10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

  For the Quarterly Period Ended September 30, 2009

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	911789357
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
12325 Emmet Street, Omaha, Nebraska	68164
(Address of principal executive offices)	(Zip Code)

(402) 452-5400

(Registrant’s telephone number, including area code)

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 and (2) has been subject to such filing requirements for the past 90 days.     Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). )      Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller Reporting Company	x

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

As of November 5, 2009, the number of shares of common stock outstanding was 49,189,672.

TRANSGENOMIC, INC.

INDEX

		Page No.
PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of September 30, 2009 (Unaudited) and December 31, 2008 (Audited)	3
	Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2009 and 2008	4
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2009	5
	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008	6
	Notes to Condensed Consolidated Unaudited Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4T.	Controls and Procedures	24
PART II.	OTHER INFORMATION	25
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 5.	Other Information	25
Item 6.	Exhibits	26
Signatures		27

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TRANSGENOMIC, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands except per share data)

	September 30, 2009 (unaudited)			December 31, 2008
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	4,661		$	4,771
Accounts receivable (net of allowances for bad debts of $345 and $388, respectively)		4,145			5,385
Inventories (net of allowances for obsolescence of $353 and $108, respectively)		4,134			4,775
Prepaid expenses and other current assets		655			654
Total current assets		13,595			15,585
PROPERTY AND EQUIPMENT:
Equipment		10,276			10,059
Furniture, fixtures & leasehold improvements		3,931			3,920
		14,207			13,979
Less: accumulated depreciation		(13,148	)		(12,781	)
		1,059			1,198
OTHER ASSETS:
Other assets (net of accumulated amortization of $478 and $425, respectively)		701			773
	$	15,355		$	17,556
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	795		$	905
Other accrued expenses		2,330			2,810
Accrued compensation		538			520
Total current liabilities		3,663			4,235
Other long-term liabilities		202			116
Total liabilities		3,865			4,351
STOCKHOLDERS’ EQUITY:
Preferred stock, $.01 par value, 15,000,000 shares authorized, none outstanding		—			—
Common stock, $.01 par value, 100,000,000 shares authorized, 49,189,672 shares outstanding		497			497
Additional paid-in capital		139,652			139,501
Accumulated other comprehensive income		1,653			1,470
Accumulated deficit		(130,312	)		(128,263	)
Total stockholders’ equity		11,490			13,205
	$	15,355		$	17,556

See notes to unaudited condensed consolidated financial statements.

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TRANSGENOMIC, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
NET SALES	$	5,046		$	5,367		$	15,508		$	17,869
COST OF GOODS SOLD		2,293			2,448			7,291			7,570
Gross profit		2,753			2,919			8,217			10,299
OPERATING EXPENSES:
Selling, general and administrative		2,215			2,757			7,922			8,824
Research and development		938			684			2,468			1,816
Restructuring Costs		—			—			—			8
		3,153			3,441			10,390			10,648
LOSS FROM OPERATIONS		(400	)		(522	)		(2,173	)		(349	)
OTHER INCOME (EXPENSE):
Interest income, net of interest expense		1			22			14			80
Other, net		(1	)		14			(4	)		13
		—			36			10			93
LOSS BEFORE INCOME TAXES		(400	)		(486	)		(2,163	)		(256	)
INCOME TAX EXPENSE (BENEFIT)		(34	)		13			(114	)		20
NET LOSS	$	(366	)	$	(499	)	$	(2,049	)	$	(276	)
BASIC AND DILUTED LOSS PER SHARE	$	(0.01	)	$	(0.01	)	$	(0.04	)	$	(0.01	)
BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING		49,189,672			49,189,672			49,189,672			49,189,672

See notes to unaudited condensed consolidated financial statements.

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TRANSGENOMIC, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Nine Months Ended September 30, 2009

(Dollars in thousands except per share data)

	Common Stock
	Outstanding Shares	Par Value		Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total
Balance, January 1, 2009	49,189,672	$	497	$	139,501	$	(128,263	)	$	1,470		$	13,205
Net loss	—		—		—		(2,049	)		(2,049	)		(2,049	)
Other comprehensive income (loss):
Foreign currency translation adjustment, net of tax	—		—		—		—			183			183
Comprehensive (loss)										(1,866	)
Non-cash stock-based compensation	—		—		151		—			—			151
Balance, September 30, 2009	49,189,672	$	497	$	139,652	$	(130,312	)	$	1,653		$	11,490

See notes to unaudited condensed consolidated financial statements.

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TRANSGENOMIC, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

	Nine Months Ended September 30,
	2009			2008
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net loss	$	(2,049	)	$	(276	)
Adjustments to reconcile net loss to net cash flows provided by (used in) operating activities:
Depreciation and amortization		615			494
Non-cash, stock based compensation		151			209
Loss on sale of investment and assets		—			6
Changes in operating assets and liabilities:
Accounts receivable		1,461			151
Inventories		709			(335	)
Prepaid expenses and other current assets		20			32
Accounts payable		(142	)		(429	)
Accrued expenses and accrued compensation		(557	)		(324	)
Other long term liabilities		29			—
Net cash flows provided by (used in) operating activities		237			(472	)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment		(327	)		(215	)
Change in other assets		(20	)		(39	)
Net cash flows used in investing activities		(347	)		(254	)
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH		—			(210	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		(110	)		(936	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		4,771			5,723
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	4,661		$	4,787
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	—		$	—
Income taxes, net		163			61

See notes to unaudited condensed consolidated financial statements.

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A. BUSINESS DESCRIPTION

Business Description.

Transgenomic, Inc. provides innovative products for the purification and analysis of nucleic acids used in the life sciences industry for research focused on molecular genetics and diagnostics. We also provide genetic variation analytical services to the medical research, clinical and pharmaceutical markets. Net sales are categorized as Instrument Related Business and Laboratory Services.

Instrument Related Business:

• Bioinstruments. Our flagship product is the WAVE^® System which has broad applicability to genetic variation detection in both molecular genetic research and molecular diagnostics. There is a worldwide installed base of over 1,450 WAVE Systems as of September 30, 2009. We also distribute bioinstruments produced by other manufacturers (“OEM Equipment”) through our sales and distribution network. Service contracts to maintain installed systems are sold and supported by technical support personnel.

• Bioconsumables. The installed WAVE base and some third-party installed platforms generate a demand for consumables that are required for the continued operation of the bioinstruments. We develop, manufacture and sell these consumable products. In addition, we manufacture and sell consumable products that can be used on multiple, independent platforms. These products include SURVEYOR^® Nuclease and a range of HPLC separation columns.

Laboratory Services:

• Molecular Clinical Reference Laboratory. The molecular clinical reference laboratory specializes in mitochondrial and molecular diagnostic testing including genetic testing for oncology, hematology and inherited disorders. Located in Omaha, Nebraska, the molecular clinical reference laboratory operates in a Good Laboratory Practices compliant environment, is certified under the Clinical Laboratory Improvement Amendment (CLIA) as a high complexity lab and is accredited by CAP (College of American Pathologists).

• Pharmacogenomics Research Services. Pharmacogenomics research services are provided by our Contract Research Organization located in Omaha, Nebraska. It specializes in pharmocogenomic, biomarker and mutation discovery research serving the pharmaceutical and biomedical industries for disease research, drug and diagnostic development and clinical trial support.

Management believes existing sources of liquidity, including cash and cash equivalents of $4.7 million, are sufficient to meet expected cash needs during 2009. Our business consolidation efforts, recent reduction in force and cost containment management over the last few years have helped control our operating costs, however, we have added sales and marketing costs over the last two years in an effort to drive increased sales. In addition we have increased our research expenditures to drive development of new products and to support business opportunities and collaborations. In future periods, there is no assurance that we will be able to increase net sales or further reduce expenses and, accordingly, we may not have sufficient sources of liquidity to continue operations indefinitely.

B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

Risks and Uncertainties.

Certain risks and uncertainties are inherent in our day-to-day operations and to the process of preparing our financial statements. The more significant of those risks are presented below and throughout the notes to the financial statements.

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1. Use of Estimates.

The preparation of consolidated financial statements 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 net sales and expenses during the reporting period. In addition, estimates and assumptions associated with the determination of the fair value of certain assets and related impairments require considerable judgment by management. Actual results could differ from the estimates and assumptions used in preparing these financial statements.

2. Concentration of Revenue Risk.

No customer accounted for more than 10% of consolidated net sales during the three and nine months ended September 30, 2009 and 2008. For the three and nine months ended September 30, 2009 one customer made up more than 10% of the Laboratory Services net sales. This customer represented 18% of the Laboratory Services net sales for the three months ended September 30, 2009 and 20% for the nine months ended September 30, 2009. For the three and nine months ended September 30, 2008 two customers each made up more than 10% of the Laboratory Services net sales. Combined for the nine months they represented 35% of the Laboratory Services net sales.

Concentrations of Cash.

From time to time, we may maintain a cash position with financial institutions in amounts that exceed federally insured limits. We have not experienced any losses on such accounts as of September 30, 2009.

Basis of Presentation.

The consolidated balance sheet as of December 31, 2008 was derived from our audited balance sheet as of that date. The accompanying consolidated financial statements as of and for the three and nine months ended September 30, 2009 and 2008 are unaudited and reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. These unaudited consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2008 contained in our Annual Report on Form 10-K. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year.

Cash and Cash Equivalents.

Cash and cash equivalents include cash and investments with original maturities at acquisition of three months or less. Such investments presently consist of only temporary overnight investments.

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 the three and nine months ended September 30, 2009 and 2008:

	Dollars in Thousands						Dollars in Thousands
	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Beginning balance	$	358		$	501		$	388		$	703
Provision		(5	)		20			27			185
Write offs		(8	)		(20	)		(70	)		(387	)
Ending balance	$	345		$	501		$	345		$	501

While payment terms are generally 30 days, we have also provided extended payment terms of up to 90 days in certain cases. We operate globally and some of the international payment terms may be greater than 90 days. Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a quarterly basis. We determine the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions. Accounts receivable are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when received.

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Inventories.

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

The following is a summary of activity for the allowance for obsolete inventory during the three and nine months ended September 30, 2009 and 2008:

	Dollars in Thousands						Dollars in Thousands
	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Beginning balance	$	123		$	13		$	108		$	12
Provision		257			2			298			2
Write offs		(27	)		(1	)		(53	)		—
Ending balance	$	353		$	14		$	353		$	14

We determine the allowance for obsolete inventory by regularly evaluating the inventory for items deemed to be slow moving or obsolete. During the three months ended September 30, 2009 we recorded $0.2 million related to control plasmids used for our surveyor kits.

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:

Leasehold improvements	1 to 10 years
Furniture and fixtures	3 to 7 years
Production equipment	3 to 7 years
Computer equipment	3 to 7 years
Research and development equipment	2 to 7 years

Depreciation during the three months ended September 30, 2009 and 2008 was $0.1 million and $0.2 million, respectively. Depreciation during both the nine months ended September 30, 2009 and 2008 was $0.5 million related to depreciation of property and equipment.

Other Assets.

Other assets include intellectual property, patents and other long-term assets.

