form S-1 (Registration No. 333-32174) filed on March 10, 2000)
10.1	Third Fourth Amended and Restated 1997 Stock Option Plan of the Registrant
10.2	1999 UK Approved Stock Option Sub Plan of the Registrant (incorporated by reference to Exhibit 10.7 to Registration Statement on Form S-1 (Registration No. 333-32174) filed on March 10, 2000)
10.3	Employee Stock Purchase Plan of the Registrant (incorporated by reference to Exhibit 4(b) to Registration Statement on Form S-8 (Registration No. 333-71866) filed on October 19, 2001)
10.4	Employment Agreement, dated April 1, 2000, by and between the Registrant and Collin J. D’Silva (incorporated by reference to Exhibit 10.8 to Registration Statement on Form S-1 (Registration No. 333-32174) filed on March 10, 2000)
10.5	Amendment No. 1 to the Employment Agreement, effective March 1, 2000, by and between Transgenomic, Inc. and Collin D’Silva (incorporated by reference to Exhibit 10.9 of the Registrant’s Quarterly Report on Form 10-Q filed on May 17, 2004)
10.6	Employment Agreement, effective July 31, 2004, by and between Transgenomic, Inc. and Michael A. Summers (incorporated by reference to Exhibit 10.11 to Registrant’s Quarterly Report on Form 10-Q filed on November 15, 2004).
10.7	Employment Agreement, dated January 22, 2002, between the Registrant and Keith A. Johnson (incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q filed on May 14, 2002)
10.8	License Agreement, dated September 1, 1994, between Registrant and Professor Dr. Gunther Bonn, et. al. and Amendment thereto, dated March 14, 1997 (incorporated by reference to Exhibit 10.14 to Registration Statement on Form S-1 (Registration No. 333-32174) filed on March 10, 2000)
10.9	License Agreement, dated August 20, 1997, between the Registrant and Leland Stanford Junior University (incorporated by reference to Exhibit 10.15 to Registration Statement on Form S-1 (Registration No. 333-32174) filed on March 10, 2000)
10.10	License Agreement, dated December 1, 1989, between Cruachem Holdings Ltd. (a wholly owned subsidiary of the Registrant) and Millipore Corporation (incorporated by reference to Exhibit 10.13 to Registrant’s Annual Report on Form 10-K filed on March 25, 2002)

40

10.11	Sublicense Agreement, dated October 1, 1991, between Cruachem Holdings Ltd. (a wholly owned subsidiary of the Registrant) and Applied Biosystems, Inc. (incorporated by reference to Exhibit 10.14 to Registrant’s Annual Report on Form 10-K filed on March 25, 2002)
10.12	Missives, dated May 17, 2002, between Cruachem Limited (a wholly-owned subsidiary of the Registrant) and Robinson Nugent (Scotland) Limited (incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q filed on August 14, 2002)
10.13	License Amendment Agreement, dated June 2, 2003, by and between Geron Corporation and the Registrant. (incorporated by reference to Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q filed on August 12, 2003)
10.14	Supply Agreement, dated January 1, 2000, between the Registrant and Hitachi Instruments (incorporated by reference to Exhibit 10.16 to Registration Statement on Form S-1 (Registration No. 333-32174) filed on March 10, 2000)
10.15	Form of Securities Purchase Agreement by and between the Registrant and various counterparties, dated August 27, 2003 (incorporated by reference to Exhibit 10 to the Registrant’s Report on Form 8-K filed on August 29, 2003)
10.16	Securities Purchase Agreement by and between the Registrant and Geron Corporation, dated June 2, 2003 (incorporated by reference to Exhibit 10.0 to Amendment No. 3 to Registration Statement on Form S-3 (Registration No. 333-108319) as filed on October 14, 2003)
10.17	Security Agreement by and between the Registrant and Laurus Master Fund, Ltd., dated December 3, 2003 (incorporated by reference to Exhibit 10.1 to the Registration Statement on Form S-3 of the Registrant (Registration No. 333-111442) filed on December 22, 2003)
10.18	Amendment to Security Agreement and Related Documents by and between the Registrant and Laurus Master Fund, Ltd., dated August 31, 2002 (incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-3 (Registration No. 333-118970) as filed on September 14, 2004)
10.19	Secured Revolving Note by and between the Registrant and Laurus Master Fund, Ltd., dated December 3, 2003 (incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-3 of the Registrant (Registration No. 333-111442) filed on December 22, 2003)
10.20	Secured Convertible Minimum Borrowing Note by and between the Registrant and Laurus Master Fund, Ltd., dated December 3, 2003 (incorporated by reference to Exhibit 10.3 to the Registration Statement on Form S-3 of the Registrant (Registration No. 333-111442) filed on December 22, 2003)
10.21	Secured Convertible Minimum Borrowing Note Series B by and between the Registrant and Laurus Master Fund, Ltd., dated December 3, 2003, as amended on April 15, 2004 (incorporated by reference to the Registration Statement of the Registrant (Registration No. 333-114661) filed on April 21, 2004)
10.22	Common Stock Purchase Warrant by and between the Registrant and Laurus Master Fund, Ltd., dated December 3, 2003 (incorporated by reference to Exhibit 10.4 to the Registration Statement on Form S-3 of the Registrant (Registration No. 333-111442) filed on December 22, 2003)
10.23	Registration Rights Agreement by and between the Registrant and Laurus Master Fund, Ltd., dated December 3, 2003 (incorporated by reference to Exhibit 10.5 to the Registration Statement on Form S-3 of the Registrant (Registration No. 333-111442) filed on December 22, 2003)
10.24	Common Stock Purchase Warrant by and between the Registrant and TN Capital Equities, Ltd., dated December 3, 2003 (incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S-3 of the Registrant (Registration No. 333-111442) filed on December 22, 2003)
10.25	Securities Purchase Agreement by and between the Registrant and Laurus Master Fund, Ltd., dated February 19, 2004, as amended on April 15, 2004 (incorporated by reference to Exhibit 10.1 to the Registration Statement on Form S-3 of the Registrant (Registration No. 333-114661) filed on April 21, 2004)
10.26	Amendment to Securities Purchase Agreement and Related Document by and between the Registrant and Laurus Master Fund, Ltd., dated August 31, 2004 (incorporated by reference to Exhibit 10.1 to the Registration Statement on Form S-3 (Registration No. 333-118970) as filed on September 14, 2004)
10.27	Secured Convertible Term Note by and between the Registrant and Laurus Master Fund, Ltd., dated February 19, 2004, as amended on April 15, 2004 (incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-3 of the Registrant (Registration No. 333-114661) filed on April 21, 2004)

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10.28	Common Stock Purchase Warrant by and between the Registrant and Laurus Master Fund, Ltd., dated February 19, 2004, as amended on April 15, 2004 (incorporated by reference to Exhibit 10.3 to the Registration Statement on Form S-3 of the Registrant (Registration No. 333-114661) filed on April 21, 2004)
10.29	Registration Rights Agreement by and between the Registrant and Laurus Master Fund, Ltd., dated February 19, 2004 (incorporated by reference to Exhibit 10.4 to the Registration Statement on Form S-3 of the Registrant (Registration No. 333-114661) filed on April 21, 2004)
10.30	Common Stock Purchase Warrants by and between the Registrant and TN Capital Equities, Ltd., dated March 1, 2004 (incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-3 of the Registrant (Registration No. 333-114661) filed on April 21, 2004)
10.31	Common Stock Purchase Warrant by and between the Registrant and Laurus Master Fund, Ltd., dated August 31, 2004 (incorporated by reference to Exhibit 10.3 to the Registration Statement on Form S-3 (Registration No. 333-118970) as filed on September 14, 2004)
10.32	Engagement Agreement by and between the Registrant and Goldsmith, Agio, Helms Securities, Inc., dated March 19, 2004, as amended August 12, 2004 (incorporated by reference to Exhibit 10.10 to Registrant’s Quarterly Report on Form 10-Q filed on November 15, 2004)
21	Subsidiaries of the Registrant
23	Consent of Independent Registered Public Accounting Firm
24	Powers of Attorney
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 on this 30th day of March 2005.

TRANSGENOMIC, INC.
By:	/s/    COLLIN J. D’SILVA
	Collin J. D’Silva, Chairman and Chief Executive Officer

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on this 14^th day of April 2005.

Signature	Title
/s/    COLLIN J. D’SILVA         Collin J. D’Silva	Chairman of the Board, Director and Chief Executive Officer (Principal Executive Officer)
/s/    MICHAEL A. SUMMERS         Michael A. Summers	Chief Financial Officer (Principal Financial Officer)
/s/    GREGORY J. DUMAN*         Gregory J. Duman	Director
/s/    JEFFREY SKLAR*         Jeffrey Sklar	Director
/s/    ROLAND J. SANTONI*         Roland J. Santoni	Director
/s/    PARAG SAXENA*         Parag Saxena	Director
/s/    GREGORY T. SLOMA*         Gregory T. Sloma	Director
*By Collin J. D’Silva, as attorney-in-fact
/s/    COLLIN J. D’SILVA         Collin J. D’Silva Attorney-in-fact for the individuals as indicated.

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Schedule II – Valuation And Qualifying Accounts

(dollars in thousands)

	Beginning Balance		Additional Charges to Income		Deductions from Reserve		Ending Balance
Allowance for Bad Debts:
Year Ended December 31, 2004	$	549	$	534	$	32	$	1,051
Year Ended December 31, 2003	$	450	$	174	$	75	$	549
Year Ended December 31, 2002	$	213	$	418	$	181	$	450

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EX-2.3

Exhibit 2.3

EXECUTION COPY

ASSET PURCHASE AGREEMENT

This ASSET PURCHASE AGREEMENT, dated as of November 11, 2004 (“Agreement”), is by and between Transgenomic, Inc., a Delaware corporation (“Seller”), and Eyetech Pharmaceuticals Boulder, Inc., a Delaware corporation (“Purchaser”).

WHEREAS, Seller operates a leased facility at 5555 Airport Road, Lake Center Business Park, Boulder, Colorado (the “Colorado Facility”); and

WHEREAS, Purchaser desires to purchase from Seller, and Seller desires to sell to Purchaser, the assets, properties, rights and claims that constitute all the assets at and sufficient to operate the Colorado Facility in the manner in which it is currently operated and to satisfy Seller’s obligations under the Seller Contracts (as hereinafter defined) from and after the Closing Date (as hereinafter defined).

NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements hereinafter set forth, and intending to be legally bound hereby, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

1.1 Definitions

(a) As used in this Agreement, each of the following terms shall have the following meanings:

(i) “Accounts Receivable” means accounts receivable generated by the Business and the Colorado Facility.

(ii) “Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified.

(iii) “Applicable Law” means any law, regulation, rule, order, judgment or decree to which the Business, Colorado Facility, Purchased Assets, Seller or any of its Subsidiaries is subject.

(iv) “Bill of Sale” means the Bill of Sale to be delivered at the Closing with respect to the Purchased Assets substantially in the form of Exhibit A hereto.

(v) “Book and Records” means all tangible and electronically stored books, records, files, documents, financial records, bills, accounting, internal records, databases, information systems, operating manuals, customer and supplier lists and files, including customer lists, preprinted materials, artwork, and other similar items pertaining to the Business or the Colorado Facility.

(vi) “Business” means the production at the Colorado Facility of synthesized oligonucleotides and the provision of related services pursuant to the Seller

Contracts and pursuant to all existing Contracts between the Seller and Eyetech Pharmaceuticals, Inc.

(vii) “Business Day” means any day other than Saturday, Sunday and any day which is a legal holiday or a day on which banking institutions in the State of New York are authorized by law or other governmental action to close.

(viii) “Code” means the United States Internal Revenue Code of 1986, as amended, and Treasury regulations promulgated thereunder.

(ix) “Contract” shall mean any contract, consensual obligation, promise, understanding, arrangement, commitment or undertaking of any nature (whether written or oral and whether express or implied), whether or not legally binding, including any note, bond, mortgage, indenture, lease, license, permit, franchise or other instrument.

(x) “Employee” means any employee of Seller as of the Closing Date, whether active or on an authorized leave of absence (including but not limited to employees who are not actively at work as of the Closing Date on account of sickness, short-term disability or vacation, but not including those employees, if any, who are not actively at work as of the Closing Date on account of long-term disability), whose work or function is related primarily to the operation of the Business or the Colorado Facility.

(xi) “Encumbrances” means any mortgages, pledges, liens (statutory or otherwise), security interests, easements, right-of-way, covenant, claim, conditional and installment sale agreements or encumbrances and charges of any kind or nature.

(xii) “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations thereunder.

(xiii) “Final Order” means an order or a judgment of a Governmental Authority, the implementation or operation or effect of which has not been stayed and as to which order or judgment (or any revision, modification or amendment thereof) the time to appeal or seek review or rehearing or writ of certiorari has expired and as to which no appeal or petition for review or rehearing or certiorari has been taken.

(xiv) “GAAP” means accounting principles generally accepted in the United States of America, consistently applied.

(xv) “GE Capital” means General Electric Capital Corporation.

(xvi) “GE Capital Lease” means the Master Lease Agreement, dated December 12, 2002, by and between Seller and GE Capital.