Intellectual Property.   Initial costs paid to license intellectual property from independent third parties are capitalized and amortized using the straight-line method over the license period. Ongoing royalties related to such licenses are expensed as incurred.

Patents. We capitalize legal costs, filing fees and other expenses associated with obtaining patents on new discoveries and amortize these costs using the straight-line method over the shorter of the legal life of the patent or its economic life beginning on the date the patent is issued. We expense all costs incurred prior to the filing of the patent application.

Each of these assets is treated as long-lived assets. Long-lived assets will be tested for impairment on an annual basis or when a significant event occurs which may impact impairment. We periodically review the carrying value of our long-lived assets to assess recoverability and impairment. We recorded no impairment in the three and nine months ended September 30, 2009 and 2008.

Other Assets. Other assets include US security deposits and deferred tax assets.

Stock Based Compensation.

All stock options awarded to date have exercise prices equal to the market price of our common stock on the date of grant and have ten-year contractual terms. Unvested options as of September 30, 2009 had vesting periods of three years from date of grant. None of the stock options outstanding at September 30, 2009 are subject to performance or market-based vesting conditions.

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We measure and recognize compensation expense for all stock-based awards made to employees and directors, including stock options. Compensation expense is based on the calculated fair value of the awards as measured at the grant date and is expensed ratably over the service period of the awards (generally the vesting period). During the nine months ended September 30, 2009, we recorded compensation expense of $0.2 million within the selling, general and administrative expense as a result of the vesting of options exercisable for the purchase of 1,745,000 shares. During the nine months ended September 30, 2008, we recorded compensation expenses of $0.2 million within selling, general and administrative expense as a result of the vesting of options exercisable for the purchase of 1,560,000 shares. As of September 30, 2009, there was $0.2 million of unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted average period of nearly three years.

The fair value of the options granted during the quarter ended September 30, 2008 was estimated on their respective grant dates using the Black-Scholes option pricing model. There were no options granted during the quarter ended September 30, 2009. The Black-Scholes model was used with the following assumptions: risk-free interest rates of 2.12% to 3.99%, based on the U.S. Treasury yield in effect at the time of grant; dividend yields of zero percent; expected lives of 2 to 10 years, based on historical exercise activity behavior; and volatility of 106.08% and 80.03% based on the historical volatility of our stock over a time that is consistent with the expected life of the option. A small group of senior executives hold the majority of the stock options and are expected to hold the options until they are vested. Therefore, no forfeitures were assumed.

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 more likely than not that they will not be realized.

Net Sales Recognition.

Net sales of products are 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 under a purchase order. Our sales terms do not provide for the right of return unless the product is damaged or defective. Net sales from certain services associated with the 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. We also enter into various service contracts that cover installed instruments. These contracts cover specific time periods and net sales associated with these contracts are deferred and recognized over the service period. At September 30, 2009 and September 30, 2008, deferred net sales, mainly associated with our service contracts, included in the balance sheet in other accrued expenses, were approximately $1.4 million and $1.6 million, respectively.

Net sales from our Molecular Clinical Reference Laboratory Services are recognized on an individual test basis and takes place when the test report is completed, reviewed and sent to the client less the reserve for insurance, Medicare and Medicaid expected payment. There are no deferred net sales associated with our Molecular Clinical Reference Laboratory. In our Pharmacogenomics Research Services Group, we recognize net sales based on a proportionate performance measurement for each project. At September 30, 2009 and 2008, deferred net sales associated with the pharmacogenomics research projects included in the balance sheet in other accrued expenses, was less than $0.1 million for each period.

Taxes collected from customers and remitted to government agencies for specific net sales producing transactions are recorded net with no effect on the income statement.

Research and Development.

Research and development and various collaboration costs are charged to expense when incurred.

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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 accumulated other comprehensive income. Foreign currency revaluation gains or losses resulting from changes in currency exchange rates are included in the determination of net income. Foreign currency revaluation adjustments decreased operating expenses and net loss by $0.1 million for the three months ended September 30, 2009 and increased operating expenses and net loss by $0.3 million for the nine months ended September 30, 2009, and decreased operating expenses and net loss by $0.5 million during the nine months ended September 30, 2008. Foreign currency translation adjustments had a nominal impact on net loss for the three months ended September 30, 2008.

Comprehensive Income.

Accumulated other comprehensive income at September 30, 2009 and December 31, 2008 consisted of foreign currency translation adjustments, net of applicable tax of zero. We deem our foreign investments to be permanent in nature and do not provide for taxes on currency translation adjustments arising from converting investments in a foreign currency to U.S. dollars.

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, warrants or conversion rights that have exercise or conversion prices below the market value of our common stock. At September 30, 2009, there were outstanding options, warrants and conversion rights exercisable for 11,383,720 shares of our common stock all of which were excluded from the computation of diluted earnings per share because the effect would be anti-dilutive due to the net loss in that period. At September 30, 2008 there were outstanding options, warrants and conversion rights exercisable for 12,046,704 shares of our common stock all of which were excluded from the calculation of diluted earnings per share because the effect would be anti-dilutive due to the net loss in that period.

Recently Issued Accounting Pronouncements.

In June 2009, the FASB issued FASB ASC 105, Generally Accepted Accounting Principles, which establishes the FASB Accounting Standards Codification as the sole source of authoritative generally accepted accounting principles. Pursuant to the provisions of FASB ASC 105, the Company has updated references to GAAP in its financial statements issued for the period ended September 30, 2009. The adoption of FASB ASC 105 did not impact the Company’s financial position or results of operations.

ASC 820, “Fair Value Measurement and Disclosures” defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. We have adopted ASC 820 with no impact on our financial statements.

ASC 350, “Intangibles – Goodwill and Other” requires companies estimating the useful life of a recognized intangible asset to consider their historical experience in renewing or extending similar arrangements or, in the absence of historical experience, to consider assumptions that market participants would use about renewal or extension. ASC 350 was adopted on January 1, 2009 and had no impact on our financial statements.

ASC 815-40, “Derivatives and Hedging” addresses freestanding contracts that are indexed to, and potentially settled in, an entity’s own stock. We adopted ASC 815-40 on January 1, 2009. We have assessed our warrants and determined the fair value is $0 so there is no impact to our financial statements.

Accounting Standards Update No. 2009-13 addresses the accounting for multiple deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. This update is effective for fiscal years on or after June 15, 2010.

Accounting Standards Update No. 2009-05 provides amendments to ASC Topic 820, “Fair Value Measurements and Disclosure” for the fair value measurement of liabilities. We have implemented ASU 2009-05 with no impact on our financial statements.

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C. INVENTORIES

Inventories consisted of the following:

	Dollars in Thousands
	September 30, 2009		December 31, 2008
Finished goods	$	2,458	$	2,911
Raw materials and work in process		1,300		1,658
Demonstration inventory		376		206
	$	4,134	$	4,775

D. OTHER ASSETS

Finite lived intangible assets and other assets consisted of the following:

	Dollars in Thousands
	September 30, 2009						December 31, 2008
	Cost		Accumulated Amortization		Net Book Value		Cost		Accumulated Amortization		Net Book Value
Intellectual property	$	310	$	226	$	84	$	310	$	195	$	115
Patents		664		252		412		679		230		449
Other		205		—		205		209		—		209
Total	$	1,179	$	478	$	701	$	1,198	$	425	$	773

Amortization expense for intangible assets was less than $0.1 million during the three and nine months ended September 30, 2009 and 2008, respectively. Amortization expense for intangible assets is expected to be approximately $0.1 million for each of the years 2009 through 2013.

E. COMMITMENTS AND CONTINGENCIES

We are subject to a number of claims of various amounts, which arise out of the normal course of business. In the opinion of management, the disposition of pending claims will not have a material adverse effect on our financial position, results of operations or cash flows.

We lease certain equipment, vehicles and operating facilities under non-cancellable operating leases that expire on various dates through 2014. Some of our leases have early termination clauses. The future minimum lease payments required under these leases are approximately $0.3 million for the remainder of 2009, $0.8 million in 2010, $0.6 million in 2011, $0.3 million in 2012 and $0.1 million in 2013. Rent expense for the three months ended September 30, 2009 and 2008 was approximately $0.2 million for each period. Rent expense for each of the nine months ended September 30, 2009 and 2008 was $0.6 million.

We have entered into employment agreements with Craig J. Tuttle, our President and Chief Executive Officer, Debra A. Schneider, our Chief Financial Officer, Vice President, Secretary and Treasurer, and Eric P. Kaldjian M.D., our Chief Scientific Officer. The current term of Mr. Tuttle’s employment agreement ends on July 12, 2010. The current term of Ms. Schneider’s employment agreement ends on December 4, 2009. The current term of Dr. Kaldjian’s employment agreement ends on December 31, 2009. Each employment agreement provides that the executive officer will be entitled to receive severance payments from the Company if his or her employment is terminated involuntarily except if such termination is based on “just cause”, as that term is defined in the employment agreement. The severance payment payable in the event of involuntary termination without just cause is equal to their annual base salary at the time of termination and will be paid to them over a twelve-month period. The employment agreements provide that the severance payment provisions will be honored if the Company is acquired by, or merged into, another company and their positions are eliminated as a result of such acquisition or merger. In addition we have one employee who is entitled to a severance payment of less than $0.1 million if the employee’s position is eliminated prior to July 2012.

We have entered into agreements for professional services related to our annual audit, quarterly SEC filings, tax preparation and Sarbanes Oxley compliance work. At September 30, 2009 our commitment for these services is $0.2 million.

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At September 30, 2009, firm commitments to vendors to purchase components used in WAVE Systems and instruments manufactured by others totaled $0.3 million.

F. INCOME TAXES

We file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and various foreign jurisdictions. We have statutes of limitation open for Federal income tax returns related to tax years 2007 and 2008. We have state income tax returns subject to examination primarily for tax years 2006 through 2008. Open tax years related to foreign jurisdictions remain subject to examination. Our primary foreign jurisdiction is the United Kingdom which has open tax years for 2005 through 2008.

Income tax benefit for the nine months ended September 30, 2009 was a benefit of $0.1 million. This is partially the result of the change in deferred tax assets and liabilities reported in financial statements of subsidiaries outside the U.S due primarily to foreign currency exchange losses. A refundable tax credit related to the 2008 Federal and State Income Tax returns was also recorded. This credit is anticipated to continue for 2009. This tax benefit is partially offset by tax expense related to state taxes as well as reserves for uncertain income taxes. We believe the tax benefit recorded will be partially offset in future periods by a tax expense related to income reported in financial statements of subsidiaries outside the United States. Income tax expense for the nine months ended September 30, 2008 was less than $0.1 million. The effective tax rate for the nine months ended September 30, 2009 is 5.3%, which is primarily the result of valuation allowances against the Net Operating Losses for the United States partially offset by the return to provision adjustment recorded in the financial statements and a refundable tax credit related to the 2008 Federal and State Income Tax returns.

During the three and nine months ended September 30, 2009, there were no material changes to the liability for uncertain tax positions.