(xvii) “Governmental Approval” shall mean any: (a) permit, license, certificate, concession, approval, consent, ratification, permission, clearance, confirmation, exemption, waiver, franchise, certification, designation, rating, registration, variance, qualification, accreditation or authorization issued, granted, given or otherwise made available by or under the authority of any Governmental Authority or pursuant to any Applicable Law; or (b) right under any Contract with any Governmental Authority.

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(xviii) “Governmental Authority” means a domestic or foreign federal, state, municipal or local governmental or legislature, regulatory authority, agency or commission, including courts of competent jurisdiction, and arbitrators.

(xix) “Inventory” means the inventory of supplies, materials and merchandise of Seller used or intended to be used in the operations of the Colorado Facility and classified as “inventory” on the Books and Records of Seller and/or of the Colorado Facility, including all raw materials and works-in-progress.

(xx) “Knowledge” of Seller or Purchaser with respect to any fact or matter means that the officer(s) thereof having the principal responsibility therefor is (are) either actually aware of the particular fact or other matter or reasonably should have been aware of such fact or matter due to his or her position or duties.

(xxi) “Material Adverse Effect” means any event, change or effect that, when taken individually or in the aggregate, is or is reasonably likely (a) to be materially adverse to the condition or value of the Colorado Facility, the Purchased Assets, the Real Estate Lease, the GE Capital Lease, or the Assumed Liabilities, or to operation of the Colorado Facility or (b) to prevent or materially delay consummation of the transactions contemplated hereby or otherwise to prevent Seller from performing its obligations under this Agreement; excluding any such event, change or effect resulting from or arising in connection with (1) changes in general economic, regulatory or political conditions, or (2) changes in conditions or circumstances generally affecting the industry in which the Colorado Facility operates.

(xxii) “Permitted Encumbrances” means (A) Encumbrances for Taxes not yet due or delinquent or the validity of which is being contested in good faith by appropriate proceedings and which thereafter may be paid without penalty; (B) Encumbrances of carriers, warehousemen, mechanics and material men and other like Encumbrances arising in the ordinary course of business; (C) all exceptions, restrictions, easements and rights of way relating to the Real Estate Lease; and (D) any security interest created in favor of GE Capital pursuant to the GE Capital Lease.

(xxiii) “Person” means an individual, partnership, joint venture, corporation, limited liability company, limited liability partnership, trust, unincorporated organization or Governmental Authority or any department or agency thereof.

(xxiv) “Proceeding” means any action, suit, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), prosecution, contest, hearing, inquiry, inquest, audit, examination or investigation that is, has been or may in the future be commenced, brought, conducted or heard at law or in equity or before any Governmental Authority or any arbitrator or arbitration panel.

(xxv) “Real Estate Lease” means the lease for the Colorado Facility between Seller and Yew Tree Investments, Ltd dated August 23, 2002, as amended October 21, 2002 and as further amended June 1, 2003.

(xxvi) “Seller Contracts” means the contracts of the Seller identified on Section 2.1 of the Seller Disclosure Schedule.

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(xxvii) “Seller Disclosure Schedule” means the disclosure schedule delivered by Seller to the Purchaser pursuant to this Agreement.

(xxviii) “Subsidiary” when used in reference to any other person means any corporation or other entity of which outstanding securities or other ownership interests having ordinary voting power to elect a majority of the Board of Directors of such corporation or other governing or controlling body are owned directly or indirectly by such other person.

(xxix) “Tax” means any tax, charge, fee, levy, penalty or other assessment imposed by any U.S. federal, state, local, municipal or foreign Governmental Authority, including, but not limited to, any income, excise, property, sales, transfer, social security, value added, employment, withholding or other tax, including any interest, penalties or additions attributable thereto.

(xxx) “Tax Return” means any return, report, information return or other document (including any related or supporting information) supplied or required to be supplied to any authority with respect to Taxes.

(xxxi) “Transaction Documents” means this Agreement, the Escrow Agreement, the Transition Services Agreement and all other agreements, certificates, instruments, documents and writings delivered by Purchaser and/or Seller in connection with the Transaction, including the Bill of Sale and any assignment and assumption agreement.

(xxxii) “WARN Act” means the Federal Worker Adjustment Retraining and Notification Act of 1988, and the rules and regulations promulgated thereunder.

ARTICLE II

SALE AND PURCHASE

2.1 The Sale

Upon the terms and subject to the satisfaction of the conditions contained in this Agreement, at the Closing, Seller shall sell, assign, convey, transfer and deliver to the Purchaser and the Purchaser shall purchase, acquire and accept from Seller, free and clear of all Encumbrances (other than Permitted Encumbrances) all of Seller’s right, title and interest in and to all machinery and equipment, inventory, customer lists, computers, furniture, supplies, software and intellectual property, brand names, know-how, specified Seller Contracts, Books and Records, Governmental Approvals, goodwill, and all other tangible and intangible assets necessary to operate, or actually used in the operation of, the Colorado Facility or the conduct of the Business, including assets to be released from the Encumbrance of the GE Capital Lease at the Closing, all of which are identified on Schedule 2.1 of the Seller Disclosure Schedule (collectively, the “Purchased Assets”) except for the Excluded Assets (as defined below).

2.2 Excluded Assets

Notwithstanding any provision herein to the contrary, the Purchased Assets shall not include any cash, pre-Closing Date (as defined in Section 4.1) Accounts Receivable, those assets of Seller used in connection with the Colorado Facility and that also are used significantly on a company-wide basis in connection with other activities of Seller and that are identified on

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Schedule 2.2 of the Seller Disclosure Schedule or those assets of Seller that are used solely in connection with its activities that are unrelated to the Business or the Colorado Facility (collectively, the “Excluded Assets”).

2.3 Assumed Liabilities

At the Closing, Purchaser, subject to the obligation of Seller to obtain third party consents, shall assume the following liabilities of Seller (collectively, the “Assumed Liabilities”):

(a) all obligations of Seller under the Real Estate Lease, but only to the extent such prorated obligations arise from or relate to the operation of the Colorado Facility from and after the Closing Date;

(b) all obligations arising from and after the Closing Date pursuant to the Seller Contracts; and

(c) all obligations and liabilities relating to the post Closing Date operation of the Business and the Colorado Facility.

2.4 Excluded Liabilities

Notwithstanding anything to the contrary contained herein, except for the Assumed Liabilities, Purchaser shall not assume any other liabilities or obligations of the Seller, of the Business or arising from or related to the operations or activities of the Colorado Facility, whether arising prior to or after the Closing Date (collectively, the “Excluded Liabilities”). Without limiting the foregoing, Seller shall retain and be responsible for, and Purchaser shall not and does not assume, any liability at any time arising from or attributable to:

(a) Any assets, properties or Contracts that are not included in the Purchased Assets, including any obligations under the GE Capital Lease;

(b) Any breaches of any Seller Contract on or prior to the Closing Date or any payments or amounts due under any Seller Contract on or prior to the Closing Date;

(c) Taxes attributable to or imposed upon Seller, or attributable to or imposed upon the Purchased Assets, the operations or activities of the Colorado Facility or the Business for the Pre-Closing Period;

(d) Any loans, other indebtedness, or accounts payable other than any that are expressly assumed pursuant to this Agreement;

(e) Accidents, misconduct, negligence, or breach of fiduciary duty occurring on or prior to the Closing Date;

(f) Any legal proceeding initiated at any time, to the extent related to any action or omission on or prior to the Closing Date, including any liability for (i) infringement or misappropriation of Intellectual Property Rights; (ii) breach of product warranties or of contract; (iii) injury, death, property damage or losses caused by products manufactured by the Colorado

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Facility or sold by Seller as part of the operations or activities of the Colorado Facility, or (iv) violations of law; and any legal proceeding initiated at any time, whether or not related to any action or omission on or prior to the Closing Date, to the extent it relates to any Contract included in the Purchased Assets that does not provide for exclusion of damages or losses attributable to breaches of implied warranty or exclusion of consequential damages, lost profits, diminution in value, damage to reputation or goodwill or other items of loss of a speculative nature, unless such damages or losses arise out of the gross negligence, recklessness or intentional conduct of Purchaser (in which event, such damages and losses shall not be deemed Excluded Liabilities);

(g) Any Seller employee benefit plans, programs or arrangements or any employee group medical, dental or life insurance plans or any other employee matter;

(h) Any payments to or in respect of employees of Seller in their capacity as such, including for vacation, sick leave, other paid time off, payroll Taxes or for severance or other payments that may be payable upon or resulting from the closing of the transactions contemplated hereby;

(i) Seller’s performance of this Agreement and the transactions contemplated hereby including all broker, finders’, counsel and accounting fees;

(j) Any environmental law, which liability relates to or arises out of (A) any acts or omissions of Seller on or prior to the Closing Date or (B) any facts, circumstances or conditions existing on or prior to the Closing Date relating to Hazardous Materials, including any management, disposal or arranging for disposal of Hazardous Materials in connection with the Business, the operations of the Colorado Facility or the Purchased Assets or Assumed Liabilities or operations or activities occurring or conducted in connection with any predecessor operations of the Colorado Facility or otherwise; and

(k) Any costs or expenses incurred in shutting down and removing equipment or other assets located at the Colorado Facility not purchased by Purchaser pursuant hereto and any expenses associated with any Contracts of the Seller not assumed by Purchaser hereunder.

ARTICLE III

PURCHASE PRICE

3.1 Purchase Price

In consideration of the sale, conveyance, assignment and transfer of the Purchased Assets, Purchaser shall pay to Seller Three Million US Dollars ($3,000,000) in cash (the “Purchase Price”) and assume the Assumed Liabilities. At the Closing (as defined in Section 4.1), the Purchaser shall pay $2,700,000 of the Purchase Price (the “Initial Payment”) by wire transfer of immediately available funds to the account designated by Seller and the balance of the Purchase Price of $300,000 (the “Escrowed Amount”) shall be deposited by Purchaser in escrow at Closing and the escrow agent shall hold and disburse such funds in accordance with the terms of the Escrow Agreement in the form attached as Exhibit D hereto (the “Escrow Agreement”).

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3.2 Transfer Taxes; Prorations.

(a) Notwithstanding any Applicable Law to the contrary, Seller and Purchaser shall share equally the responsibility for and shall pay any Transfer Taxes when due.

(b) Seller shall be responsible for and shall pay any Taxes arising or resulting from or in connection with the conduct of the Business, the operation of the Colorado Facility or the ownership of the Purchased Assets attributable to all periods prior to the Closing Date. Purchaser shall be responsible for and shall pay any Taxes arising or resulting from or in connection with the conduct of the Business, the operations or activities of the Colorado Facility or the ownership of the Purchased Assets attributable to all periods from and after the Closing Date.

(c) All real property, personal property, ad valorem or other similar Taxes (not including income Taxes) levied with respect to the Purchased Assets, the operation of the Colorado Facility or the Business for a taxable period that includes (but does not end on) the Closing Date shall be apportioned between Purchaser and Seller based on the number of days included in such period through and including the Closing Date and the number of days included in such period after the Closing Date.

3.3 Allocation of Purchase Price.

Purchaser shall prepare a schedule that allocates the Purchase Price and Assumed Liabilities consistent with Section 1060 of the Code (the “Allocation Schedule”) within 30 days of Closing Date, subject to Seller’s approval which shall not be unreasonably withheld. Seller and Purchaser shall cooperate and use their commercially reasonable best efforts in reaching a mutually satisfactory agreement regarding the Allocation Schedule. If Seller and Purchaser are unable to reach a mutually satisfactory agreement regarding the Allocation Schedule, then Seller and Purchaser shall submit in writing any matters in dispute to an independent accounting firm reasonably satisfactory to Seller and Purchaser, which independent accounting firm will resolve the dispute in a fair and equitable manner within 30 days after Purchaser and Seller have presented their arguments to the independent accounting firm, which decision shall be final, conclusive and binding on Purchaser and Seller. The parties further agree that:

(a) such allocation will be determined in an arm’s length negotiation and that neither of the parties shall take a position on any Tax Return (including IRS Form 8594), before any Tax- related Governmental Authority or in any judicial proceeding that is in any way inconsistent with such allocation without the written consent of the other party or unless specifically required pursuant to a determination by an applicable Tax-related Governmental Authority;

(b) they shall cooperate with each other in connection with the preparation, execution and filing of all Tax Returns related to such allocation; and

(c) they shall promptly advise each other regarding the existence of any tax audit, controversy or litigation related to such allocation.

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ARTICLE IV

THE CLOSING

4.1 Time and Place of Closing

Upon the terms and subject to the satisfaction of the conditions contained in this Agreement, the closing of the transactions contemplated by this Agreement (the “Closing”) will take place at the offices of Morrison & Foerster LLP, 5200 Republic Plaza, 370 Seventeenth Street, Denver Colorado, at 10:00 A.M. on the date hereof or at such other date, time or place as the parties may agree. The date and time at which the Closing actually occurs is hereinafter referred to as the “Closing Date”.

4.2 Deliveries by Seller

At the Closing, Seller shall deliver the following to the Purchaser:

(a) The Bill of Sale;

(b) All consents, applications or other documents required to transfer any of the Purchased Assets as set forth in Section 4.2(b) of the Seller Disclosure Schedule;

(c) The Certificate of Officer contemplated by Section 8.2(e);

(d) The Assignment and Assumption Agreement for the Real Estate Lease, in the form attached as Exhibit C, and all such other instruments of assignment or conveyance as shall, in the reasonable opinion of the Purchaser and its counsel, be necessary to transfer to the Purchaser the Purchased Assets and Assumed Liabilities in accordance with this Agreement and where necessary or desirable, in recordable form;

(e) Payoff and release letters from creditors of Seller identified in Section 4.2(e) of the Seller Disclosure Schedule, together with UCC 3 termination statements, with respect to any financing statements filed against any of the Purchased Assets, terminating all Encumbrances (including Tax liens) on any of the Purchased Assets other than Permitted Encumbrances;

(f) Certificates from the Secretaries of State of Delaware and Colorado as to Seller’s good standing and payment of all applicable Taxes;

(g) The Books and Records;

(h) The Escrow Agreement executed by Seller and the escrow agent designated thereunder;

(i) The Transition Services Agreement, in the form attached as Exhibit E (the “Transition Services Agreement”), executed by Seller; and

(j) Such other agreements, documents, instruments and writings as are required to be delivered by Seller at or prior to the Closing Date pursuant to this Agreement or as

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may otherwise be required to transfer the Purchased Assets to the Purchaser in connection herewith.

4.3 Deliveries by Purchaser

At the Closing, Purchaser shall deliver the following to Seller:

(a) The Initial Payment by wire transfer of immediately available funds to Seller;

(b) The certificate contemplated by Section 8.3(b);

(c) The Assignment and Assumption Agreement for the Real Estate Lease and all such other instruments of assumption as shall, in the reasonable opinion of the Seller and its counsel, be necessary to effect the assumption by Purchaser of Seller’s obligations under the Real Estate Lease, the GE Capital Lease and the Assumed Liabilities in accordance with this Agreement and where necessary or desirable, in recordable form;

(d) The Escrow Agreement executed by Purchaser;

(e) The Transition Services Agreement executed by Purchaser;

(f) Certificates from the Secretary of State of the State of Delaware as to the good standing of Purchaser and Eyetech Pharmaceuticals, Inc.; and

(g) Such other agreements, documents, instruments and writings as are required to be delivered by the Purchaser at or prior to the Closing Date pursuant to this Agreement or otherwise required in connection herewith.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF SELLER

Except as set forth in the specific corresponding sections of the Seller Disclosure Schedule prepared by Seller and delivered to the Purchaser simultaneously with the execution hereof, Seller hereby represents and warrants to the Purchaser as follows:

5.1 Organization; Qualification

Seller is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization. Seller has all requisite corporate power and authority to own, lease, and operate the Business, the Colorado Facility and Purchased Assets. Seller has all necessary consents, authorizations, approvals, orders, licenses, certificates and permits of and from, and declarations and filings with, all Governmental Authorities to lease and operate the Colorado Facility and to own, lease, license and use the Purchased Assets as the Colorado Facility and the Purchased Assets are currently being operated or used, and all such consents, authorizations, approvals, orders, licenses, certificates, permits and declarations are set forth on Section 5.1 of the Seller Disclosure Schedule. Seller is duly qualified to do business as a foreign corporation and is in good standing under the laws the State of Colorado.

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5.2 Authority Relative to This Agreement

Seller has full corporate power and authority to execute and deliver this Agreement and the other Transaction Documents and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized by all requisite corporate and, if required, stockholder action of Seller and no other corporate proceedings on the part of Seller or any of its Affiliates is necessary to authorize this Agreement or the other Transaction Documents or to consummate the transactions contemplated hereby or thereby. This Agreement has been, and at Closing the other Transaction Documents will be, duly executed and delivered by Seller, and assuming due authorization, execution and delivery by the Purchaser, constitute or will constitute valid and binding agreements of Seller, enforceable against Seller in accordance with their terms, except as may be limited by (a) bankruptcy, insolvency, moratorium or other similar laws affecting or relating to enforcement of creditors’ rights generally or (b) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity).

5.3 Consents and Approvals; No Violation

The execution and delivery of this Agreement and the other Transaction Documents by Seller, the consummation by Seller of the transactions contemplated by this Agreement and the other Transaction Documents and the compliance of Seller with the provisions of this Agreement and the other Transaction Documents will not (a) conflict with or result in any breach of any provision of the articles of incorporation or bylaws or other constituent document of Seller, (b) require any consent, approval, waiver, filing with or notification to, any Governmental Authority or third party; (c) result in a violation or breach of or default (or give rise to any right of termination, cancellation or acceleration) under, or require any consent under, any of the terms, conditions or provisions of any Contract or other instrument or obligation to which Seller is a party or by which Seller, the Colorado Facility or any of the Purchased Assets may be bound, except for such instances where requisite waivers or consents have been obtained and identified on Section 4.2(b) of the Seller Disclosure Schedule; or (d) violate any order, writ, injunction, decree, statute, rule or regulation of any Governmental Authority or any Applicable Law applicable to Seller, the Business, the Colorado Facility or any of the Purchased Assets.

5.4 Absence of Certain Changes or Events

Except as otherwise contemplated by this Agreement, since June 30, 2004, (a) the Business and the operations and activities of the Colorado Facility have been conducted in all respects in the ordinary course; and (b) there has been no event or occurrence that has caused, or, to the Knowledge of Seller, is likely to cause, a Material Adverse Effect or that may result in any Encumbrance on any Purchased Assets other than a Permitted Encumbrance.

5.5 Labor Matters

(a) With respect to employees of Seller who are employed at or with respect to operations of the Colorado Facility or consultants involved primarily in operations or activities of the Colorado Facility or the Business: (i) Seller is in compliance with all Applicable Laws

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respecting employment and employment practices, terms and conditions of employment and wages and hours; (ii) all personnel are properly classified as employees or consultants as required by Applicable Law; (iii) there is no labor strike, slowdown or stoppage actually pending or threatened against or affecting Seller; and (iv) Seller has not received notice that any representation petition respecting the Employees has been filed with the National Labor Relations Board.

(b) Section 5.5(b) of the Seller Disclosure Schedule lists all collective bargaining agreements with any labor organization, union group or association (collectively “Labor Unions”) relating to the Colorado Facility and to which Seller is, or has been, a party. Seller has no overdue liability pursuant to any collective bargaining agreement. Except for the Labor Unions listed in Section 5.5(b) of the Seller Disclosure Schedule, Seller has not experienced any attempt by a Labor Union or its representatives to organize any of its employees or to negotiate or enter into a collective bargaining agreement.

(c) Except as set forth in Section 5.5(c) of the Seller Disclosure Schedule, the employment of all persons presently employed or retained by Seller in connection with the operation of the Colorado Facility is terminable at will.

(d) There are no claims, administrative actions or proceedings pending against Seller relating to the Colorado Facility or the Business, nor to the Knowledge of Seller, threatened by any Governmental Authority, labor organization or Employee, former employee, consultant or former consultant of Seller alleging that Seller has violated any applicable laws with respect to employment practices, employment documentation, terms and conditions of employment and wages and hours, and there is no basis for any such claims.

(e) Seller is not engaged in any unfair labor practice at the Colorado Facility.

(f) Seller has listed in Section 5.5(f) of the Seller Disclosure Schedule all of its (i) Employees involved primarily in the operations or activities of the Colorado Facility or of the Business, and each such Employee’s salary or wage, years of service, and accrued vacation, illness and personal time as of the Closing Date; and (ii) consultants involved primarily in the operations and activities of the Colorado Facility or the Business and such person’s compensation arrangements.

5.6 Employee Benefit and Compensation Plans and Programs

Section 5.6 of the Seller Disclosure Schedule contains a true and complete list of each bonus, deferred compensation, incentive compensation, stock purchase, stock option, employment, consulting, severance or termination pay, hospitalization or other medical, dental, life or other insurance, supplemental unemployment benefits, profit-sharing, pension or retirement plan, program, agreement or arrangement, and each other program, agreement or arrangement, whether formal or informal, written or oral, which relates to employee benefits sponsored, maintained or contributed to, or required to be contributed to, for the Colorado Facility by Seller. Seller has heretofore delivered or made available to the Purchaser true and complete copies of any of such plans, programs, agreements or arrangements that apply to any of the Employees identified in Section 5.5(f) of the Seller Disclosure Schedule or are otherwise applicable to the Business or the Colorado Facility.

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5.7 Contracts and Arrangements

(a) Section 2.1 of the Seller Disclosure Schedule sets forth all Contracts related to or affecting the operation of the Business, the operations or activities of the Colorado Facility or the Purchased Assets.

(b) There is not, under any Seller Contract, any default or event that, with notice or lapse of time or both, would constitute a default on the part of Seller, except such events of default and other events as to which requisite waivers or consents have been obtained.

(c) There is no Governmental Approval required to conduct the Colorado Facility as presently conducted.

(d) All Seller Contracts and any other obligations included in the Purchased Assets are in full force and effect. Seller has not assigned or otherwise transferred any of its rights or obligations under any Seller Contract or other obligation and is in no way restricted from fully enforcing its rights thereunder. Seller has no Knowledge of any termination, cancellation, limitation or modification by any other party thereto of the terms of any Seller Contract or other obligation.

(e) The Seller Contracts constitute all of the Contracts necessary to enable Seller to operate at the Colorado Facility and to conduct the Business as currently operated or conducted.

(f) Section 5.7(f) of the Seller Disclosure Schedule contains a complete and accurate list of all obligations of Seller to deliver products or to provide services from and after the Closing Date under the Seller Contracts, including identification of the required product or service, the number of units, if any, to be delivered and the applicable date of delivery or service; Seller has no other obligations to deliver any products or provide any services under the Seller Contracts, and Purchaser shall assume or acquire hereunder no other obligations to deliver any products or provide any services.

(g) The assignment to Purchaser of any of the Seller Contracts will not result in Purchaser being bound by, or subject to, any non-compete or other restriction on the operation or scope if its businesses, including the Business.

5.8 Legal Proceedings

There is no Proceeding pending or, to Seller’s Knowledge, threatened, against Seller relating to the Business, the operations or activities of the Colorado Facility or the Purchased Assets before any Governmental Authority. Except as set forth on in Section 5.8 of the Seller Disclosure Schedule, Seller is not subject to any outstanding judgment, rule, order, writ, injunction or decree of any Governmental Authority relating to the Business, the operations or activities of the Colorado Facility or the Purchased Assets. Seller is not in default with respect to any judgment, order, writ, injunction or decree of any court or Governmental Authority.

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5.9 Compliance with Law

The Business and the operations and activities of the Colorado Facility are, and have been, conducted and operated in accordance with Applicable Law and any order, writ, injunction or decree of any Governmental Authority. Seller has all permits, certifications, licenses, approvals, orders, consents and other authorizations of any Governmental Authority necessary to conduct the Business and the operation of the Colorado Facility as currently conducted (collectively, the “Permits”) and each such Permit is in full force and effect. The Colorado Facility is not in material violation of the terms of any Permit.

5.10 Taxes

(a) There are no liens for Taxes on the Colorado Facility or Purchased Assets, other than liens for Taxes not yet due. All Tax Returns concerning or related to the Business, the Colorado Facility or the Purchased Assets have been timely filed. With respect to all amounts of Taxes imposed on the Business, the Colorado Facility or the Purchased Assets or for which the Business, the Colorado Facility or the Purchased Assets or Seller is or could be liable, whether to taxing authorities or to other persons or entities with respect to all taxable periods or portions of periods ending on or before the Closing Date, all applicable Tax laws and agreements have been fully complied with, and all such amounts relating to the Business and the Colorado Facility of Seller required to be paid by Seller to taxing authorities or others on or before the date hereof have been paid. Seller is a United States person within the meaning of the Code.

(b) No issues have been raised, or are currently pending, by any taxing authority in connection with any of the Tax Returns of Seller related to the Business, the Colorado Facility or the Purchased Assets. There are no pending or, to the Knowledge of Seller, threatened, audits, reassessments, investigations or claims for, or relating to, any material additional liability of Seller in respect of Taxes related to the Business, the Colorado Facility or the Purchased Assets. No claim has ever been made by any Governmental Authority in a jurisdiction where Seller does not file Tax Returns relating to the Business, the Colorado Facility or the Purchased Assets that it is or may be subject to taxation by that jurisdiction.

(c) Seller has treated itself as owner of each of the Purchased Assets for Tax purposes. None of the Purchased Assets is the subject of a “safe-harbor lease” within the provisions of former Section 168(f)(8) of the Code, as in effect prior to amendment by the Tax Equity and Fiscal Responsibility Act of 1982. None of the Purchased Assets directly or indirectly secures any debt the interest on which is tax exempt under Section 103(a) of the Code. None of the Purchased Assets is “tax exempt use property” within the meaning of Section 168(h) of the Code.