G. EMPLOYEE BENEFIT PLAN

We maintain an employee 401(k) retirement savings plan that allows for voluntary contributions into designated investment funds by eligible employees. Prior to June 1, 2009 we matched the employee’s contributions at the rate of 50% on the first 6% of contributions. Effective June 1, 2009, Transgenomic discontinued matching employee 401(k) contributions. We may, at the discretion of our Board of Directors, make additional contributions on behalf of the Plan’s participants. There were no contributions to the 401(k) plan in the third quarter of 2009. Contributions to the 401(k) plan were less than $0.1 million for the nine months ended September 30, 2009. Contributions to the 401(k) plan were less than $0.1 million for the three months ended September 30, 2008, and $0.1 million for the nine months ended September 30, 2008.

H. STOCKHOLDERS’ EQUITY

Common Stock.

The Company’s Board of Directors is authorized to issue up to 100,000,000 shares of common stock, from time to time, as provided in a resolution or resolutions adopted by the Board of Directors.

Common Stock Warrants.

No common stock warrants were issued or exercised during the three and nine months ended September 30, 2009 and 2008. At September 30, 2009, there were warrants outstanding which were exercisable to purchase 7,978,156 shares of common stock.

Warrant Holder	Issue Year	Expiration Year	Underlying Shares	Exercise Price
Various Institutional Holders (1)	2005	2010	6,903,156	$	1.20
Laurus Master Fund, Ltd. (2)	2003	2010	200,000	$	1.92
Laurus Master Fund, Ltd. (2)	2003	2010	200,000	$	2.07
Laurus Master Fund, Ltd. (2)	2003	2010	150,000	$	2.35
Laurus Master Fund, Ltd. (2)	2004	2011	125,000	$	2.57
Laurus Master Fund, Ltd. (2)	2004	2011	400,000	$	1.18
Total			7,978,156

(1) These warrants were issued in conjunction with a private placement of common stock in October 2005 (the “2005 Private Placement”).

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(2) These warrants were issued in conjunction with two loans that had been made to us by Laurus Master Fund, Ltd. (the “Laurus Loans”), and subsequent modifications of these loans. In conjunction with the 2005 Private Placement, the exercise prices of these warrants were adjusted according to repricing provisions contained in the original warrant agreements. While the Laurus Loans have been terminated, the warrants remain outstanding.

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.

I. STOCK OPTIONS

The following table summarizes stock option activity during the nine months ended September 30, 2009:

	Number of Options	Weighted Average Exercise Price
Balance at January 1, 2009:	3,531,064	$	2.54
Granted	70,000		.42
Exercised	—		—
Forfeited/Expired	195,500		3.81
Balance at September 30, 2009:	3,405,564	$	2.42
Exercisable at September 30, 2009:	2,425,838	$	3.15

During the nine months ended September 30, 2009, we granted options exercisable to purchase 70,000 shares of common stock at a weighted average exercise price of $0.42 under our 2006 Equity Incentive Plan. The weighted average fair value per share on grant date of options granted during the nine months ended September 30, 2009 was $0.35.

J. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION

Our company’s chief decision-maker is the Chief Executive Officer, who regularly evaluates our performance based on net sales and gross profit. The preparation of this segment analysis required management to make estimates and assumptions around expense below the gross profit level. While we believe the segment information to be directionally correct, actual results could differ from the estimates and assumptions used in preparing this information.

The accounting policies of the segments are the same as the policies discussed in Footnote B – Summary of Significant Accounting Policies.

We have two reportable operating segments.

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Segment information for the three months ended September 30, 2009 and 2008 is as follows:

	Dollars in Thousands
	2009									2008
	Instrument Business			Lab Services			Total			Instrument Business			Lab Services			Total
Net Sales	$	3,852		$	1,194		$	5,046		$	4,395		$	972		$	5,367
Gross Profit		2,229			524			2,753			2,531			388			2,919
Net Income/(Loss) before Taxes		70			(470	)		(400	)		(109	)		(377	)		(486	)
Income Tax Expense (Benefit)		(34	)		—			(34	)		13			—			13
Net Income/(Loss)	$	104		$	(470	)	$	(366	)	$	(122	)	$	(377	)	$	(499	)
Depreciation/Amortization		92			74			166			130			53			183
Restructure		—			—			—			—			—			—
Interest Income, Net		1			—			1			18			4			22

Segment information for the nine months ended September 30, 2009 and 2008 is as follows:

	Dollars in Thousands
	2009									2008
	Instrument Business			Lab Services			Total			Instrument Business		Lab Services			Total
Net Sales	$	11,794		$	3,714		$	15,508		$	14,907	$	2,962		$	17,869
Gross Profit		6,692			1,525			8,217			9,064		1,235			10,299
Net Income/(Loss) before Taxes		(451	)		(1,712	)		(2,163	)		539		(795	)		(256	)
Income Tax Expense (Benefit)		(114	)		—			(114	)		20		—			20
Net Income/(Loss)	$	(337	)	$	(1,712	)	$	(2,049	)	$	519	$	(795	)	$	(276	)
Depreciation/Amortization		352			207			559			405		152			557
Restructure		—			—			—			8		—			8
Interest Income, Net		10			4			14			67		13			80

	September 30, 2009						December 31, 2008
Total Assets	$	8,686	$	6,669	$	15,355	$	10,226	$	7,330	$	17,556

Net sales by product were as follows:

	Dollars in Thousands				Dollars in Thousands
	Three Months Ended September 30,				Nine Months Ended September 30,
	2009		2008		2009		2008
Instrument Related Business:
Bioinstruments	$	1,999	$	2,196	$	6,215	$	7,987
Bioconsumables		1,853		2,199		5,579		6,920
		3,852		4,395		11,794	$	14,907
Laboratory Services:
Molecular Clinical Reference Laboratory		923		736		2,886		1,950
Pharmacogenomics Research Services		271		236		828		1,012
		1,194		972		3,714		2,962
Total Net Sales	$	5,046	$	5,367		15,508	$	17,869

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Net cost of goods sold was as follows:

	Dollars in Thousands				Dollars in Thousands
	Three Months Ended September 30,				Nine Months Ended September 30,
	2009		2008		2009		2008
Instrument Related Business:
Bioinstruments	$	526	$	767	$	2,167	$	2,710
Bioconsumables		1,097		1,097		2,935		3,133
	$	1,623	$	1,864		5,102		5,843
Laboratory Services:
Molecular Clinical Reference Laboratory		479		429		1,607		1,196
Pharmacogenomics Research Services		191		155		582		531
		670		584		2,189		1,727
Total Cost of Goods Sold	$	2,293	$	2,448	$	7,291	$	7,570
Net sales for the three and nine months ended September 30, 2009 and 2008 by country were as follows:
	Dollars in Thousands				Dollars in Thousands
	Three Months Ended September 30,				Nine Months Ended September 30,
	2009		2008		2009		2008
United States	$	1,920	$	2,180	$	6,524	$	7,044
Italy		913		499		2,676		2,321
Germany		441		359		973		1,279
France		386		772		1,175		2,082
Netherlands		296		71		388		318
United Kingdom		230		315		666		1,509
China		82		58		757		249
All Other Countries		778		1,113		2,349		3,067
Total	$	5,046	$	5,367	$	15,508	$	17,869

No other country accounted for more than 5% of total net sales.

No customer accounted for more than 10% of consolidated net sales during the three and nine months ended September 30, 2009 and 2008. For the three and nine months ended September 30, 2009 one customer made up more than 10% of the Laboratory Services net sales. This customer represented 18% of the Laboratory Services net sales for the three months ended September 30, 2009 and 20% for the nine months ended September 30, 2009. For the three and nine months ended September 30, 2008 two customers each made up more than 10% of the Laboratory Services net sales. Combined they represent 35% of the Laboratory Services net sales.

Approximately 80% of our long-lived assets are within the United States. Substantially all of the remaining long-lived assets are within Europe.

K. SUBSEQUENT EVENTS

We have no material subsequent events to be disclosed as of November 5, 2009 which is the date our financial statements were issued.

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

Forward-Looking Information

This report, including Management’s Discussion & Analysis, contains forward-looking statements. These statements are based on management’s current views, assumptions or beliefs of future events and financial performance and are subject to uncertainty and changes in circumstances. Readers of this report should understand that these statements are not guarantees of performance or results. Many factors could affect our actual financial results and cause them to vary materially from the expectations contained in the forward-looking statements. These factors include, among other things: our expected revenue, income(loss), receivables, operating expenses, supplier pricing, availability and prices of raw materials, Medicare/Medicaid/Insurance reimbursements, product pricing, foreign currency exchange rates, sources of funding operations and acquisitions, our ability to raise funds, sufficiency of available liquidity, future interest costs, future economic circumstances, industry conditions, our ability to execute our operating plans, the success of our cost savings initiatives, competitive environment and related market conditions, actions of governments and regulatory factors affecting our business and other risks as described in our reports filed with the Securities and Exchange Commission. In some cases these statements are identifiable through the use of words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would” and similar expressions.

You are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements we make are not guarantees of future performance and are subject to various assumptions, risks and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. Actual results may differ materially from those suggested by the forward-looking statements that we make for a number of reasons including those described in Part II, Item 1A, “Risk Factors,” of this report.

We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

The following discussion should be read together with our financial statements and related notes contained in this report and with the financial statements, related notes, and Management’s Discussion & Analysis in our annual report on Form 10-K for the fiscal year ended December 31, 2008. Results for the quarter ended September 30, 2009 are not necessarily indicative of results that may be attained in the future.

Overview

Transgenomic, Inc. provides innovative products for the purification and analysis of nucleic acids used in the life sciences industry for research focused on molecular genetics and diagnostics. We also provide genetic variation analytical services to the medical research, clinical and pharmaceutical markets. Net sales are categorized as Instrument Related Business and Laboratory Services.

Instrument Related Business:

• Bioinstruments. Our flagship product is the WAVE^® System which has broad applicability to genetic variation detection in both molecular genetic research and molecular diagnostics. There is a worldwide installed base of over 1,450 WAVE Systems as of September 30, 2009. We also distribute bioinstruments produced by other manufacturers (“OEM Equipment”) through our sales and distribution network. Service contracts to maintain installed systems are sold and supported by technical support personnel.

• Bioconsumables. The installed WAVE base and some third-party installed platforms generate a demand for consumables that are required for the continued operation of the bioinstruments. We develop, manufacture and sell these consumable products. In addition, we manufacture and sell consumable products that can be used on multiple, independent platforms. These products include SURVEYOR^® Nuclease and a range of HPLC separation columns.

Laboratory Services:

• Molecular Clinical Reference Laboratory. The molecular clinical reference laboratory specializes in mitochondrial and molecular diagnostic testing including genetic testing for oncology, hematology and inherited disorders. Located in Omaha, Nebraska the molecular clinical reference laboratory operates in a Good Laboratory Practices compliant environment, is certified under the Clinical Laboratory Improvement Amendment (CLIA) as a high complexity lab and is accredited by CAP (College of American Pathologists).

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• Pharmacogenomics Research Services. Pharmacogenomics research services are provided by our Contract Research Organization located in Omaha, Nebraska. It specializes in pharmocogenomic, biomarker and mutation discovery research serving the pharmaceutical and biomedical industries world-wide for disease research, drug and diagnostic development and clinical trial support.