5.11 Intellectual Property; Intangible Assets

(a) Section 5.11(a) of the Seller Disclosure Schedule lists all patents, patent applications, trademarks, service marks, trade names, domain names, copyrights, and other similar rights, whether issued or pending, used by Seller in connection with (or which cover) the activities conducted by Seller at the Colorado Facility in connection with the manufacture of synthesized oligonucleotides or the provision of related services (which, together with all general know-how, customer lists, designs, manufacturing or other processes, computer software,

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systems, data compilations, research results and other information relating to, or used in performing, the activities conducted by Seller at the Colorado Facility not specifically listed on Section 5.11(a) of the Seller Disclosure Schedule, constitute the “Facility Intellectual Property”) specifying in each case whether, immediately prior to the Closing, such Facility Intellectual Property is owned or controlled by or for the Seller or licensed to the Seller. Seller has the right to use, without infringing the rights of others, all Facility Intellectual Property. As of the Closing, Seller will have assigned to Purchaser all of Seller’s rights, title and interest in, to and under any and all Facility Intellectual Property, or duly licensed such Facility Intellectual Property to Purchaser (as the case may be), as part of the Purchased Assets. All trade secrets, know-how, information, processes and the other items listed in the parenthetical above which are used in the activities conducted by Seller at the Colorado Facility are owned by and fully assignable to Purchaser hereunder and are included in the Purchased Assets.

(b) Each item of Facility Intellectual Property (i) is valid, subsisting and in full force and effect, (ii) has not been abandoned or passed into the public domain and (iii) is free and clear of any Encumbrances, other than Permitted Encumbrances. Seller has no Knowledge of any facts, circumstances or information that (A) would render any Facility Intellectual Property invalid or unenforceable, (B) would adversely affect any pending application for any Facility Intellectual Property right, or (C) would adversely affect or impede the ability of Seller to use any Facility Intellectual Property. All licenses and other agreements under which Seller holds or licenses Facility Intellectual Property are in full force and effect, and there is no material default by Seller or, to Seller’s Knowledge, any other party thereto. Complete and accurate copies of all such material license and other agreements, and any amendments thereto, have been made available to the Purchaser. Except as set forth on Section 5.11(b) of the Seller Disclosure Schedule, all of patents, patent applications, registered trademarks, trademark applications and registrations and registered copyrights listed on Section 5.11(a) of the Seller Disclosure Schedule have been duly registered in, filed in or issued by the United States Patent and Trademark Office, the United States Register of Copyrights, or the corresponding offices of other jurisdictions and have been properly maintained and renewed in accordance with all applicable provisions of law and administrative regulations in the United States and each such jurisdiction. There are no actions that must be taken by Seller within 60 days following the Closing, including any payment of any fees or the filing of any responses to office actions, documents, applications or certificates for the purpose of obtaining, maintaining, perfecting, preserving or renewing any such patents, patent applications, registered trademarks, trademark applications and registrations and registered copyrights.

(c) Except as disclosed in Section 5.11(c) of the Seller Disclosure Schedule, no Facility Intellectual Property is subject to any proceeding or any outstanding decree, order, judgment, office action or settlement agreement or stipulation that restricts in any manner the use, assignment, transfer or licensing thereof by Seller as provided hereunder or that may affect the validity, use or enforceability of such Facility Intellectual Property.

(d) All licenses or other agreements under which Seller has granted rights to other Persons in the Facility Intellectual Property are listed on Section 5.11(d) of the Seller Disclosure Schedule. All of such licenses and other agreements are in full force and effect and there is no material default by Seller or, to Seller’s Knowledge, by any other party thereto. Complete and accurate copies of all such licenses and other agreements, and any amendments thereto, have been made available to the Purchaser.

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(e) Except as set forth on Section 5.11(e) of the Seller Disclosure Schedule, operation of the Colorado Facility and the conduct of the Business as presently operated and conducted, and ownership of the Purchased Assets, do not cause Seller and will not cause Purchaser, when operated and conducted by Purchaser substantially in the same manner following the Closing, to infringe or misappropriate any intellectual property rights of any other Person. To Seller’s Knowledge other than is herein disclosed, no proceeding charging Seller with infringement or misappropriation of any intellectual property rights of any other Person has been filed or, to Seller’s Knowledge, is threatened, nor does Seller have Knowledge of basis therefor. To Seller’s Knowledge, Seller is not making any unauthorized use of any confidential information or trade secrets of any Person in connection with the operation of the Colorado Facility or conduct of the Business.

(f) Except as set forth on Section 5.11(f) of the Seller Disclosure Schedule, there are no agreements, commitments or arrangements under which Seller (with respect to the operation of the Colorado Facility or the conduct of the Business), or upon and immediately following the Closing (or as a result of the consummation of the transactions contemplated by this Agreement), under which the Purchaser or any of its Affiliates, is or would be obligated or liable to (i) pay royalties, license fees, milestones or other payments in consideration for rights to Intellectual Property, (ii) indemnify, defend or hold harmless any third party, (iii) provide representations or warranties for any products or services or in regards to Facility Intellectual Property or the absence of any infringement or misappropriation thereof, (iv) grant any rights or licenses, or transfer or assign any Facility Intellectual Property or technology, to any third party (including in regards to improvements) beyond the licenses granted in the agreements disclosed under Section 5.11(c) prior to the Closing, or (v) refrain from competing or engaging in any business activity. The consummation of the transactions contemplated by this Agreement shall not restrict, rescind, result in any loss of, impose any Encumbrances upon or otherwise limit the Facility Intellectual Property transferred or licensed to Purchaser hereunder.

(g) Seller has taken all necessary action to maintain and protect the Facility Intellectual Property, including the secrecy, confidentiality, value and Seller’s rights in confidential information and trade secrets of Seller, including by having and enforcing a policy requiring all current and former employees, consultants and contractors of Seller working at the Colorado Facility or involved in the Business to execute appropriate confidentiality and assignment agreements. True and accurate copies thereof shall be delivered to Purchaser on or before Closing. Seller has no Knowledge of any violation or unauthorized disclosure of any trade secret or confidential information related to the Colorado Facility, the Purchased Assets or the Business, or obligations of confidentiality with respect to such.

(h) Each item of Facility Intellectual Property either (i) is exclusively owned by Seller and was created, invented or discovered solely by employees of Seller acting within the scope of their employment or third parties, all of which employees and third parties have validly and irrevocably assigned all of their rights, including intellectual property rights therein, to Seller, and no third party owns or has any rights to any such Intellectual Property, or (ii) is duly and validly licensed to Seller for use in the manner currently used by Seller in the operation of the Colorado Facility or conduct of the Business. All Facility Intellectual Property will be fully transferable and/or licensable (as applicable) by Purchaser without restriction and without payment of any kind to any third party.

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5.12 Brokers; Finders’ Fees

Except for Goldsmith, Agio, Helms & Lynner, LLC (“GAHL”), there is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf either of Seller or the Colorado Facility who is entitled to any fee or commission from Seller in connection with the transactions contemplated by this Agreement. Any fees owed by Seller to GAHL in connection with the transactions contemplated by this Agreement shall be paid by Seller to GAHL on or prior to the Closing Date.

5.13 Financial Statements

(a) Seller has made available to Purchaser the following financial statements (collectively, the “Financial Statements”):

(i) the consolidated audited balance sheet as of December 31, 2003, and the related consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows, of Seller for the fiscal year ended December 31, 2003, together with the notes thereto;

(ii) the consolidated unaudited balance sheet, and the related unaudited consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows, of Seller as of and for the six months ended June 30, 2004; and

(iii) the balance sheets and related statements of operations of the Colorado Facility as of and for the year ended December 31, 2003 and the six months ended June 30, 2004

(b) All of the Financial Statements (i) have been prepared in accordance with GAAP, (ii) are correct and complete and in accordance with the books and records of Seller as at the dates and for the periods covered thereby, and (iii) fairly present the financial condition and results of operations of the Business and the Colorado Facility as of the dates and for the periods indicated.

5.14 Inventory

All of the items in Seller’s Inventory are:

(a) valued on Section 5.14(a) of the Seller Disclosure Schedule at the lower of cost or market value in accordance with GAAP;

(b) of good and merchantable quality, fit for the purpose for which they are intended, and saleable and useable in the ordinary course of business;

(c) free of defects and damage; and

(d) in quantities adequate and not excessive in relation to the operations and activities of the Colorado Facility and Business and in accordance with Seller’s past inventory stocking practices. All of the items in Seller’s Inventory meet Seller’s current standards and specifications.

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5.15 Condition of Assets

The Purchased Assets, including the Facility Intellectual Property, together with the assets subject to the GE Capital Lease, upon assignment to Purchaser of the Real Estate Lease, are sufficient for operation of the Colorado Facility and the conduct of the Business as currently operated or conducted. All of the Purchased Assets are and have been maintained in good working condition and repair, subject only to normal wear and tear and conform to all Applicable Law.

5.16 Title to Purchased Assets

Seller has good and marketable fee simple title to all of the Purchased Assets. None of the Purchased Assets is subject to any Encumbrance other than a Permitted Encumbrance. A copy of all documents evidencing each Encumbrance, including all indebtedness related thereto and the payment terms thereof, has been delivered to Purchaser. Seller has performed all the obligations required to be performed by it with respect to all assets leased by it through the date hereof, except where the failure to perform would not in any material respect interfere with or impair the present and continued use thereof in the usual and normal conduct of the Business or operation of the Colorado Facility. Upon the Closing, the Purchaser will have good and marketable fee simple title to all of the Purchased Assets, free and clear of all Encumbrances other than Permitted Encumbrances.

5.17 Facilities

Subject to the terms of the Real Estate Lease for the Colorado Facility, Seller enjoys peaceful and undisturbed possession of the Colorado Facility, and the Colorado Facility is not subject to any Encumbrances, encroachments, building or use restrictions, exceptions, reservations, or limitations, other than Permitted Encumbrances. There are no pending or, to the Knowledge of Seller, threatened condemnation proceedings relating to any part of the Colorado Facility.

5.18 Leases, Premises

(a) The Real Estate Lease pursuant to which Seller leases the Colorado Facility is legally valid and binding, is in full force and effect and enforceable by Seller in accordance with their terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditor’s rights generally. There is no existing default or event of default (or event that, with notice or lapse of time or both, would constitute a default or an event of default) under, or material breach by Seller or, to the Knowledge of Seller, by any other party thereto, of the Real Estate Lease for the Colorado Facility. To the Knowledge of Seller, such leased property is and has been maintained in good working condition and repair, subject to normal wear and tear.

(b) The Colorado Facility is not located within a designated erosion, flood or seismic safety hazard area. Neither the whole nor any portion of the Colorado Facility has been condemned, requisitioned or otherwise taken by any Governmental Authority and no notice of any such condemnation, requisition or taking has been received. To the Knowledge of Seller, no such condemnation, requisition or taking is threatened or contemplated. Seller has no

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Knowledge of any public improvements that may result in special assessments against or otherwise affect the Colorado Facility

(c) The Colorado Facility is in compliance with all applicable planning, zoning, building, health, fire, water, use or similar Applicable Law. The zoning of the Colorado Facility permits the existing improvements and, following consummation of the transaction contemplated hereby, the continuation of the Business as currently conducted. Seller has all licenses, certificates of occupancy, permits and authorizations required to conduct the Business and to operate the Colorado Facility as currently conducted or operated. Seller has all easements and rights necessary to conduct the Business and operate the Colorado Facility as currently conducted or operated, including easements for all utilities, services, roadway, railway and other means of ingress and egress. The Colorado Facility includes all rights to any off-site facilities necessary to ensure compliance in all material respects with all planning, zoning, building, health, fire, water, use or similar Applicable Law. To the Knowledge of Seller, no fact or condition exists that would result in the termination or impairment of access to the Colorado Facility or discontinuation of sewer, water, electric, gas, telephone or other communications facilities, waste disposal or other utilities or services. To the Knowledge of Seller, the facilities servicing the Colorado Facility are in full compliance with all Applicable Law.

5.19 Insurance

Section 5.19 of the Seller Disclosure Schedule sets forth a complete and accurate list of all casualty, business interruption, directors and officers liability, general liability, workers’ compensation and other types of insurance currently maintained by or for the benefit of Seller, together with the names of the policyholder, carriers and insureds, additional insureds and loss payees, and the liability limits and expiration date for each such policy (the “Insurance Policies”). Seller has continuously maintained in effect general liability and product liability insurance with respect to the Colorado Facility since at least August 23, 2002, the date Seller commenced operations at the Colorado Facility. Each of the Insurance Policies (a) is in full force and effect; (b) insures Seller against the risks indicated; and (c) provides coverage as may be required by applicable regulation and by any and all contracts concerning the Colorado Facility to which Seller is a party. Seller is not in default under any of the Insurance Polices, and Seller has not failed to give any notice or to present any claims under any Insurance Policy in due and timely fashion. Copies of all the Insurance Policies have been made available to Purchaser for its inspection.

5.20 No Other Agreements to Sell

Seller has no other obligation, absolute or contingent, to any other person or firm to sell or otherwise transfer the Purchased Assets, to effect any merger, consolidation or other reorganization of Seller or to grant or issue any license or other rights with respect to the Purchased Assets or the Colorado Facility or to enter into any agreement with respect to any of the foregoing.

5.21 Warranty and Product Liability Matters

Section 5.21 of the Seller Disclosure Schedule sets forth a list and summary of liability or warranty claims made against Seller with respect to the Business, the Colorado

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Facility or any products manufactured at the Colorado Facility since January 1, 2004 or otherwise outstanding on the date hereof. Except as set forth in Section 5.21 of the Seller Disclosure Schedule, Seller has not had nor does Seller have any liability (and, to Seller’s Knowledge, there is no reasonable basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against it giving rise to any liability) arising out of any injury to individuals or property as a result of the ownership, possession or use of any of the Purchased Assets manufactured, sold or delivered by Seller.

5.22 Environmental

(a) Seller is in compliance with all laws, rules and regulations relating to environmental protection with respect to, or affecting the Business and the ownership, leasing and operation of the Colorado Facility and the Purchased Assets as presently conducted. Seller has not been notified that it is potentially liable for costs incurred by any Person as a result of a release of Hazardous Materials (as defined in Section 5.22(f)) or threat thereof under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or any similar environmental law, whether federal, state, county, municipal, local or foreign, with respect to, or affecting, the Business, the Colorado Facility or the Purchased Assets.

(b) Seller has not entered into, or received, any consent decree, compliance order, or administrative order relating to environmental protection.

(c) Seller has not entered into, or received, nor is Seller in default under, any judgment, order, writ, injunction, or decree of any Governmental Authority applicable to Seller, the Business, the Colorado Facility or the Purchased Assets and relating to environmental protection. Seller has not received notice of any lien which has arisen on or against any of its assets under federal, state, county, municipal, local or foreign laws, rules, or regulations relating to environmental protection.

(d) Seller has all permits, licenses, and other authorizations required for the operation of the Colorado Facility and conduct of the Business under federal, state, county, municipal, local and foreign laws relating to the protection of the environment and occupational health and safety (“Environmental Permits”), and each such Environmental Permit is in full force and effect and, to the Knowledge of Seller, will remain in full force and effect after the execution, delivery and performance of this Agreement and the transactions contemplated hereby. Section 5.22 of the Seller Disclosure Schedule contains a complete list and description of each Environmental Permit, if any.

(e) Seller has not received notice, nor does Seller have any Knowledge, of any suit, action, claim, investigation, inquiry, or proceeding pending or threatened by any Person or Governmental Authority against or affecting Seller, the Business, the Colorado Facility or the Purchased Assets relating to any environmental matter, and, to Seller’s Knowledge, no conditions or circumstances exist that (with or without the lapse of time or both) could directly or indirectly give rise to, or serve as the basis for, any such suit, action, claim, investigation, inquiry, or proceeding.

(f) Neither Seller, any of its employees, officers, agents or representatives, nor, to the Knowledge of Seller, any other person has, by any act or omission, disposed, emitted,

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discharged, released, or placed any hazardous or toxic substances, pollutants, contaminants, petroleum or petroleum-like products, gas products or asbestos-containing materials, which are regulated under, require special handling or may give rise to liability pursuant to any federal, state or local law, or regulation concerning environmental protection or human health and safety (collectively, the “Hazardous Materials”) on, at or in the Colorado Facility in any manner that was in violation of applicable law or that could otherwise give rise to liability under any law relating to environmental protection. To Seller’s Knowledge, no release or discharge of Hazardous Materials has occurred at, in or on, or is migrating to or from, the Colorado Facility.

ARTICLE VI

REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser hereby represents and warrants to Seller as follows:

6.1 Organization

Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own, lease and operate its properties and to carry on operations of its business as now being conducted. Purchaser has all necessary consents, authorizations, approvals, orders, licenses, certificates and permits of and from, and declarations and filings with, all Governmental Authorities to own, lease, license and use its properties and assets and to carry on operation of its business as now being conducted, except where the failure to be so authorized, qualified or licensed would not have a material adverse effect on the operations of Purchaser’s business.

6.2 Authority Relative to This Agreement

Purchaser has full corporate power and authority to execute and deliver this Agreement and the other Transaction Documents and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized by the Purchaser, and no other corporate proceedings on the part of the Purchaser are necessary to authorize this Agreement or the other Transaction Documents or to consummate the transactions contemplated hereby or thereby. This Agreement has been, and at Closing the other Transaction Documents will be, duly executed and delivered by the Purchaser, and assuming due authorization, execution and delivery by Seller, constitute or will constitute valid and binding agreements of the Purchaser, enforceable against the Purchaser in accordance with their terms, except as may be limited by (a) bankruptcy, insolvency, moratorium or other similar laws affecting or relating to enforcement of creditors’ rights generally, or (b) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity).

6.3 Consents and Approvals; No Violation

None of the execution and delivery of this Agreement and the other Transaction Documents by the Purchaser, the consummation by Purchaser of the transactions contemplated by this Agreement and the other Transaction Documents or the compliance of Purchaser with the provisions of this Agreement and the other Transaction Documents will (a) conflict with or result in any breach of any provision of the organizational documents of Purchaser; (b) require any

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consent, approval, waiver or filing with or notification to any Governmental Authority; (c) require any consent under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, agreement, lease or other instrument or obligation to which Purchaser or any of its Subsidiaries are a party or by which any of its respective assets may be bound; or (d) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Purchaser, or any of its assets, except in the case of clauses (b), (c) or (d) for violations which would not individually or in the aggregate reasonably be expected to prevent or materially delay the consummation of the transactions contemplated hereby.

6.4 Legal Proceedings, etc.

There are no claims, actions or proceedings pending or, to the Knowledge of Purchaser, investigations pending or threatened against Purchaser before any Governmental Authority, which, if adversely determined, could prevent or materially delay the consummation of the transactions contemplated hereby. Purchaser is not subject to any outstanding judgment, rule, order, writ, injunction or decree of any Governmental Authority that could prevent or materially delay the consummation of the transactions contemplated hereby.

6.5 Brokers, Finders’ Fees

There is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of Purchaser who is entitled to any fee or commission from Purchaser in connection with the transactions contemplated by this Agreement.

ARTICLE VII

COVENANTS OF THE PARTIES

7.1 Access to Information; Confidentiality

(a) For one year following the Closing Date, Seller and its representatives shall have reasonable access to and (ii) any of the Books and Records related primarily to the Business, the Colorado Facility and/or the Purchased Assets, as the case may be, transferred to the Purchaser hereunder to the extent that such access may reasonably be required by Seller in connection with matters relating to or affected by the Business, operation of the Colorado Facility or the Purchased Assets prior to the Closing Date or the Excluded Assets. Such access shall be afforded by the Purchaser upon receipt of reasonable advance notice and during normal business hours.

(b) From and after the Closing Date, except as otherwise provided in Section 7.4 or in connection with filing any Tax Return or other required governmental filing, Seller shall hold, and will cause its officers, directors, employees, representative, consultants and advisors to hold in confidence all documents and information related the Business, the Colorado Facility and the Purchased Assets.

7.2 Expenses

Each party shall pay its own accountants, attorneys’ and other fees and costs incurred in connection with the transactions contemplated by this Agreement. Seller shall be solely responsible for all fees and expenses of GAHL.

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7.3 Further Assurances

From time to time after the date hereof, without further consideration, Seller will, at its own expense, execute and deliver such documents to the Purchaser as the Purchaser may reasonably request in order more effectively to vest in the Purchaser good title to the Purchased Assets. From time to time after the date hereof, the Purchaser will, at its own expense, execute and deliver such documents to Seller as Seller may reasonably request in order to more effectively consummate the sale of the Purchased Assets and the assumption of the Assumed Liabilities pursuant to this Agreement.

7.4 Public Statements

The parties shall endeavor to make only those press releases, public filings and other public disclosures related to the transactions contemplated by this Agreement as are required by law; provided, that no press release or other public disclosure shall be made without a minimum of 24 hours’ prior consultation with the other party.

7.5 Tax Matters

Purchaser and Seller agree to furnish or cause to be furnished to each other, promptly upon request, any information and assistance relating to the Colorado Facility and the Purchased Assets as the requesting party deems reasonably necessary in connection with the filing of any Tax Return, the preparation for any audit by any Governmental Authority, the mailing or filing of any notice and the prosecution or defense of any claim, suit or proceeding relating to any Tax Return or any other matter related to Taxes. Purchaser and Seller shall cooperate with each other in the conduct of any audit or other proceeding related to Taxes involving the Colorado Facility and the Purchased Assets prior to the Closing. The Purchaser further agrees to (i) retain within its possession the Books and Records related primarily to the Colorado Facility and all other information regarding Taxes relating to the Colorado Facility and the Purchased Assets for any taxable period or portion thereof ending on or before the Closing (the “Tax Information”) until the expiration of the statute of limitations applicable to Seller for such taxable periods (giving effect to any waiver or extension thereof), and (ii) maintain the Tax Information in such manner so as to enable Seller to have reasonable access thereto.

7.6 Collection of Accounts Receivable

The parties hereby authorize each other to collect any pre-Closing Date Accounts Receivable on Seller’s behalf and any post-Closing Date Accounts Receivable on Purchaser’s behalf. Upon collection of any such Account Receivable, the party collecting the amount due on behalf of the other party shall remit the proceeds so collected immediately, but in no event later than seven Business Days after receipt to the party entitled to receive the proceeds of the collection.

7.7 Employees

(a) The Purchaser shall offer employment with the Purchaser commencing on the Closing Date to designated Employees employed by Seller at the Colorado Facility on the Closing Date in connection with the operation of the Colorado Facility at salaries not less than their current salaries and provide to such Employees benefits pursuant to the Purchaser’s usual

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and customary benefit plans and programs applicable to similarly situated employees of the Purchaser. Notwithstanding the foregoing, nothing in this Section 7.7 shall create any right or interest except as between the parties to this Agreement, and no former, present or future Employee of Seller or its Affiliates (or any dependents of such individuals) will be treated as a third-party beneficiary in or under the provisions of this Agreement.

(b) Seller agrees to provide any required notice under the WARN Act and any other applicable law and to otherwise comply with any such statute with respect to any “plant closing” or “mass layoff” (as defined in the WARN Act) or similar event affecting employees and occurring on or after the Closing Date as a result of the transactions contemplated hereby. Seller shall indemnify and hold harmless the Purchaser as provided in Section 9.2(a) of this Agreement against all losses relating to, resulting from or arising out of the WARN Act or any similar state plant closing law arising from the actions (or inactions) of Seller or its Affiliates; and Purchaser shall indemnify and hold harmless the Seller as provided in Section 9.2(b) against all losses relating to, resulting from or arising out of the WARN Act or any similar state plant closing law arising from the actions (or inactions) after the Closing of Purchaser or its Affiliates.

7.8 Transfers Not Effected as of Closing

Nothing herein shall be deemed to require the conveyance, assignment or transfer of any Purchased Asset that by its terms or by operation of law cannot be freely conveyed, assigned, transferred or assumed. To the extent the parties hereto have been unable to obtain consent or approval required for the transfer of any Purchased Asset and such consent or approval is waived as a condition of closing, the parties hereto shall continue to use their commercially reasonable best efforts to obtain all such unobtained consents or approvals at the earliest practicable date. The Transition Services Agreement sets forth the parties’ initial determination of the consents or approvals that they will use such commercially reasonable best efforts to obtain after the Closing. The parties shall execute such good and sufficient instruments as may be necessary to evidence such assignment and assumption. Between the Closing Date and the date any consent or approval is obtained as required, subject to the terms of the applicable agreement and to the extent permitted by law, the parties will use their commercially reasonable efforts to (i) provide to Purchaser the benefits of the applicable agreement, (ii) to the extent possible, relieve Seller of the performance obligations of the applicable agreement, (iii) cooperate in any reasonable and lawful arrangement designed to provide the benefits to the Purchaser, including entering into subcontracts for performance, and (iv) enforce at the request and sole expense of the Purchaser and for the account of the Purchaser any rights of Seller arising from any such agreement (including the right to elect to terminate such agreement in accordance with the terms thereof upon the request of the Purchaser).

7.9 License

(a) Effective as of the Closing Date, Seller hereby grants to Purchaser and its Affiliates a non-exclusive, worldwide, fully paid up royalty free, irrevocable license to make, use, practice and exploit any patents, patent applications, copyrights, trade secrets, or know-how (collectively, the “Intellectual Property”) owned or controlled by Seller, to the extent not already assigned to Purchaser as part of the Purchased Assets, that was developed, created or invented at the Colorado Facility prior to or as of the Closing. This license shall be assignable and transferable in connection with the sale or transfer of, or to any successor in interest gaining

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ownership over, the Colorado Facility or substantially all the assets and activities of Purchaser existing at the Colorado Facility.

(b) Effective as of the Closing Date, Seller hereby grants to Purchaser and its Affiliates a non-exclusive, worldwide, fully paid up royalty free, irrevocable license to make, use, practice and exploit any Intellectual Property owned or controlled by Seller, or licensed to Seller with the right to license to Purchaser hereunder, (i) which is required to be made, used, practiced or exploited to perform Purchaser’s obligations under any Seller Contracts and/or extensions and amendments thereof (so long as such extensions or amendments do not materially change the nature and type of work to be performed thereunder); (ii) which is required to be made, used, practiced or exploited to manufacture and supply the products being manufactured for or supplied to Purchaser prior to Closing (or pursuant to any orders or agreements with Purchaser or its Affiliates as of the Closing) and otherwise to manufacture Macugen; or (iii) which was made, used, practiced or exploited on or prior to the Closing in the course of the activities and operations conducted by the Seller at the Colorado Facility in connection with the manufacture of synthesized oligonucleotides or the provision of related services (including any patents issued after the Closing that claim priority back to any patents or patent applications included within such Intellectual Property); provided that, for the avoidance of doubt, such license in clause (iii) shall be limited to future conduct by Purchaser or its Affiliates of the same types of activities and operations undertaken by Seller at the Colorado Facility relating to the manufacture of synthesized oligonucleotides or the provision of related services and shall exclude all rights to make, use, practice or exploit Intellectual Property for the manufacture or production of any oligonucleotide synthesis reagents, raw materials, amidates, amidites, or any other aspects of the manufacture or production of such synthetic nucleic acid building blocks made, used, practiced or exploited by Seller at its other facilities.