Executive Summary

Net sales for the nine months ended September 30, 2009 decreased by $2.4 million or 13% compared to the same period in 2008. Net sales in our Instrument Related Business were down 21% or $3.1 million for the nine months ended September 30, 2009 compared to the same period in 2008. The difficult global economic climate has had an impact on our business in 2009. Net sales from bioinstruments were down 22% and net sales of consumables were down 19% for the comparable nine month periods. During the nine months ended September 30, 2009, net sales from Laboratory Services grew 25%, or $0.8 million, compared to the same nine month period in 2008. The Clinical Reference Laboratory showed revenue growth of 48% and net sales from Pharmacogenomics Research Services decreased by 18%. Our gross profit margin decreased from 58% for the nine months ended September 30, 2008 to 53% for the same period in 2009. Our net loss was $2.0 million for the nine months ended September 30, 2009 compared to net loss of $0.3 million for the nine months ended September 30, 2008.

As of September 30, 2009, we had cash and cash equivalents of $4.7 million, compared to $4.8 million at December 31, 2008.

Outlook

We continue to work toward our objective of generating income from continuing operations and positive cash flows from continuing operations. To accomplish these goals, we must generate sequential growth in net sales and continue to control manufacturing and other operating expenses.

Uncertainties

The uncertainty of the current general global economic conditions could negatively impact our business in the future.

We have historically operated at a loss and have not consistently generated sufficient cash from operating activities to cover our operating and other cash expenses. While we have been able to historically finance our operating losses through borrowings or from the issuance of additional equity, we may not be able to obtain such funding due to the tightened credit markets. At September 30, 2009 we had cash and cash equivalents of $4.7 million. We believe that existing sources of liquidity are sufficient to meet expected cash needs during 2009.

There are many factors that affect the market demand for our products and services that we cannot control. Demand for our Instrument Related Business is affected by the needs and budgetary resources of research institutions, universities and hospitals. The instrument purchase represents a significant expenditure by these types of customers and often requires a long sales cycle. These customers may not have the funding available to purchase our instruments. Competition and new instruments introduced in the marketplace also may impact our sales.

We have revaluation risk which occurs when the transaction is done in a currency other than the British Pound. This transaction must be revalued within the Transgenomic, Limited ledger, whose functional currency is the British Pound Sterling. The majority of the transactions on this ledger are in Euro. As a result we are subject to exchange rate risk. The foreign exchange rates have had large variances recently. At January 1, 2008 the Euro to Great British Pound exchange rate was .73650 as compared to September 30, 2009 rate of .91660. The Great British Pound to US Dollar exchange rate was 1.9970 at January 1, 2008 compared to 1.59220 at September 30, 2009. These large changes in foreign exchange rates may negatively impact our business in 2009.

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Results of Continuing Operations

Three Months Ended September 30, 2009 and 2008

Net Sales. Net sales consisted of the following:

	Dollars in Thousands
	Three Months Ended September 30,				Change
	2009		2008		$			%
Instrument Related Business:
Bioinstruments	$	1,999	$	2,196	$	(197	)	(9	)%
Bioconsumables		1,853		2,199		(346	)	(16	)%
		3,852		4,395		(543	)	(12	)%
Laboratory Services:
Molecular Clinical Reference Laboratory		923		736		187		25	%
Pharmacogenomics Research Services		271		236		35		15	%
		1,194		972		222		23	%
Total Net sales	$	5,046	$	5,367	$	(321	)	(6	)%

Bioinstrument sales consist of sales of our WAVE System and associated equipment that we manufacture or assemble, net sales from service contracts that we enter into with purchasers of our instruments, as well as sales of instruments we distribute for other manufacturers (“OEM equipment”). We also sell refurbished WAVE Systems in order to access customers that may not be able to afford new systems. Bioinstrument net sales are down $0.2 million, or 9%, during the three months ended September 30, 2009 as compared to the same period in 2008. In 2009 we sold 6 total instruments compared to 5 instruments in the same period of 2008. There was one OEM instrument sold in the third quarter of 2009 compared to three OEM instrument sales in the third quarter of 2008. Five WAVE systems were sold during the three months ended September 30, 2009, compared to two during the same period of 2008. The WAVE instruments have a lower average sales price compared to the OEM instruments. Accordingly, the combination of an increase in sales of WAVE instruments and the decrease in sales of OEM instruments in the third quarter of 2009 contributed to our overall decline in net sales for the three months ended September 30, 2009 compared to the same period of 2008. There was also a reduction in service contract net sales primarily in the European market. This reduction was due to lower sales volume and a foreign currency exchange impact of $0.1 million. Instrument related revenue is subject to many factors such as type of instrument sold and the country of sale. Due to these factors each quarter should be considered on a stand alone basis and is not indicative of future net sales streams.

Net sales of bioconsumables decreased during the three months ended September 30, 2009 compared to 2008. The foreign currency exchange impact included in this decrease was $0.2 million.

Net sales of Laboratory Services increased during the three months ended September 30, 2009 compared to 2008 by approximately $0.2 million. Laboratory Services sales includes both the Molecular Clinical Reference Laboratory Services and the Pharmacogenomics Research Services. The Molecular Clinical Reference Laboratory Services net sales of $0.9 million increased 25% over the three months ended September 30, 2008. The Pharmacogenomics Research Services net sales of $0.3 million increased 15% over the three months ended September 30, 2008. The Molecular Clinical Reference Laboratory revenue has increased due to increased test volume. Our test volume has increased by 42% due to our increased sales focus. The average revenue per test has decreased by 12% due to the mix of tests performed and increased Medicare and Medicaid test volumes which drives lower reimbursements for these tests. During the three months ended September 30, 2009 and 2008 Pharmacogenomics Research Services net sales consisted of many midsize customers. The Pharmacogenomics Research Services net sales have peaks due to the nature of project related business. Each quarter Pharmacogenomics Research Services should be considered on a stand alone basis and is not indicative of future net sales.

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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 personnel costs, rent, supplies and depreciation) associated with our Laboratory Services operations. Cost of goods sold consisted of the following:

	Dollars in Thousands
	Three Months Ended September 30,				Change
	2009		2008		$			%
Instrument Related Business:
Bioinstruments	$	526	$	767	$	(241	)	(31	)%
Bioconsumables		1,097		1,097		—		—	%
		1,623		1,864		(241	)	(13	)%
Laboratory Services:
Molecular Clinical Reference Laboratory		479		429		50		12	%
Pharmacogenomics Research Services		191		155		36		23	%
		670		584		86		15	%
Cost of goods sold	$	2,293	$	2,448	$	(155	)	(6	)%

Gross profit was $2.8 million or 55% of total net sales during the third quarter of 2009, compared to $2.9 million or 54% during the same period of 2008. The gross margin for the Instrument Related Business was 58% for both the three months ended September 30, 2009 and 2008. Cost of sales for the Instrument Related Business decreased $0.2 million for the third quarter of 2009 compared to the same period of 2008 which was offset by net sales which were lower by $0.5 million. During the three months ended September 30, 2009, the gross margin for Laboratory Services was 44% as compared to 40% in the same period of 2008. The Laboratory Services gross margin increase is attributed to leverage in the organization. Net sales increased $0.2 million and costs of goods increased less than $0.1 million. The decrease in average net revenue per test is a result of test mix and increased Medicare and Medicaid test volume which drives lower reimbursements. Test volume during this period grew by 42% as compared to net sales growth of 25%.

Selling, General and Administrative Expenses.   Selling, general and administrative expenses primarily consist of personnel costs, marketing, travel and entertainment costs, professional fees, and facility costs. In addition, foreign currency revaluation is included here. Excluding foreign currency revaluation gains or losses, which was a gain of $0.1 million in the three months ended September 30, 2009 and nominal in the same period of 2008, our selling, general and administrative costs decreased from $2.8 million in 2008 to $2.3 million in 2009. The primary decrease is due to open employment positions not being filled, lower commissions, and lower travel and stock option expense.

Research and Development Expenses.   Research and development expenses primarily include personnel costs, legal fees, outside services, collaboration expenses, supplies, and facility costs and are expensed in the period in which they are incurred. For the three months ended September 30, 2009 these costs totaled $0.9 million compared to $0.7 million for the three months ended September 30, 2008. The increase is primarily due to collaboration expenses with the Dana-Farber Cancer Institute related to the development of high-sensitivity mutation detection technology called Cold-PCR (coamplification at lower denaturation temperature PCR).

Research and development expenses totaled 19% and 13% of net sales during the three months ended September 30, 2009 and 2008, respectively.

Other Income (Expense).   Other income consists primarily of interest income from cash and cash equivalents invested in overnight instruments. Other income during the three months ended September 30, 2009 and September 30, 2008 was less than $0.1 million for each period.

Income Tax Expense (Benefit).   Income tax benefit for the three months ended September 30, 2009 was a benefit of less than $0.1 million. This is primarily the result of a refundable tax credit anticipated for the 2009 Federal and State Income Tax returns recorded this period. This tax benefit is partially offset by tax expense related to subsidiaries outside the United States and state taxes as well as reserves for uncertain income taxes. We believe the tax benefit recorded will be partially offset in future periods by a tax expense, related to income reported in financial statements of subsidiaries outside the United States. Income tax expense for the three months ended September 30, 2008 was less than $0.1 million.

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Results of Continuing Operations

Nine Months Ended September 30, 2009 and 2008

Net Sales. Net sales consisted of the following:

	Dollars in Thousands
	Nine Months Ended September 30,				Change
	2009		2008		$			%
Instrument Related Business:
Bioinstruments	$	6,215	$	7,987	$	(1,772	)	(22	)%
Bioconsumables		5,579		6,920		(1,341	)	(19	)%
		11,794		14,907		(3,113	)	(21	)%
Laboratory Services:
Molecular Clinical Reference Laboratory		2,886		1,950		936		48	%
Pharmacogenomics Research Services		828		1,012		(184	)	(18	)%
		3,714		2,962		752		25	%
Total Net Sales	$	15,508	$	17,869	$	(2,361	)	(13	)%

Bioinstrument sales consist of sales of our WAVE System and associated equipment that we manufacture or assemble, net sales from service contracts that we enter into with purchasers of our instruments, as well as sales of instruments we distribute for other manufacturers (“OEM equipment”). We also sell refurbished WAVE Systems in order to access customers that may not be able to afford new systems. Bioinstrument net sales are down $1.8 million, or 22%, during the nine months ended September 30, 2009 as compared to the same period in 2008. The decrease in bioinstrument net sales was due to a change in product mix in the nine months ended September 30, 2009. We sold ten OEM instruments in the nine months ended September 30, 2008 compared to five in the nine months ended September 30, 2009. We sold eighteen WAVE Systems in the nine months ended September 30, 2009 as compared to sixteen in the nine months ended September 30, 2008. The WAVE instruments have a lower average sales price compared to the OEM instruments. The average sales price also was lower due to the geographic make up of the sales, which accounted for the majority of the decrease. The foreign currency conversion rate difference between 2009 and 2008 impacted the average net sales price on our European sales. There was also a reduction in service contract net sales, primarily in the European market. This reduction was primarily related to foreign currency exchange impact. Demand for WAVE Systems continues to be affected by significant competitive challenges from traditional (i.e. sequencing) and evolving technologies. Instrument related revenue is subject to many factors such as type of instrument sold and the country of sale. Due to these factors each quarter should be considered on a stand alone basis and is not indicative of future net sales streams.