7.10 Delivery of Certain Purchased Assets

The parties agree that Purchaser and Seller shall share equally the costs up to $55,000 of moving and installing at the Colorado Facility the Purchased Assets identified on Section 7.10 of the Seller Disclosure Schedule ; provided that (i) such costs in excess of $55,000 shall be paid by Purchaser and (ii) Seller shall indemnify Purchaser in accordance with Section 9.2. for any damage to such Purchased Assets incurred or suffered between the date hereof and the delivery thereof in excess of any insurance proceeds received in respect of such damage.

ARTICLE VIII

CLOSING CONDITIONS

8.1 Conditions to Obligations of the Parties

The respective obligations of each party to effect the transactions contemplated hereby shall be subject to the fulfillment at or prior to the Closing Date of the following conditions:

(a) No preliminary or permanent injunction or other order or decree by any Governmental Authority which prevents the consummation of the transactions contemplated hereby shall have been issued and remain in effect (each party agreeing to use its commercially reasonable best efforts to have any such injunction, order or decree lifted) and no statute, rule or

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regulation shall have been enacted by any Governmental Authority which prohibits the consummation of the transactions contemplated hereby; and

(b) All consents and approvals of Governmental Authorities required for the consummation of the transactions contemplated hereby shall have become Final Orders with such terms and conditions as shall have been imposed by the Governmental Authority issuing such Final Order.

8.2 Conditions to Obligations of Purchaser

The obligation of the Purchaser to effect the transactions contemplated by this Agreement shall be subject to the fulfillment at or prior to the Closing Date of the following additional conditions:

(a) Purchaser shall have received a Phase I/Phase II environmental report that will indicate that the real property on which the Colorado Facility is located is free from soil, surface water and groundwater contamination, hazardous wastes and other environmental defects or is otherwise satisfactory to Purchaser, in its reasonable discretion;

(b) Seller shall have performed and complied with, in all material respects, the covenants and agreements contained in this Agreement that are required to be performed and complied with by it on or prior to the Closing Date;

(c) All of the representations or warranties of Seller set forth in this Agreement or in any written statement or certificate that shall be delivered to Purchaser by Seller under this Agreement that are qualified by materiality or Material Adverse Effect shall be true and correct, and the representations and warranties of the Seller set forth in the Agreement that are not so qualified shall be true and correct in all material respects, in each case, as of the date of this Agreement and as of the Closing Date (except to the extent such representations and warranties speak as of a specific date or as of the date hereof, in which case such representations and warranties shall be true and correct or true and correct in all material respects, as the case may be, as of such specific date or as of the date hereof, respectively);

(d) Seller shall have obtained at or prior to the Closing all consents required to be obtained by it pursuant to this Agreement from any party to any Seller Contract to which it is a party or to which any Purchased Asset is subject;

(e) The Purchaser shall have received a certificate from an authorized officer of Seller, dated the Closing Date, to the effect that, the conditions set forth in this Section 8.2 have been satisfied;

(f) The Purchaser shall have received acceptances of its offers of employment to all persons to whom it offered employment;

(g) The Purchaser shall have received an executed assignment and assumption with respect to the Real Estate Lease in the form attached hereto as Exhibit C;

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(h) The Purchaser shall have entered into a lease with GE Capital, on such terms and conditions as are reasonably acceptable to the Purchaser, for those Purchased Assets that were subject to the GE Capital Lease immediately prior to the Closing; and

(i) Purchaser shall have received all the deliverables identified in Section 4.2.

8.3 Conditions to Obligations of Seller

The obligation of Seller to effect the transactions contemplated by this Agreement shall be subject to the fulfillment at or prior to the Closing Date of the following additional conditions:

(a) The Purchaser shall have performed and complied in all material respects their covenants and agreements contained in this Agreement that are required to be performed on and complied with by it or prior to the Closing Date;

(b) All of the representations or warranties of the Purchaser set forth in the Agreement that are qualified by materiality or Material Adverse Effect shall be true and correct, and the representations and warranties of the Purchaser set forth in the Agreement that are not so qualified shall be true and correct in all material respects, in each case, as of the date of this Agreement and as of the Closing Date (except to the extent such representations and warranties speak as of a specific date or as of the date hereof, in which case such representations and warranties shall be true and correct or true and correct in all material respects, as the case may be, as of such specific date or as of the date hereof, respectively); and

(c) Seller shall have received a certificate from an authorized officer of the Purchaser, dated the Closing Date, to the effect that the conditions relating to the Purchaser and set forth in this Section 8.3 have been satisfied.

(d) Seller shall have received all of the deliverables of Purchaser identified in Section 4.3.

ARTICLE IX

SURVIVAL AND INDEMNIFICATION

9.1 Survival

(a) All representations and warranties in this Agreement or any other Transaction Document shall survive the Closing until the first anniversary of the Closing Date (including the dates provided in clauses (i) and (ii), the “Survival Date”); provided, that:

(i) all representations and warranties of Seller contained in Section 5.22 shall survive until 30 days after expiration of all applicable statutes of limitations relating to such representations and warranties; and

(ii) any claim for indemnification based upon a breach of any such representation or warranty and asserted prior to the applicable Survival Date by written notice in accordance with Section 9.3 shall survive until final resolution of such claim.

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(b) The representations and warranties contained in this Agreement (and any right to indemnification for breach thereof) shall not be affected by any investigation, verification or examination by any party hereto or by any authorized representative of any such party or by any such party’s Knowledge of any facts with respect to the accuracy or inaccuracy of any such representation or warranty.

9.2 Indemnification

(a) Subject to the limitations set forth in this Article IX, Seller will indemnify, defend and hold harmless the Purchaser from and against any and all claims, demands or suits, losses, liabilities, damages, obligations, payments, costs and expenses (including, without limitation, the costs and expenses of any and all actions, suits, proceedings, assessments, judgments, settlements and compromises relating thereto and reasonable attorneys’ fees and reasonable disbursements in connection therewith) (collectively, “Losses”), asserted against or suffered by Purchaser and each of its officers, directors, employees, stockholders, attorneys, agents, successors and assigns (collectively, the “Purchaser Group”) relating to, resulting from or arising out of (i) any breach of any warranty or the inaccuracy of any representation of Seller contained in this Agreement, (ii) any breach by Seller of any covenant in this Agreement or any failure of Seller to perform any of its obligations contained in this Agreement, or (iii) any Excluded Liability or any other liabilities of Seller or its Affiliates that are not expressly assumed by Purchaser pursuant to Section 2.3 hereof.

(b) Subject to the limitations set forth in this Article IX, Purchaser will indemnify, defend and hold harmless the Seller from and against any and all Losses asserted against or suffered by Seller and each of its officers, directors, employees, stockholders, attorneys, agents, successors and assigns (collectively, the “Seller Group”) relating to, resulting from or arising out of (i) any breach of any warranty or the inaccuracy of any representation of Purchaser contained in this Agreement, (ii) any breach by Purchaser of any covenant in this Agreement or any failure of Purchaser to perform any of its obligations contained in this Agreement and (iii) any of Purchaser’s obligations with respect to post-Closing liabilities of the Colorado Facility assumed by Purchaser under Section 2.3.

9.3 Procedures for Indemnification

(a) Promptly after receipt by a party entitled to indemnification hereunder (the “Indemnitee”) of written notice of the assertion or the commencement of any Proceeding by a third party with respect to any matter referred to in Section 9.2, the Indemnitee shall give written notice thereof to the party obligated to indemnify Indemnitee (the “Indemnitor”), which notice shall include a description of the Proceeding, the amount thereof (if known and quantifiable) and the basis for the Proceeding, and thereafter shall keep the Indemnitor reasonably informed with respect thereto; provided, that failure of the Indemnitee to give the Indemnitor notice as provided herein shall not relieve the Indemnitor of its obligations hereunder except to the extent that the Indemnitor is prejudiced thereby. A claim for indemnification for any matter not involving a third-party Proceeding may be asserted by notice to the party from whom indemnification is sought and shall be paid promptly after such notice.

(b) An Indemnitor shall be entitled to assume in the defense of any action, lawsuit, proceeding, investigation or other claim giving rise to an Indemnitee’s claim for

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indemnification at such Indemnitor’s expense by appointing a nationally recognized and reputable counsel reasonably acceptable to the Indemnitee to be the lead counsel in connection with such defense. Each Indemnitee shall have the right to employ separate counsel in such claim and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of each Indemnitee unless: (i) the Indemnitor has agreed to pay such expenses; or (ii) the Indemnitor has failed promptly to assume the defense and employ counsel reasonably satisfactory to such Indemnitee; or (iii) the named parties to any such action, claim or proceeding (including any impleaded parties) include an Indemnitee and such Indemnitee shall have been advised by counsel that either (x) there may be one or more legal defenses available to it which are different from or in addition to those available to the Indemnitor or (y) a conflict of interest may exist if such counsel represents such Indemnitee and the Indemnitor; provided, that, if such Indemnitee notifies the Indemnitor in writing that it elects to employ separate counsel in the circumstances described in clauses (ii) or (iii) above, the Indemnitor shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Indemnitor; provided, however, that the Indemnitor shall not, in connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be responsible hereunder for the fees and expenses of more than one such firm of separate counsel (in addition to any local counsel), which counsel shall be designated by such Indemnitee.

(c) If the Indemnitor assumes the defense of any such claim, the Indemnitor shall obtain the prior written consent of the Indemnitee before entering into any settlement of a claim or ceasing to defend such claim if, pursuant to or as a result of such settlement or cessation, injunctive or other equitable relief will be imposed against the Indemnitee or if such settlement does not expressly and unconditionally release the Indemnitee from all liabilities and obligations with respect to such claim with prejudice.

(d) A failure to give timely notice as provided in this Section 9.3 will not affect the rights or obligations of any party hereunder except if, and only to the extent that, as a result of such failure, the party which was entitled to receive such notice was actually prejudiced as a result of such failure.

9.4 Limitations on Indemnification; Application of Final Payment

(a) Notwithstanding anything herein to the contrary, Seller shall not be obligated to indemnify Purchaser under this Article IX:

(i) unless the aggregate of all Losses to Purchaser exceeds $30,000 (the “Seller’s Basket”), in which case the Purchaser shall be entitled to recover all Losses, including the amount equal to the Seller’s Basket; and

(ii) to the extent that the aggregate of all Losses to Purchaser exceeds $2,000,000 (the “Seller’s Indemnification Cap”);

provided, that the Seller’s Indemnification Cap and the Seller’s Basket shall not apply to any Seller indemnification obligation arising out of, relating to or resulting (x) from fraud or intentional misrepresentation by Seller, (y) under Section 9.2(iii) or (z) from a breach of any of Seller’s representations or warranties in Section 5.22.

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(b) Any payment to Purchaser in respect of any Loss shall first be made from the Escrowed Amount in accordance with the Escrow Agreement.

(c) Notwithstanding anything herein to the contrary, Purchaser shall not be obligated to indemnify Seller under this Article IX:

(i) unless the aggregate of all Losses to Seller exceeds $30,000 (the “Purchaser’s Basket”), in which case the Purchaser shall be entitled to recover all Losses, including the amount equal to the Seller’s Basket; and

(ii) to the extent that the aggregate of all Losses to Seller exceeds $2,000,000 (the “Purchaser’s Indemnification Cap”);

provided, that the Purchaser’s Indemnification Cap and the Purchaser’s Basket shall not apply to any Purchaser indemnification obligation arising out of, relating to or resulting from fraud or intentional misrepresentation by Purchaser.

9.5 Remedies Exclusive; Specific Performance

(a) The remedies provided for in this Article IX shall constitute the sole and exclusive remedy for any post-Closing claims made for breach of the representations and warranties contained in this Agreement or any of the Schedules or Exhibits attached hereto or in any of the certificates or other instruments or documents furnished by any party pursuant to this Agreement, except in the case of fraud.

(b) Notwithstanding Section 9.5(a), the parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement are not performed in accordance with their specific terms or were otherwise breached. Accordingly, it is agreed that the parties shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any state or federal court of the State of Delaware, in addition to any other remedy to which they are entitled at law or in equity.

ARTICLE X

MISCELLANEOUS PROVISIONS

10.1 Amendment and Modification

Subject to Applicable Law, this Agreement may be amended, modified or supplemented only by written mutual agreement of the Seller and Purchaser.

10.2 Waiver of Compliance

Except as otherwise provided in this Agreement, any failure of any of the parties to comply with any obligation, covenant, agreement or condition herein may be waived by the party entitled to the benefits thereof only by a written instrument signed by the party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.

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10.3 Notices

All notices and other communications hereunder shall be in writing and shall be deemed given (i) when delivered personally or by facsimile transmission or email or (ii) one day following the day when deposited with a reputable overnight courier or (iii) three days following the day when deposited with the United States Postal Service as first class, registered or certified mail (return receipt requested), postage prepaid, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice; provided that notices of a change of address shall be effective only upon receipt thereof):

(a) If to the Seller:

Transgenomic, Inc.

12325 Emmet Street

Omaha, NE 68164

Attention: Law Department

With a copy, which shall not constitute notice, given in the manner prescribed above, to:

Kutak Rock LLP

1650 Farnam Street

Omaha, NE 68102

Attention: Steven P. Amen

Telephone No.: 402-346-6000

Facsimile No.: 402-346-1148

Email: steven.amen@kutakrock.com

(b) If to Purchaser:

c/o Eyetech Pharmaceuticals, Inc.

3 Times Square, 12^th Floor

New York, New York 10036

Attention: Tom B. Petersen, Esq.

Telephone No.: 212-824-3000

Facsimile No.: 212-824-3237

Email: tom.petersen@eyetech.com

With a copy, which shall not constitute notice, given in the manner prescribed above, to:

Morrison & Foerster

425 Market Street

San Francisco, CA 94105-2482

Attention: Jonathan S. Dickstein, Esq.

Telephone No.: 415-268-6224

Facsimile No.: 415-268- 7522

Email: jdickstein@mofo.com

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10.4 Assignment

This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any party hereto, including by operation of law without the prior written consent of the other party, nor is this Agreement intended to confer upon any other Person except the parties hereto any rights or remedies hereunder.

10.5 Governing Law

This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware (regardless of the laws that might otherwise govern under applicable principles of conflict of laws) as to all matters, including, but not limited to, matters of validity, construction, effect, performance and remedies, and Seller and the Purchaser hereby agree to irrevocably and unconditionally submit to the exclusive jurisdiction of any State or Federal court sitting in the State of Delaware over any suit, action or proceeding arising out of or relating to this Agreement.

10.6 Waiver of Jury Trial

EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

10.7 Counterparts

This Agreement may be executed (including, without limitation, by facsimile signature or delivery by portable document format (“PDF”)) in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

10.8 Interpretation

The Article and Section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement. Definitions in this Agreement shall apply equally to both the singular and plural forms of the terms defined. All references herein to Articles, Sections and Exhibits shall be deemed to be references to Articles and Sections of, and Exhibits to, this Agreement unless the context shall otherwise require. All Exhibits attached hereto shall be deemed incorporated herein as if set forth in full herein and, unless otherwise defined therein, all terms used in any Exhibit shall have the meanings ascribed to such terms in this Agreement. The words “hereof”, “hereinafter”, “herein” and “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Unless otherwise expressly provided herein, any statute referred to herein means such statute as may from time to time be amended, modified or supplemented. Any payments required by this Agreement shall be in U.S. Dollars.

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10.9 Severability

If for any reason any term or provision of this Agreement is held to be invalid or unenforceable, all other valid terms and provisions hereof shall remain in full force and effect, and all of the terms and provisions of this Agreement shall be deemed to be severable in nature.

10.10  Entire Agreement

This Agreement, and the other agreements expressly referenced herein, including the other Transaction Documents and the Exhibits and Schedules referred to herein or therein embody the entire agreement and understanding of the parties hereto in respect of the transactions contemplated by this Agreement. There are no restrictions, promises, representations, warranties, covenants or undertakings, other than those expressly set forth or referred to herein or therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such transactions.

10.11  Construction

The construction of this Agreement shall not take into consideration the party who drafted or whose representative drafted any portion of this Agreement, and no canon of construction shall be applied that resolves ambiguities against the drafter of a document.

[Signature Page Follows]

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IN WITNESS WHEREOF, the Seller and Purchaser have caused this Asset Purchase Agreement to be signed by their respective duly authorized officers as of the date first above written.

TRANSGENOMIC, INC.
By:
	Name:
	Title:
EYETECH PHARMACEUTICALS BOULDER, INC.
By:
	Name:
	Title:

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Seller Disclosure Schedule

Section 2.1	Purchased Assets, including Seller Contracts
Section 2.2	Excluded Assets
Section 4.2 (b)	Third Party Consents
Section 5.1	Governmental Approvals and Permits
Section 5.5 (b)	Labor Unions
Section 5.5 (c)	Employees not at will
Section 5.5 (f)	Employee and Consultant Compensation Information
Section 5.7(f)	“Boulder Pipeline”
Section 5.6	Employee Benefit Plans
Section 5.8	Legal Proceedings
Section 5.11	Intellectual Property; Intangible Assets
Section 5.14	Inventory
Section 5.19	Insurance
Section 5.21	Liability and Warranty Claims
Section 5.22	Environmental Permits
Section 7.10	Purchased Assets to be Moved to Colorado Facility
Section 8.2 (e)	Certificate of Officer (Seller)
Section 8.3 (c)	Certificate of Officer (Purchaser)
EXHIBITS
Exhibit A	Bill of Sale
Exhibit B	Intentionally Omitted
Exhibit C	Assignment and Assumption – Real Estate Lease
Exhibit D	Escrow Agreement
Exhibit E	Transition Services Agreement

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EX-10.1

Exhibit 10.1

TRANSGENOMIC, INC. FOURTH AMENDED AND RESTATED 1997 STOCK OPTION PLAN

ARTICLE I

NAME AND PURPOSES

Section 1.1. Name. The name of the plan shall be the Transgenomic, Inc. 1997 Stock Option Plan (the “Plan”). The Plan was originally adopted as of the Effective Date set forth in Section 11.3 hereof and is hereby amended and restated as provided herein as of the 20th day of February, 2004.

Section 1.2. Purpose. The purpose of the Plan is to enable the Employees, directors and Advisors of Transgenomic, Inc. (the “Company”) to share in the growth and prosperity of the Company by encouraging stock ownership by Employees, directors and Advisors and to assist the Company to obtain and retain key management personnel. Either Incentive Stock Options or Nonqualified Stock Options may be granted to Employees of the Company under the Plan but only Nonqualified Stock Options may be granted to Non-Employee Directors and Advisors under the Plan.

ARTICLE II

DEFINITIONS

“Advisor” means a person who is not an employee of the Company but who has agreed to serve as a source of information and advice regarding scientific, technical or other matters relating to the Company’s business and products.

“Board” means the Board of Directors of the Company.

“Cause” means conduct involving fraud, gross negligence, breach of a fiduciary duty or criminal activity.

“Change of Control” means the approval by the Company’s shareholders of (a) a merger or consolidation of the Company with or into another corporation (other than a merger or consolidation in which the Company is the surviving corporation and which does not result in any capital reorganization or reclassification or other change in the Company’s then outstanding shares of common stock); (b) a sale or disposition of all or substantially all of the Company’s assets; or (c) a plan of liquidation or dissolution of the Company.

“Code” means the Internal Revenue Code of 1986, as amended.

“Committee” means the Compensation Committee of the Board. If the Board does not have a Compensation Committee, the Board shall constitute the Compensation Committee.

“Company” means Transgenomic, Inc., a Delaware corporation, and its successors.

“Company Stock” means shares of the common stock, par value $.01 per share, of the Company.

“Employee” means any person employed by the Company as an employee and not as an independent contractor.

“Exchange Act” means the Securities and Exchange Act of 1934, as amended.

“Fair Market Value” means the fair market value of the Company Stock as of the relevant time under this Agreement. If the Company Stock is not publicly traded, Fair Market Value shall be reasonably determined by the Committee. If the Company Stock is publicly traded, then the Fair Market Value will be equal to the average of the closing sales price per share for the five trading days immediately preceding the date of the determination.

“Incentive Stock Option” means any stock option granted to an Employee under the Plan, which the Committee intends at the time it is granted to be an incentive stock option within the meaning of Section 422 of the Code.

“Non-Employee Director” means any person who is a member of the Board but is not an Employee of the Company and has not been an Employee of the Company or any subsidiary of the Company at any time during the preceding 12 months. Service as a director does not in itself constitute employment for purposes of this definition.

“Nonqualified Stock Option” means any stock option granted to an Employee, Non-Employee Director or Advisor under the Plan which is not a stock option within the meaning of Section 422 of the Code.

“Optionee” is any Employee, Non-Employee Director or Advisor who has been granted Options under the Plan.

“Options” mean Nonqualified Stock Options and Incentive Stock Options.

“Participant” means any Employee, Non-Employee Director or Advisor who meets the requirements for participation in the Plan as described in Article III.

“Permanent and Total Disability” means, as determined by the Committee, an illness or injury of a potentially permanent nature, expected to last for a continuous period of at least 12 months, certified by a physician selected by or satisfactory to the Committee, which prevents the Participant from engaging in any occupation for wage or profit for which the Participant is reasonably fitted by training, education or experience.

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“Qualifying Stock” means Company Stock which has been owned by an Employee for at least six months prior to the date of exercise of an Option and has not been used in a stock-for-stock swap transaction within the preceding six months.

ARTICLE III

ELIGIBILITY AND PARTICIPATION

Every Employee, Non-Employee Director and Scientific Advisor shall be eligible to become a Participant in the Plan. Only Employees shall be eligible for the Incentive Stock Options. Employees, Non-Employee Directors and Scientific Advisors shall be eligible for the Nonqualified Stock Options. The Committee shall determine (i) the number and type of Options granted and (ii) the Participants to receive awards under the Plan; provided, however, that any award made to a member of the Committee must be approved by a majority of the directors who are not members of the Committee.

ARTICLE IV

OPTION CONDITIONS

Section 4.1. No Option Combinations. Options under the Plan may only be granted as either Incentive Stock Options or as Nonqualified Stock Options dependent upon whether the Participant is an Employee, a Non-Employee Director or an Advisor. Incentive Stock Options may only be granted to Employees, and Nonqualified Stock Options may be granted to Employees, Non-Employee Directors or Advisors.

Section 4.2. Option Conditions. Without limiting the Committee’s authority, the Committee may make the grant of Options conditional upon an election by a Participant to defer payment of a portion of his or her compensation and subject to any condition or conditions consistent with the terms of the Plan that the Committee in its sole discretion may determine.

Section 4.3. Committee Members. The Committee shall consist solely of not less than two Non-Employee Directors, each of which will satisfy the independence requirements of the Nasdaq Stock Market corporate governance rules in effect from time to time. Unless the Committee complies with the then current requirements of Rule 16b-3 under the Exchange Act, the Committee will not be authorized to make awards under the Plan to directors or executive officers of the Company who are subject to the provisions of Section 16 of the Exchange Act.

Section 4.4. Effective Date of Prior Section. Section 4.3 hereof shall take effect on the day following the date on which a registration statement filed by the Company with the Securities and Exchange Commission is first declared effective under the Securities Act of 1933, as amended.

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ARTICLE V

COMPANY STOCK SUBJECT TO PLAN

The total number of Company Stock for which Options may be granted under the Plan shall not exceed 7,000,000 shares of Company Stock subject always to the provisions of Article VIII. The Company Stock issued under the Plan may be authorized and unissued shares or treasury shares.

In the event that any outstanding Option issued pursuant to the Plan shall expire or terminate, additional Options for the number of shares of Company Stock which were subject to such expired or terminated Options may be granted under the Plan. In addition, if shares of Company Stock are used by an Optionee to pay all or a part of the exercise price of any Option (or applicable withholding taxes), additional Options for the number of shares of Company Stock so used may be granted under the Plan, including Replacement Options granted under Section 6.3 hereof.

ARTICLE VI

OPTIONS

Section 6.1. Terms of Options. (a) The Committee from time to time may grant Options. Each Option granted shall be embodied in a written agreement between the Company and the Participant in such form and containing such provisions as the Committee from time to time shall deem appropriate, consistent with the requirements of the Plan and this Amendment. Option agreements need not be identical, and the Option agreement shall specify whether or not an Option is an Incentive Stock Option.

(b) The exercise price for each Option granted under the Plan shall be fixed by the Committee in good faith, but in no event shall the exercise price of any Incentive Stock Option be less than 100% of the Fair Market Value of the Company Stock on the date such Incentive Stock Option is granted.

(c) The Committee shall fix the term or duration of all Options issued under this Plan, provided that such term shall not exceed ten years after the date on which the Option was granted.

(d) At all times during the period beginning on the date of the grant of an Incentive Stock Option and ending on the day three months before the date of the exercise of such Incentive Stock Option, the Optionee must be an Employee of the Company. Options designated as Incentive Stock Options that fail to meet the requirements of Section 422 of the Code shall be redesignated as Nonqualified Stock Options for federal income tax purposes automatically without further action by the Committee on the date of such failure to continue to meet the requirements of Section 422 of the Code.

Section 6.2. Transferability of Options. Options shall not be transferable otherwise than by will or the laws of descent and distribution or pursuant to a qualified

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domestic relations order, as defined in the Code, and during the Participant’s lifetime such Options shall be exercisable only by the Participant.