Net sales of bioconsumables decreased during the nine months ended September 30, 2009 compared to 2008. The primary decrease in consumables is due to the negative impact of the foreign currency exchange rates, primarily the Great British Pound to the US Dollar. There is also some negative volume impact in our European market.

Net sales of Laboratory Services increased during the nine months ended September 30, 2009 compared to 2008 by approximately $0.8 million. Laboratory Services sales includes both the Molecular Clinical Reference Laboratory Services and the Pharmacogenomics Research Services. The Molecular Clinical Reference Laboratory Services net sales of $2.9 million increased 48% over the nine months ended September 30, 2008. The Pharmacogenomics Research Services net sales of $0.8 million during the nine months ended September 30, 2009 decreased 18% from the nine months ended September 30, 2008. The decrease in Pharmacogenomics Research Services is due to one large customer in the first half of 2008 which has completed its project. The Pharmacogenomics Research Services net sales have peaks due to the nature of project related business. Each quarter Pharmacogenomics Research Services should be considered on a stand alone basis and is not indicative of future net sales.

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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 personnel costs, rent, supplies and depreciation) associated with our Laboratory Services operations. Cost of goods sold consisted of the following:

	Dollars in Thousands
	Nine Months Ended September 30,				Change
	2009		2008		$			%
Instrument Related Business:
Bioinstruments	$	2,167	$	2,710	$	(543	)	(20	)%
Bioconsumables		2,935		3,133		(198	)	(6	)%
		5,102		5,843		(741	)	(13	)%
Laboratory Services:
Molecular Clinical Reference Laboratory		1,607		1,196		411		34	%
Pharmacogenomics Research Services		582		531		51		10	%
		2,189		1,727		462		27	%
Cost of goods sold	$	7,291	$	7,570	$	(279	)	(4	)%

Gross profit was $8.2 million or 53% of total net sales during the nine months ended September 30, 2009, compared to $10.3 million or 58% during the same period of 2008. Cost of sales for the Instrument Related Business decreased by 13% for the nine months ended September 30, 2009 compared to the same period of 2008 on a net sales decrease of 21%. This margin erosion is related to a lower average instrument sales price globally and lower service net sales, primarily in the European market. While we did reduce costs somewhat, we do have a fixed cost base related to the instrument related business in addition to more variable costs directly related to the acquisition of products. The Laboratory Services cost of goods sold increased 27% for the nine months ended September 30, 2009 over the same period of 2008. During the nine months ended September 30, 2009, the gross margin for the Laboratory Services was relatively flat at 41% as compared to 42% in the same period of 2008. Gross margin is impacted by the mix of tests sold and the lower average net sales reimbursement per test due to increased Medicare and Medicaid test volume which is largely offset by leverage on the cost side. Test volume during this nine month period grew by 80%. Our direct variable costs per test can be significantly different for some of the tests we offer. For instance, the “CMA” test, our fastest growing test, has a higher direct variable cost than many other of our tests.

Selling, General and Administrative Expenses.   Selling, general and administrative expenses primarily consist of personnel costs, marketing, travel and entertainment costs, professional fees, and facility costs. In addition, foreign currency revaluation is included here. Excluding foreign currency revaluation gains or losses, which was a loss of $0.3 million in the nine months ended September 30, 2009 and a gain of $0.5 million in the same period of 2008, our selling, general and administrative costs decreased from $9.3 million to $7.7 million. The primary decrease is due to no employee bonus accrual, reductions in staff and open positions not filled, lower travel expenses, lower stock option expense and a reduction in bad debt expense.

Research and Development Expenses.   Research and development expenses primarily include personnel costs, legal fees, outside services, collaboration expenses, supplies, and facility costs and are expensed in the period in which they are incurred. For the nine months ended September 30, 2009 these costs totaled $2.5 million compared to $1.8 million for the nine months ended September 30, 2008. The increase is primarily due to collaboration expenses with Power3 for their NuroPro assay development related to the diagnosis of Alzheimer’s and Parkinson’s diseases, the Dana-Farber Cancer Institute related to the development of high sensitivity mutation detection technology called Cold-PCR and purchases of samples related to research work in progress.

Research and development expenses totaled 16% and 10% of net sales during the nine months ended September 30, 2009 and 2008, respectively.

Other Income (Expense).   Other income consists primarily of interest income from cash and cash equivalents invested in overnight instruments. Other income during the nine months ended September 30, 2009 and September 30, 2008 was less than $0.1 million for each period.

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Income Tax Expense (Benefit).   Income tax benefit for the nine months ended September 30, 2009 was a benefit of $0.1 million. This is partially the result of the change in deferred tax assets and liabilities reported in financial statements of subsidiaries outside the U.S due primarily to foreign currency exchange losses. A refundable tax credit related to the 2008 Federal and State Income Tax returns was also recorded. This credit is anticipated to continue for 2009. This tax benefit is partially offset by tax expense related to state taxes as well as reserves for uncertain income taxes. We believe the tax benefit recorded will be partially offset in future periods by a tax expense, related to income reported in financial statements of subsidiaries outside the United States. Income tax expense for the nine months ended September 30, 2008 was less than $0.1 million.

Liquidity and Capital Resources

Our working capital positions at September 30, 2009 and December 31, 2008 were as follows:

	Dollars in Thousands
	September 30, 2009		December 31, 2008		Change
Current assets (including cash and cash equivalents of $4,661 and $4,771, respectively)	$	13,595	$	15,585	$	(1,990	)
Current liabilities		3,663		4,235		(572	)
Working capital	$	9,932	$	11,350	$	(1,418	)

The working capital decrease at September 30, 2009 compared to December 31, 2008 is a result of lower accounts receivable of $1.2 million and lower inventories of $0.6 million offset by lower accrued expenses of $0.5 million.

Management believes existing sources of liquidity, including cash and cash equivalents of $4.7 million, are sufficient to meet expected cash needs during 2009. We have added experienced sales staff in our business in an effort to drive improved sales in 2009. We have also increased our research costs to drive new products and collaborations which should drive future growth. As a result of the current economic outlook in 2009 we cannot assure you that we will be able to maintain our net sales or further reduce our expenses and, accordingly, we may not have sufficient sources of liquidity to continue operations indefinitely. If necessary, management believes they can further reduce costs and expenses to conserve working capital. However, such cost and expense reductions could have an adverse impact on our new product pipeline and ultimately net sales. We could also pursue additional financing, but optimally, our goal is to achieve sufficient net sales to consistently generate net income and positive cash flow.

Analysis of Cash Flows

Nine Months Ended September 30, 2009 and 2008

Net Change in Cash and Cash Equivalents. Cash and cash equivalents decreased $0.1 million during the nine months ended September 30, 2009 compared to a decrease of $0.9 million during the nine months ended September 30, 2008. In 2009 net cash provided by operating activities was $0.2 million offset by $0.3 million of net cash flow used in investing activities with no impact of foreign currency exchange rates. In 2008 net cash used in operating activities was $0.5 million and net cash flow used in investing activities was $0.3 million. The impact of foreign currency exchange rates was a use of cash of $0.2 million in 2008.

Cash Flows Provided by Operating Activities. Cash flows provided by operating activities totaled $0.2 million during the nine months ended September 30, 2009. The cash flows provided by operating activities in 2009 primarily relate to the accounts receivable collections of $1.5 million, the decrease in inventory of $0.7 million and noncash items of $0.8 million, offset by the loss of $2.0 million and lower accrued expenses and accounts payable of $0.7 million. Cash flows used in operating activities totaled $0.5 million during the nine months ended September 30, 2008. The cash flows used in operating activities in 2008 primarily relate to the net loss of $0.3 million. In addition, accounts receivable decreased by $0.2 million, inventory increased by $0.3 million, accounts payable decreased by $0.4 million, accrued expenses decreased by $0.3 million and noncash items totaled $0.7 million.

Cash Flows Used In Investing Activities. Cash flows used in investing activities totaled $0.3 million for each of the nine months ended September 30, 2009 and September 30, 2008. Cash flows used in investing activities in 2009 and 2008 consisted primarily of purchases of property and equipment.

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Off-Balance Sheet Arrangements

At September 30, 2009 and December 31, 2008, 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 and Estimates

Accounting policies used in the preparation of the consolidated financial statements may involve the use of management judgments and estimates. Certain of our accounting policies are considered critical as they are both important to the portrayal of our 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 judgments or estimates may vary under different assumptions or circumstances. Our critical accounting policies are discussed in our annual report on Form 10-K for the fiscal year ended December 31, 2008.

Recently Issued Accounting Pronouncements

Please refer to our annual report on Form 10-K for the fiscal year ended December 31, 2008. There have been no changes to those accounting pronouncements listed except as noted in note B to the financial statements contained in this report.

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.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Translation Risk.   During the last two fiscal years, our international sales have represented more than 50% of our net sales. These sales of products in foreign countries are mainly completed in either British Pounds Sterling or the Euro. Additionally, the British Pound is the functional currency of our wholly owned subsidiary, Transgenomic Limited. Results of operation and the Balance Sheet are translated from the functional currency of the subsidiary, Great British Pounds, to our reporting currency of the US Dollar. 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 at the balance sheet date. In addition, we have revaluation risk which occurs when the transaction is done in a currency other than the British Pound. This transaction must be revalued within the Transgenomic, Limited ledger, whose functional currency is the British Pound Sterling. The majority of the transactions on this ledger are in Euro. As a result we are subject to exchange rate risk. The foreign exchange rates have had large variances recently. At January 1, 2008 the Euro to Great British Pound exchange rate was .73650 as compared to September 30, 2009 rate of .91660. The Great British Pound to US Dollar exchange rate was 1.9970 at January 1, 2008 compared to 1.59220 at September 30, 2009. These large changes in foreign exchange rates may negatively impact our business in 2009.

Item 4T.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures.   We evaluated the design and operating effectiveness of our disclosure controls and procedures as of September 30, 2009 pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, because of the material weakness in our internal control over financial reporting described in item 9A(T) of our report on Form 10-K for the fiscal year ended December 31, 2008, our disclosure controls and procedures as defined in Rule 13a-15(e) continued to not be effective. To address the material weakness in our internal control over financial reporting, management performed additional manual procedures and analysis and other post-closing procedures in order to prepare the consolidated financial statements included in this report. Notwithstanding the material weakness in our internal control over financial reporting as of September 30, 2009, we believe that the consolidated financial statements contained in this report present fairly our financial condition, results of operations, and cash flows for the fiscal years covered thereby in all material respects.

Change in Internal Control Over Financial Reporting. There has been no change in our internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

An investment in our common stock involves a number of risks. You should carefully consider each of the risks described in Item 1A of our annual report on Form 10-K for the fiscal year ended December 31, 2008 before deciding to invest in our common stock. If any of the risks actually occur, our business, financial condition or results of operations could be negatively affected, the market price of our common stock or other securities could decline and you may lose all or part of your investment.

In addition to the risks described in Item 1A of our annual report on Form 10-K for the fiscal year ended December 31, 2008 please consider the following risks before deciding to invest in our common stock:

Providers of clinical testing services may be subject to lawsuits alleging negligence or other similar legal claims. Potential suits could involve claims for substantial damages. Litigation could also have an adverse impact on our client base and reputation. We maintain liability insurance coverage for certain claims that could result from providing or failing to provide clinical testing services, including inaccurate testing results and other exposures. Our insurance coverage limits our maximum exposure on individual claims and, therefore, there is no assurance that such coverage will be adequate.

The clinical laboratory testing industry is subject to extensive regulation. Potential sanctions for violation of statutes and regulations include significant fines and the loss of various licenses, certificates and authorizations. We believe that we are in compliance in all material respects with all statutes, regulations and other requirements applicable to our clinical laboratory operations.

The United States government may pass a public health insurance option. In the event this occurs we would need to do extensive evaluation of the plan to determine the impact of our revenue streams.

Note Regarding Risk Factors

The risk factors presented above and in Item 1A of our annual report on Form 10-K for the fiscal year ended December 31, 2008 are all of the ones that we currently consider material. However, they are not the only ones facing our company. Additional risks not presently known to us, or which we currently consider immaterial, may also adversely affect us. There may be risks that a particular investor views differently from us, and our analysis might be wrong. If any of the risks that we face actually occur, our business, financial condition and operating results could be materially adversely affected and could differ materially from any possible results suggested by any forward-looking statements that we have made or might make. In such case, the trading price of our common stock could decline, and you could lose part or all of your investment. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Item 5. Other Information

The Dana-Farber Cancer Institute

On October 8, 2009 we announced that we licensed a high-sensitivity mutation detection technology called Cold-PCR from the Dana-Farber Cancer Institute (DFCI), Boston, MA. This variation of the standard PCR technology enriches mutations in DNA samples and is a much more sensitive technique for finding low level mutations in tissue and body fluids that are involved with a variety of diseases. Cold-PCR was invented at DFCI by Dr. Mike Makrigiorgos who has demonstrated its effectiveness in enriching for mutations in cancer-related genes in samples where standard DNA sequencing is not sensitive enough to detect these very low concentration somatic DNA mutations. The licensing terms include exclusive rights to commercialize Cold-PCR technology combined with Sanger sequencing as well as all applications for mitochondrial DNA analysis.

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Cold-PCR will have applicability in detection of cancer-related mutations where critical mutations are present at a very low percentage compared to normal DNA. Examples would be in blood and urine or where the tissue collected contains mostly normal cells. This would allow clinicians to use less intrusive methods for genetic analysis or allow more efficient use of tumor tissue samples. Additionally the method could enhance the detection of the emergence of cancer-drug resistance mutations, allowing early detection of relapse.

We believe that Cold-PCR is a critical addition to our high-sensitivity mutation detection portfolio of cutting edge technologies. It will allow us to continue offering affordable, state-of-the-art solutions to challenging areas of genetic analysis and, we hope, allow us to be able to screen patient blood for early detection of cancer, detect cancer drug resistance or relapse earlier as well as expand our mitochondrial DNA analysis toolbox. We have long wanted a technology that would permit us to screen patients earlier in their development of cancer and we hope that Cold-PCR provides us the sensitivity and analytical accuracy to achieve this goal. Discovering cancers at a much earlier phase of development will have a huge impact on cancer diagnosis and treatment.

The expense recorded for our license with the Dana-Farber Cancer Institute during the three and nine months ended September 30, 2009 was $0.2 million.

Power3 Medical Products, Inc.

On January 23, 2009 we signed a definitive collaboration and exclusive license agreement with Power3 Medical Products, Inc. for the rights to Power3 Medical’s neurodegenerative biomarkers.

The agreement grants us exclusive rights in the U.S. and certain international markets to neurodegenerative biomarkers from Power3 Medical including NuroPro^®, a proposed diagnostic for Alzheimer’s and Parkinson’s diseases based on Power3’s proteomics platform. We will pay Power3 Medical an up-front license fee, milestone payments, royalties, and will also provide development funding and resources.

We will offer the NuroPro tests in our CLIA-certified molecular diagnostics laboratory and will add to our portfolio of molecular diagnostics used for mitochondrial disorders, oncology, hematology molecular pathology, and inherited diseases.

The expense recorded for payments made to Power3 Medical Products, Inc. during the three and nine months ended September 30, 2009 was less than $0.1 million and $0.2 million, respectively.

Item 6. Exhibits

(a) Exhibits

3.1	Third Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to Registrant’s Report on Form 10-Q (Registration No. 000-30975) filed on November 14, 2005)
3.2	Amended and Restated Bylaws of the Registrant (incorporated by reference to Registrant’s Report on Form 8-K (Registration No. 000-30975) filed on May 25, 2007)
4	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	License Agreement between the Company and the Dana-Farber Cancer Institute dated October 8, 2009
10.2	License Agreement between the Company and Power3 Medical Products, Inc. dated January 23, 2009
31	Certifications 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 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.

		TRANSGENOMIC, INC.
Date:	November 5, 2009	By:	/S/ CRAIG J. TUTTLE
			Craig J. Tuttle President and Chief Executive Officer

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EX-10.1

Exhibit 10.1

Agreement no. 3899

LICENSE AGREEMENT

This agreement, effective as of October 1st, 2009 (“Effective Date”), is between the Dana-Farber Cancer Institute, Inc., a Massachusetts non-profit organization having a principal place of business at 44 Binney Street, Boston, Massachusetts, 02115 (“DFCI”) and Transgenomic, Inc., a Delaware corporation having a principal place of business at 12325 Emmet Street, Omaha, Nebraska 68164 (“Licensee”).

Background

DFCI is the owner of certain rights in technology as later defined, subject only to a royalty-free, nonexclusive license previously granted to the United States Government; and

DFCI desires to have the rights used to promote the public interest by granting a license;

Licensee has represented to DFCI that it has the capabilities and/or experience to develop, produce, market and sell products utilizing technology that is similar to the technology that is the subject of this Agreement and has the financial capacity and the strategic commitment to facilitate the transfer of the technology for the public interest; and

Licensee desires to obtain a license to DFCI’s rights and DFCI is willing to grant a license upon the terms and conditions of this Agreement.

DFCI and Licensee therefore agree as follows.

Article 1 – Definitions

1.1 “Agreement” means this License Agreement, including all attached schedules.

1.2 “Affiliate” means any company, corporation or other business entity that is controlled by, controlling, or under common control with Licensee. For this purpose “control” means direct or indirect beneficial ownership of at least fifty percent (50%) interest in the voting stock (or the equivalent) of the company, corporation or other business or having the right to direct, appoint or remove a majority of members of its board of directors (or their equivalents) or having the power to control the general management of the company, corporation or other business, by law or contract.

1.3 “Field of Use 1” means use of the Licensed Technology to make, have made, use, develop, and sell Licensed Products and Licensed Services in the areas of mutation detection using DHPLC, Surveyor-endonuclease-based mutation detection, and second generation sequencing techniques, for all research, diagnostic, prognostic and therapeutic uses in humans, animals, viruses, bacteria, fungi, plants or fossilized material.

1.4 “Field of Use 2” means use of the Licensed Technology to make, have made, use, develop, and sell Licensed Products and Licensed Services in the areas of mutation detection using Sanger (di-deoxy) sequencing and mitochondrial DNA analysis for all research, diagnostic, prognostic and therapeutic uses in humans, animals, viruses, bacteria, fungi, plants or fossilized material.

*The Fields of Use shall specifically exclude use of the Licensed Technology in the Fields of Mass Spectrometry and Real-Time PCR.

1.5 “First Commercial Sale” means the initial transfer of Licensed Product and Licensed Services by or on behalf of Licensee, an Affiliate or Sublicensee for cash or non-cash consideration to which a fair market value can be assigned for purposes of determining Net Sales, and in any event excludes any transfer for development, research, investigation, trial or evaluation purposes.

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Agreement no. 3899

1.6 “Licensed Products and/or Licensed Services” means any product, service or process 1) the manufacture, use, sale, or offer for sale of which would constitute an infringement of any Valid Claim in any unexpired patent or patent application included within the Patent Rights; or 2) which is made or developed through the use of Technical Information.

1.7 “Licensed Technology” means Patent Rights, or Technical Information, individually or collectively.

1.8 “Net Sales” means the gross income derived by an entity licensed under this Agreement from the sales of Licensed Products and/or Licensed Services to independent third party customers in bona-fide arms-length transactions less the following deductions, which may not exceed reasonable and customary amounts in the country in which the transaction occurs:

(a) Transportation charges or allowances actually paid or granted;

(b) Trade, quantity, cash or other discounts and brokers’ or agents’ commissions, if any, actually allowed and taken;

(c) Credits or allowances made or given on account of rejects, returns, or retroactive price reductions for any amount not collected that are specifically identifiable to Licensed Products;

(d) Any tax or governmental charge directly on sale or transportation, use or delivery of products paid by a licensed entity and not recovered from the purchaser.

Net Sales includes the fair market value of any non-cash consideration from sale of Licensed Products received by Licensee, its Affiliates or Sublicenses.

Notwithstanding the foregoing, in the event, that Licensee, its Affiliates or Sublicensees employ Distributors for the sale of Licensed Products, Net Sales shall be based on Licensee’s, Affiliate’s or Sublicensee’s initial sale of Licensed Products to the Distributor.

In the event that Licensee, its Affiliates, or Sublicensees sell Licensed Product to a clinical laboratory under a reagent rental program, then “Net Sales” shall be calculated based on the price of the reagent kit containing the Licensed Product to the clinical laboratory (the reagent kit price is generally a component of what is usually termed the ‘reagent rental price’), and any income received based on the laboratory’s use of the reagent kit eg. income that is tied to the number of patient reportable results, minus the following: any fees or payments included in the reagent rental price that are added to the reagent kit pricing for the purchase of an associated instrument system, lease payments for the system, interest payments or fees for the instrument, service contract fees for the instrument(s), warranty fees or other associated hardware pricing needed to perform the assay employing the Licensed Products.

Licensed Products and Licensed Services are considered “sold” when billed, invoiced, or payment is received, whichever occurs first.

1.9 “Patent Rights” means the PCT patent application entitled “Enrichment of a Target Sequence” PCT/US2008/009248 filed July 31 ^st 2008, with a priority date of August 1^st, 2007, and any conversion, continuation, division, or substitution thereof, any patents issuing thereon, any reissues, reexaminations or extensions of the patents and any foreign counterparts of the patent applications and patents aswell as any previous provisional patent applications. Patent Rights does not include continuation-in-part applications.

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Agreement no. 3899

1.10 “Sale” or “Sold” means any grant, sale, lease, assignment, transfer, conveyance or other disposition of Licensed Products or Licensed Services for value by or on behalf of Licensee, any Affiliate(s) or Sublicensee(s).

1.11 “Sublicensee” means any natural person or legal entity, which is not an Affiliate or Distributor, to which Licensee grants a sublicense of some or all of the rights granted to Licensee under this Agreement.