Section 6.3. Replacement Option. The Committee may grant a replacement option (a “Replacement Option”) to any Employee who exercises all or part of an Option granted under this Plan using Qualifying Stock as payment for the exercise price. A Replacement Option shall grant to the Employee the right to purchase, at a price not less than the Fair Market Value of the Company Stock as of the date of said grant, the number of shares of stock equal to the sum of the number of whole shares (i) used by the Employee in payment of the exercise price for the Option which was exercised and (ii) used by the Employee in connection with applicable withholding taxes on such transaction. A Replacement Option may not be exercised for six months following the date of grant, and shall expire on the same date as the Option which it replaces.

ARTICLE VII

ADMINISTRATION

Section 7.1. Authority of the Committee. (a) The Plan shall be administered by the Committee. A majority vote of the Committee at which a quorum is present, or acts reduced to or approved in writing by a majority of the members of the Committee, shall be the valid acts of the Committee for the purposes of this Plan.

(b) The Committee shall have plenary authority in its discretion, but subject to the express provisions of the Plan, to determine the terms of all Options granted under the Plan, including, without limitation, the purchase price, if any, the Participants to whom and the time or times at which Options shall be granted, when an Option can be exercised and whether in whole or in installments, and the number of shares covered by an Option and to interpret the Plan and to make all other determinations deemed advisable for the administration of the Plan. All determinations of the Committee shall be made by not less than a majority of its members. The Committee may designate Employees of the Company to assist the Committee in the administration of the Plan and may grant authority to such persons to execute Option agreements or other documents on behalf of the Committee.

(c) The Committee may make such rules and regulations and establish such procedures as it deems appropriate for the administration of the Plan.

(d) In the event of a disagreement as to the interpretation of the Plan or any amendment hereto or any rule, regulation or procedure thereunder or as to any right or obligation arising from or related to the Plan, the decision of the Committee shall be final and binding. No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any benefit granted under it.

Section 7.2. Payment for Options. Payment in full for the number of shares purchased under any Option shall be made to the Company at the time of such exercise. The Committee, in its discretion, may provide that any Option by its terms

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may permit a Participant to elect, subject to Committee approval, to pay for an exercised Option in any combination of cash and Company Stock. Shares of Company Stock used to pay all or a part of the exercise price of an Option will be valued at their Fair Market Value on the date of the exercise of the Option.

ARTICLE VIII

ADJUSTMENT UPON CHANGES OF STOCK

If any change is made with respect to the Company Stock by reason of any stock dividend, stock split or combination of shares, appropriate adjustments shall be made by the Committee to the maximum number of shares subject to the Plan and the number of shares and price per share of Company Stock subject to each outstanding Option. No fractional shares of Company Stock resulting from any such adjustment shall be issued upon exercise of an Option, but the Fair Market Value of any such fractional share shall be paid in cash upon such exercise.

ARTICLE IX

EFFECT OF CORPORATE CHANGES

An Optionee shall not have any additional right to exercise any outstanding Options, whether or not vested, in whole or in part, solely by reason of any Change of Control, merger, consolidation, reorganization, recapitalization, exchange of shares, or change in corporate structure (including an initial public offering), than such Optionee had prior to such an event. If a Change of Control, merger, consolidation, reorganization, recapitalization, exchange of shares, or change in corporate structure (including an initial public offering) shall occur, the Committee may, but shall not be required to, accelerate or adjust the vesting of Options, solely at the discretion of the Committee and subject to the terms of the Plan.

ARTICLE X

TERMINATION OF OPTIONS

Section 10.1. Death of Optionee. (a) If the Optionee shall die at any time after the date an Option is granted and prior to any termination thereof, the executor or administrator of the estate of the Optionee or the person or persons to whom the Option shall have been validly transferred by the executor or the administrator pursuant to will or the laws of descent and distribution shall have the right, during the period ending one year after the date of the Optionee’s death, to exercise the Option to the extent that it was exercisable at the date of death and shall not have been exercised. Any Options not exercised within said time period shall terminate and all rights thereunder shall cease. In the event of the Optionee’s death, any Options not vested as of the date of the Optionee’s death shall become immediately vested; provided, however, that the Optionee was continuously employed by the Company, or continuously served on the Board or as an Advisor, for at least three years, or such shorter period as the Committee determines in its sole discretion.

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(b) Notwithstanding the foregoing, no transfer of an Option by will or the laws of descent and distribution shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof and an authenticated copy of the will and/or such other evidence as the Committee may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the terms and conditions of the Option.

Section 10.2. Permanent and Total Disability. If the Optionee becomes Permanently and Totally Disabled at any time after the date an Option is granted and prior to any termination thereof, the Optionee (or in the case of the Optionee becoming mentally incapacitated, his guardian or legal representative) shall have the right, during a period ending one year after such Permanent and Total Disability, to exercise the Option to the extent that it was exercisable at the date of such Permanent and Total Disability and shall not have been exercised. Any Options not exercised within said time period shall terminate and all rights thereunder shall cease. In the event of the Optionee’s Permanent and Total Disability, any Options not vested as of the date of the Optionee’s Permanent and Total Disability shall become immediately vested; provided, however, that the Optionee was continuously employed by the Company, or continuously served on the Board or as an Advisor, for at least three years, or such shorter period as the Committee determines in its sole discretion.

Section 10.3. Other. (a) In the event of an Optionee’s termination of employment with the Company or from the Board or as an Advisor, or in the event an Optionee’s employment is terminated for any reason other than death or Permanent and Total Disability, any Options not vested as of the date of the Optionee’s resignation or termination shall immediately terminate and all rights thereunder shall cease unless the Committee determines otherwise in its sole discretion.

(b) If the Optionee’s employment or directorship with the Company or service as an Advisor is terminated by the Company for Cause, the Optionee’s right to exercise an Option, whether or not vested, shall immediately terminate and all rights thereunder shall cease unless the Committee determines otherwise in its sole discretion.

ARTICLE XI

MISCELLANEOUS

Section 11.1. Rights of Employees and Non-Employee Directors. Neither this Plan nor any Option granted hereunder shall confer upon any Employee or Non-Employee Director any right to continue to serve as an employee or director of the Company.

Section 11.2. Withholding. The Company shall have the right to withhold with respect to any payments made to Participants under the Plan any taxes required by law to be withheld because of such payments. With respect to any such withholding:

(a) Each Participant shall take whatever action that the Committee deems appropriate to comply with the law regarding withholding of federal, state and local taxes.

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(b) When a Participant is obligated to pay to the Company an amount required to be withheld under applicable income tax laws in connection with an Option, the Committee may, in its discretion and subject to such rules as it may adopt, permit the Participant to satisfy this obligation, in whole or in part, either (i) by having the Company withhold from the shares to be issued upon the exercise of an Option or (ii) by delivering to the Company already-owned shares to satisfy the withholding amount.

Section 11.3. Effective Date. This Plan is effective on June 27, 1997 (“Effective Date”). Options hereunder may be granted at any time subject to the limitations contained within the Plan. No Company Stock may be issued unless the Plan is approved by a vote of the holders of a majority, or as otherwise provided in the Company’s First Amended and Restated Articles of Incorporation, of the outstanding shares of the Company’s common stock at a meeting of the stockholders of the Company held within 12 months following the Effective Date.

ARTICLE XII

MISCELLANEOUS

Section 12.1. Amendment. The Board may amend the Plan from time to time as it deems desirable or as necessitated by any applicable rules and regulations and such amendments shall include the ability of the Board to amend the Plan and, with shareholder approval, to increase the number of shares subject to the Plan; provided, however, the Plan may not be amended to decrease the price at which Incentive Stock Options may be granted. Any amendment to the Plan shall not apply to (i) Options granted to Non-Employee Directors prior to the effective date of the amendment or (ii) Options granted to Employees or Advisors that have vested prior to the effective date of the amendment unless, in either case, it has been otherwise agreed to, in writing, by the Committee and the affected Plan Participant.

Section 12.2. Termination of Plan. The Board may, in its discretion, terminate the Plan at any time, but no such termination shall deprive Participants of their rights under outstanding Options.

Section 12.3. Governing Law. This Plan shall be construed in accordance with and governed by the laws of the State of Delaware.

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EX-21

Exhibit 21

SUBSIDIARIES OF THE REGISTRANT

LEGAL NAME	JURISDICTION OF ORGANIZATION
Transgenomic, Ltd.	United Kingdom
Transgenomic Japan, Inc.	Delaware
Annovis, Inc.	Delaware
Cruachem, Ltd.	Scotland (UK)
Todd Campus, Ltd.	Scotland (UK)

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-41714, No. 333-69334 and No. 333-71866 on Forms S-8 and Registration Statement No. 333-70102, No. 333-108319, No. 333-111442, No. 333-114661 and No. 333-118970 on Form S-3 of our report dated April 14, 2005 relating to the consolidated financial statements and consolidated financial statement schedule of Transgenomic, Inc. and subsidiaries (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the Company’s extension of a waiver of the borrowing base limit on its existing line of credit during the first quarter of 2005), appearing in this Annual Report on Form 10-K of Transgenomic, Inc. and subsidiaries for the year ended December 31, 2004.

/s/ DELOITTE & TOUCHE LLP

Omaha, Nebraska

April 14, 2005

EX-24

Exhibit 24

POWER OF ATTORNEY

The undersigned does hereby make, constitute and appoint Collin J. D’Silva as his lawful agent and attorney-in-fact solely for the purpose of executing and filing all reports on Form 10-K relating to the year ending December 31, 2004, and any amendments thereto, required to be filed with the Securities and Exchange Commission by Transgenomic, Inc.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the 3rd day of February, 2005.

/s/    GREGORY DUMAN        

Gregory J. Duman

POWER OF ATTORNEY

The undersigned does hereby make, constitute and appoint Collin J. D’Silva as his lawful agent and attorney-in-fact solely for the purpose of executing and filing all reports on Form 10-K relating to the year ending December 31, 2004, and any amendments thereto, required to be filed with the Securities and Exchange Commission by Transgenomic, Inc.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the 13th day of April, 2005.

/s/    JEFFREY SKLAR        

Jeffrey L. Sklar

ATTORNEY

The undersigned does hereby make, constitute and appoint Collin J. D’Silva as his lawful agent and attorney-in-fact solely for the purpose of executing and filing all reports on Form 10-K relating to the year ending December 31, 2004, and any amendments thereto, required to be filed with the Securities and Exchange Commission by Transgenomic, Inc.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the 4th day of February, 2005.

/s/    ROLAND J. SANTONI        

Roland J. Santoni

POWER OF ATTORNEY

The undersigned does hereby make, constitute and appoint Collin J. D’Silva as his lawful agent and attorney-in-fact solely for the purpose of executing and filing all reports on Form 10-K relating to the year ending December 31, 2004, and any amendments thereto, required to be filed with the Securities and Exchange Commission by Transgenomic, Inc.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the 11th day of February, 2005.

/s/    PARAG SAXENA        

Parag Saxena

POWER OF ATTORNEY

The undersigned does hereby make, constitute and appoint Collin J. D’Silva as his lawful agent and attorney-in-fact solely for the purpose of executing and filing all reports on Form 10-K relating to the year ending December 31, 2004, and any amendments thereto, required to be filed with the Securities and Exchange Commission by Transgenomic, Inc.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the 6th day of February, 2005.

/s/    GREGORY T. SLOMA        

Gregory T. Sloma

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Collin J. D’Silva, certify that:

1. I have reviewed this annual report on Form 10-K of Transgenomic, Inc. (the Registrant);

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)) for the Registrant and we 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) 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.

c) 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 function):

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: April 14, 2005	/s/    COLLIN J. D’SILVA
	Collin J. D’Silva, Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Michael A. Summers, certify that:

1. I have reviewed this annual report on Form 10-K of Transgenomic, Inc. (the Registrant);

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)) for the Registrant and we 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) 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.

c) 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 function):

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: April 14, 2005	/s/    MICHAEL A. SUMMERS
	Michael A. Summers, Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the accompanying Annual Report on Form 10-K of Transgenomic, Inc. for the year ended December 31, 2004, I, Collin J. D’Silva, Chairman of the Board, President and Chief Executive Officer of Transgenomic, Inc., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:

(1) such Annual Report on Form 10-K of Transgenomic, Inc. for the year ended December 31, 2004, 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 such Annual Report on Form 10-K of Transgenomic, Inc. for the year ended December 31, 2004, fairly presents, in all material respects, the financial condition and results of operations of Transgenomic, Inc.

/s/    COLLIN J. D’SILVA        

Collin J. D’Silva

Chairman of the Board, President and

Chief Executive Officer

Date: April 14, 2005

A signed original of the certification required by Section 906 has been provided to Transgenomic, Inc. and will be retained by Transgenomic, Inc and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the accompanying Annual Report on Form 10-K of Transgenomic, Inc. for the year ended December 31, 2005, I, Michael A. Summers, Chief Financial Officer of Transgenomic, Inc., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:

(1) such Annual Report on Form 10-K of Transgenomic, Inc. for the year ended December 31, 2004, 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 such Annual Report on Form 10-K of Transgenomic, Inc. for the year ended December 31, 2004, fairly presents, in all material respects, the financial condition and results of operations of Transgenomic, Inc.

/s/    MICHAEL A. SUMMERS        

Michael A. Summers

Chief Financial Officer

Date: April 14, 2005

A signed original of the certification required by Section 906 has been provided to Transgenomic, Inc. and will be retained by Transgenomic, Inc and furnished to the Securities and Exchange Commission or its staff upon request.