1.12 “Technical Information” means Any and all research data, designs, formulae, process information and other information Dr. Mike Makrigiorgos, or a researcher in his laboratory at DFCI that is supervised by Dr Makrigiorgos, may have provided or may provide to Licensee on a non-exclusive basis, that is owned by DFCI and was developed by Dr Makrigiorgos or his laboratory personnel while performing research directly related to the Patent Rights, that falls under the domain of the Patent Rights, that is not exclusively obligated to any other party, that is necessary for practicing the Licensed Technology or useful in researching, developing, making and or using any Licensed Products.

1.13 “Territory” means worldwide.

1.14 “Valid Claim” means any claim of any Patent Right that has not been (i) finally rejected or declared invalid by a patent office or court of competent jurisdiction in any unappealed and unappealable decision.

1.15 “Distributor” means an entity contracted by Licensee, its Affiliates or Sublicensees for the purpose of selling Licensed Products to third-party end-users.

Article 2 – Grant of Licenses, Reserved Rights and Sublicensing

2.1 License Grants. Subject to all of the terms and conditions of this Agreement and the non-exclusive license granted to the United States government, DFCI hereby grants to Licensee the following rights to the Licensed Technology: i) an exclusive license with the right to grant sublicenses, to make, have made, use, offer to sell, sell and import Licensed Products and Licensed Services in the Territory for the Field of Use 2.; and ii) a non-exclusive license to make, have made, use, offer to sell, sell and import Licensed Products and Licensed Services in the Territory for the Field of Use 1.

The licenses will continue in perpetuity unless the grant is sooner terminated according to Article 8.

2.2 Affiliates. Licensee is entitled to extend its licenses under this Article 2 to its Affiliates, consistent with all of the terms and conditions of this Agreement. If Licensee does extend its licenses and an Affiliate assumes obligations under the Agreement, Licensee guarantees performance by the Affiliate. If DFCI has a claim arising under this Agreement against an Affiliate, DFCI may seek a remedy directly against Licensee and may, but is not is not required to, seek a remedy against the Affiliate. Any termination of the Agreement under Article 8 as to Licensee also constitutes termination as to any Affiliates.

2.3 No Implied Licenses. This Agreement confers no license or rights by implication, estoppel or otherwise under any other patent applications or patents owned in whole or in part by DFCI.

2.4 Reserved Rights. The licenses granted by DFCI are subject to the following reserved rights.

2.4.1 The rights of the United States of America, as set forth in Public laws 96-517 and 98-620, the regulations promulgated thereunder, and the policy of any funding agencies. Any rights granted hereunder, which are greater than permitted by Public Laws 96-517 and 98-620, are subject to modification as required to conform to the provisions of those statutes.

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Agreement no. 3899

2.4.2  DFCI’s right to make and use the Licensed Technology in both Field of Use 1 and Field of use 2. for teaching, education and research purposes, both laboratory and clinical.

2.4.3  DFCI’s right to supply technical Information and to grant non-exclusive, non-transferable licenses to the Licensed Technology to other academic, governmental or not- for-profit organizations to make and use Licensed technology for non-commercial research purposes and not for use in human subjects, clinical trials or for diagnostic purposes involving human subjects.

2.4.4  DFCI’s right to supply Technical Information and to grant non-exclusive licenses to the Licensed Technology to commercial entities in the area of DHPLC and all other fields of use not specified in Field of Use 2. and to grant exclusive licenses outside of Field of use 1 and Field of use 2.

2.5 Sublicensing. Licensee has the right to grant sublicenses under this Agreement consistent with the terms and conditions of this Agreement. Licensee remains responsible for the operations of any Sublicensee under this Agreement, as if the operations were carried out by Licensee.

2.5.1  Notice and Approval. Licensee shall promptly notify DFCI in writing of the identity of any prospective Sublicensee.

2.5.2  Form and Content of Sublicenses. Licensee shall issue any sublicense(s) granted by it under this Agreement in writing and shall attach a copy of this Agreement to all sublicenses.

Licensee shall include the equivalent of at least the following provisions in all sublicenses.

(a) Sublicensee shall use its best efforts to bring the subject matter of the sublicense into commercial use as quickly as possible and shall report annually to Licensee on its operations under the sublicense.

(b) Sublicensee shall make payments due to Licensee in relation to Net Sales of Licensed Products in a timely manner, so that Licensee may comply with its obligations to make payments to DFCI as set forth in Articles 3 and 4 of this Agreement.

(c) The terms and conditions of Section 2.4 (Reserved Rights.), paragraphs 4.2.1 (Books and Records ) and 4.2.2 (Inspections), Sections 5.2 – 5.6, (U.S. Manufacture, Other Government Laws, Patent Marking, Publicity, Other Agreements) Article 6. (Patent Preparation, Filing, Prosecution and Maintenance) Article 7 (Patent Infringement and Enforcement), Sections 8.4.4 (Termination- Sublicenses and Article 9 (Indemnification, Defense and Insurance), Article 10 (Disclaimer of Warranties) and Article 12 (Dispute Resolution) of this Agreement are binding on the Sublicensee.

(d) Sublicensees do not have the right to grant further sublicenses.

2.5.3  Copies of Sublicenses to DFCI. Licensee shall forward to DFCI a copy of any and all fully executed sublicenses. Such copy shall be postmarked within thirty days of the execution of the sublicense. Licensee shall also forward to DFCI annually a copy of the reports received by Licensee from its Sublicensee during the preceding twelve (12) month period under the sublicenses as shall be pertinent to (1) its operations under the sublicense and (2) a royalty accounting under the sublicense agreement.

2.5.4  Licensee’s Continuing Obligations. Nothing in Section 2.5 may be construed to relieve Licensee of its obligations to DFCI under this Agreement, including but not limited to Licensee’s obligations under Article 9.

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Agreement no. 3899

Article 3 – Consideration - Amounts and Time for Payment

In partial consideration of the rights granted by DFCI to Licensee under this Agreement, Licensee shall make the following payments to DFCI according to this Article 3 and Article 4, on behalf of itself, any Affiliate(s) or Sublicensee(s).

3.1 Reimbursements and Other Financial Consideration

3.1.1  Past Patent Expenses. Within thirty (30) days of the Effective Date, upon receipt of an invoice from DFCI, Licensee shall reimburse DFCI for twenty five percent (25%) of all out-of-pocket expenses incurred and/or paid by DFCI before and up until the Effective Date for the filing, prosecution maintenance and enforcement of Patent Rights. Licensee acknowledges that as of the Effective Date the total amount of these out-of-pocket patent expenses incurred by DFCI is approximately Twenty Thousand Dollars ($20,000) and that this amount may increase slightly if DFCI receives further bills from its law-firm for prosecution of Patent Rights up until the Effective Date. Upon receipt of invoices from DFCI, Licensee shall make three further payments each at six (6) monthly intervals beginning from the Effective Date, until the amount due is paid in full.

3.1.2  Future Patent Expenses. Beginning on the Effective Date, Licensee shall assume direct responsibility for the payment of all expenses for the filing, prosecution, maintenance and enforcement of Patent Rights according to Articles 6 and 7. Upon receipt of an invoice from the law-firm, Licensee shall pay such expenses within thirty (30) days of receipt of the invoice.

3.1.3  Initial License Fee. Over a period of two (2) years, beginning from the Effective Date, Licensee shall pay to DFCI, upon receipt of an invoice, a non-creditable, non-refundable Initial License Fee in the sum of Two Hundred and Twenty Thousand US dollars ($220,000). This amount shall be payable to DFCI in four (4) payments at six (6) monthly intervals: The first payment of Fifty Thousand US Dollars ($50,000), shall be due within thirty (30) days of the Effective Date, the second payment of Fifty Thousand US Dollars ($50,000) by march 31^st, 2010, the third payment of Sixty Thousand US Dollars ($60,000) by September 30^th, 2010 and the final payment of Sixty Thousand US Dollars ($60,000) shall be due by March 31^st, 2011. The Initial License Fee shall be due and payable in full by Licensee in the event of any termination of this Agreement by Licensee or DFCI.

3.1.4  Milestone Payments. With respect to each of the first five Licensed Products or Licensed Services developed by either Licensee, its Affiliates, or Sublicensees, whether covered in whole or in part by the Licensed Technology, Licensee shall pay DFCI the following milestone payments within 45 days of the occurrence of the following events whether Licensee, an Affiliate, Sublicensee achieves the events:

(i) Fifteen Thousand Dollars US Dollars ($15, 000) upon FDA or PMA approval or equivalent for diagnostic products.

(ii) Fifteen Thousand US Dollars ($15,000) upon the first commercial sale of each Licensed Product or Licensed Service anywhere in the world requiring FDA or PMA approval

(iii) Ten Thousand US Dollars ($10, 000) upon the first commercial sale of each Licensed Product or Licensed Service anywhere in the world where such Licensed Product or Licensed Service does not require FDA or PMA approval.

(iv) Cumulative Net Sales of $1 million a lump sum payment of twenty five thousand US Dollars ($25,000).

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(iv) Cumulative Net Sales of $15 million a lump sum payment of one hundred thousand US Dollars ($100,000).

3.1.5 Running Royalties. On a quarterly basis, Licensee shall pay to DFCI the following royalties:

(i) a royalty of seven percent (7%) of Net Sales on all Licensed Products and Licensed Services for all sales made by Licensee, its Affiliates and Sublicensees.

(ii) A royalty of ten percent (10%) of Net Sales on all Licensed Products and Licensed Services for all sales made by Licensee, its Affiliates and Sublicensees to its Distributors.

All Royalties will not be subject to royalty stacking provisions.

3.1.6  Sublicensing Running Royalties. Licensee shall pay DFCI an amount equivalent to the sum DFCI would otherwise have received in running royalties if Licensed Products were sold directly by Licensee.

Recording and payment of these royalties by Licensee must be made according to the provisions of Article 4.

3.1.7  Sublicensing Fees. In the event Licensee sublicenses any of the Licensed Technology in Field of Use 2, DFCI shall be entitled to receive 25% of all net Sublicense Fees payable to Licensee in connection with such sublicense.

For the sake of clarity, Sublicense Fees shall exclude 1) any royalties received by Licensee from its sublicensees. 2) bona fide research and development support paid to Licensee by a development partner, and 3) money received as a result of an equity investment in Licensee from research partners.

Further, any Sublicense Fees that Licensee receives from its sublicensees arising from a milestone event set by Licensee that constitutes a First Commercial Sale (“FCS”) anywhere in the world shall also be excluded from the calculation of Sublicense Fees payable to DFCI.

Notwithstanding the foregoing, DFCI shall be entitled to receive the aforementioned applicable percentage of Sublicense Fees as calculated on any and all milestones (other than the FCS Milestones) set forth by Licensee in any sublicense, including fees payable to Licensee for all other commercial sales milestones. Licensee shall pay the Sublicense Fees to DFCI within forty-five (45) days of each calendar quarter in which such fees are received from Sublicensees by Licensee. Sublicense Fees are not creditable against any other payment obligations of Licensee.

3.2 Waiver or Deferral. Waiver or deferral by DFCI of any payment owed under any paragraph under Section 3.1 may not be construed as a waiver or deferral of any subsequent payment owed by Licensee to DFCI.

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3.3 Combination Packages. If a Licensed Product or Licensed Service is sold in a combination package or kit containing other active products or processes, then Net Sales for purposes of determining royalty payments on the combination package will be calculated using one of the following methods, but the royalties payable to DFCI may not be reduced to less than seventy five percent (75%) of that provided for in paragraph 3.1.5 of this Agreement:

(a) By multiplying the net selling price of the combination by the fraction A/A+B, where A is the gross selling price, during the royalty-paying period in question, of the Licensed Product sold separately, and B is the gross selling price during the royalty period in question, of the other active products sold separately; or

(b) If no separate sales are made of the Licensed Product or any of the active products in such combination package during the royalty-paying period in question, Net Sales for the purposes of determining royalty payments, must be calculated by dividing the net selling price of the combination by the number of functions performed by the combination sold where such combination contains active agents other than those licensed under this Agreement.

3.4 Reduced Rate after Expiration of Patents. Licensee’s obligation to pay running royalties to DFCI under paragraphs 3.1.5 and 3.1.6 shall terminate on a country-by-country basis upon expiration of the last-to-expire patent in the applicable country. However, in recognition of the ongoing value of the Technical Information, Licensee shall continue to pay DFCI running royalties on Net Sales of Licensed Products and Licensed Services at a rate of 50% of the value set forth in paragraph 3.1.5 for so long as Licensed Products and Licensed Services are sold in the various country(ies). Following the last-to-expire patent in any applicable country, in the event that Licensee identifies that a competitor is selling competing products and services that are covered by the Licensed Technology which are significantly affecting Licensee’s sales of any Licensed Products and Licensed Services and such competitor does not have a license from DFCI to sell such product or service, if Licensee can demonstrate to DFCI that its sales are down more than twenty five percent (25%), in a particular territory, then no royalty shall be due to DFCI in such specific territory.

Article 4 – Royalty Reports, Payments and Financial Records

4.1 Royalty Reports. Within forty-five (45) days after March 31, June 30, September 30 and December 31, of each year in which this Agreement is in effect, Licensee shall deliver to DFCI full, true and accurate reports of its activities and those of its Affiliates or Sublicensee(s), if any, relating to this Agreement during the preceding three month period. These reports must include at least the following:

(a) Number of Licensed Products and Licensed Services manufactured and sold by Licensee, and any Affiliates or Sublicensees, in each country of the Territory;

(b) Total billings for the Licensed Products and Licensed Services sold;

(c) Deductions applicable to determining Net Sales;

(d) The nature and amount of Sublicense Income received by Licensee;

(e) Total royalties due to DFCI;

With each report, Licensee shall pay to DFCI the royalties due and payable. If no royalties are due, Licensee shall so report. If multiple Licensed Products and Licensed Services are covered by the license granted under this Agreement, Licensee shall separately identify each Licensed Product and Licensed Service in the royalty report.

4.2 Record Keeping.

4.2.1   Books and Records. Licensee shall keep, and shall require its Affiliates and Sublicensees to keep, true books of account containing an accurate record (together with supporting documentation) of all data necessary for determining the amounts payable to DFCI. Licensee shall keep it records at its principal place of business or the principal place of business of the appropriate division of Licensee to which this Agreement relates and shall require its Affiliates and Sublicenses to keep their books and records in the same manner.

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4.2.2 Inspections. In order for DFCI to determine the correctness of any report or payment made under this Agreement, Licensee shall make its records available to DFCI for inspection, for a period of three (3) years following the end of the calendar year to which they pertain. Licensee shall also require any Affiliates or Sublicensees to make their records available for inspection by DFCI, in the same manner as provided in this paragraph 4.2.2.

DFCI may inspect the records during regular business hours by a certified public accountant selected by DFCI and reasonably acceptable to the licensed entity whose records are being inspected. In conducting inspections under this paragraph 4.2.2, Licensee agrees that DFCI’s accountant may have access to all records which DFCI reasonably believes to be relevant to calculating royalties owed to DFCI under Article 3.

DFCI is responsible for the cost of any inspection, unless the examination shows an underreporting or underpayment by any entity in excess of five percent for any twelve month period, in which case Licensee shall pay the cost of the inspection as well as any additional sum that would have been payable to DFCI had the Licensee reported correctly, plus interest as set forth in Section 4.5.

4.3 Form of Payments and Taxes. Licensee must make all payments to be made to DFCI in Boston, Massachusetts, or at such other place or in such other way as DFCI may reasonably designate. Payments must be paid by check made payable to Dana-Farber Cancer Institute, cite Agreement no. 3899 and sent to:

Fiscal Manager

Office of Research and Technology Ventures

Dana Farber Cancer Institute

44 Binney Street, BP304E

Boston, MA 02115

or if by wire transfer, using the following information:

Bank: Bank of America

Bank Address: 100 Federal Street, Boston, MA 02110

Account #431-72001

ABA# 011000390

Reference: Royalties, S. Ramirez x2-5695

Licensee shall pay all amounts payable to DFCI under this Agreement in United States funds without deduction for taxes, exchange, collection or other charges that may be imposed by any country or political subdivision with respect to any amounts payable to DFCI under this Agreement. Licensee is responsible for paying, or ensuring payment of, such taxes, exchange, collection or other charges.

4.4 Currency Conversion. If any currency conversion is required in connection with any payment owed to DFCI, the conversion will be made at the buying rate for the transfer of such other currency as quoted by the Wall Street Journal on the last business day of the applicable accounting period in the case of any payment payable with respect to a specified accounting period or, in the case of any other payment, the last business day before the date the payment is due.

4.5 Interest. Any payment owed to DFCI under this Agreement that is not made when due will accrue interest beginning on the first day following the due date specified in Article 3. The interest will be calculated at the annual rate of the sum of (a) three percent (3%) plus (b), the prime interest rate quoted by Bank of America on the date the payment is due, the interest being compounded on the last day of each calendar quarter. However, the annual rate may not exceed the maximum legal interest rate allowed in Massachusetts. The payment of interest as required by this Section does not foreclose DFCI from exercising any other rights or remedies it has as a consequence of the lateness of any payment.

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Article 5 – Operations under the License

5.1 Due Diligence

5.1.1  General Obligations. Licensee shall use best efforts to bring Licensed Products and Licensed Services to the marketplace as soon as reasonably practicable, through a diligent and aggressive program of development, production and distribution. Such efforts must not be less than the efforts expended by Licensee in connection with its other high priority projects. After commercialization, Licensee shall continue active and diligent efforts to keep Licensed Products and Licensed Services available to the public.

If at any time in the development or commercialization process Licensee decides not to exploit a particular Licensed Product or Licensed Service in Field of Use 2, either by itself, with an Affiliate or through sublicensing, it shall promptly inform DFCI in writing. Unless within sixty days of its notice to DFCI, Licensee establishes to DFCI’s satisfaction that the particular Licensed Product or Licensed Service is directly comparable to a Licensed Product or Licensed Service that Licensee is diligently developing or marketing according to the paragraphs under Section 5.1, DFCI has the right terminate this Agreement insofar as it applies to the particular Licensed Product or Licensed Service by providing written notice to Licensee.

5.1.2   Development Plan. Within ninety (90) days of the Effective Date of this Agreement, Licensee shall provide DFCI with a bona fide written development plan that describes Licensee’s plan for bringing the subject matter of the Licensed Technology to practical application in each of the fields within the Fields of Use, as applicable (“Development Plan”). The Development Plan must set forth the particular Licensed Products and Licensed Services and practical applications of Licensed Products and Licensed Services that Licensee initially intends to develop, cite Licensee’s specific goals and objectives for the ensuing six month period for developing or commercializing the Licensed Technology and outline Licensee’s plan for achieving the specific due diligence obligations set forth in Section 5.1.3 below. The outline must include actual or projected financial resources or strategic alliances that will be required to meet such objectives.

5.1.3  Specific Diligence Benchmarks. Licensee shall use its best efforts to meet the following specific effort and achievement benchmarks (“Diligence Benchmarks”) by the dates specified in this paragraph. For purposes of this paragraph 5.1.3, DFCI will consider efforts of an Affiliate or Sublicense as efforts of Licensee.

(i) Within ninety (90) days of the Effective Date of this Agreement, Licensee shall provide DFCI with the Development Plan containing the information described in 5.1.2. The Development Plan will also contain additional Diligence Benchmarks for the development of specific Licensed Products and Licensed Services in addition to those set forth in 5.1.3 (ii) and (iii) below.

(ii) Within three (3) months of the Effective Date Licensee will launch a K-Ras mutation assay kit employing its proprietary Surveyor endonuclease technology both in Europe and the U.S. Both Licensed Products and Licensed Services will be offered for K-Ras mutation detection.

(iii) Within two (2) years of the Effective Date, Licensee will complete its evaluation of its K-Ras kit using Cold-PCR on circulating DNA to further improve the sensitivity of finding cancer associated mutations earlier in cancer development.

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(iv) Within fifteen (15) days after each six (6) month anniversary of the Effective Date, Licensee shall provide DFCI with a written report describing the efforts and progress by Licensee, or any Affiliates or Sublicensees, during the prior six month period, and its goals and objectives for the ensuing six months, to develop and commercialize Licensed Products and Licensed Services. The report must be in sufficient detail to permit DFCI to monitor Licensee’s compliance with the due diligence provisions of this Agreement. The progress report must provide the information set forth above for each Licensed Product and Licensed Service.

Specifically, Licensee shall include at least the following in these reports:

(a) a summary of Licensee’s progress toward meeting the goals and objectives that had been established for the previous six month period, including research and development efforts, efforts to obtain regulatory approval, marketing efforts and sales figures.

(b) a summary of Licensee’s goals and objectives for the ensuing six month period for developing and commercializing the Licensed Technology and an identification of additional Licensed Products and Licensed Services that Licensee intends to develop, if any and timelines for development and commercialization of such Licensed Products and Licensed Services.

(c) to the extent not covered by the foregoing, a summary of Licensee’s progress in meeting the Diligence Benchmarks of Section 5.1.3.

For purposes of this paragraph 5.1.3, DFCI will consider efforts of an Affiliate or Sublicensee as efforts of Licensee.

5.1.4   Adjustments. The Diligence Benchmarks or dates set forth above may be adjusted by mutual agreement by the parties.

If at any time Licensee determines that it is unlikely to meet one or more of the Diligence Benchmarks, it may so notify DFCI in writing and explain the technical, regulatory or other reasons therefore. At that time, Licensee may also ask DFCI for a reasonable adjustment of the Diligence benchmark(s) or dates specified for the Diligence Benchmarks.

DFCI may accept or reject Licensee’s proposed adjustment(s). However, if Licensee establishes to DFCI’s satisfaction that an adjustment of one or more Diligence Benchmarks or dates (a) is necessary because of pre-clinical technical difficulties or delays in clinical or regulatory processes that Licensee, acting reasonably, could not have avoided or (b) that Licensee has expended significant effort and resources toward meeting the Diligence Benchmark, then DFCI shall negotiate in good faith with Licensee in an effort to reach mutually acceptable, adjusted Diligence Benchmarks or dates for achieving the same. If, despite their good faith negotiation, the parties have not reached an agreement on an adjustment within sixty days of the date specified in paragraph 5.1.3 and Licensee has not otherwise met the Diligence Benchmark, then DFCI may terminate the Agreement immediately by giving Licensee written notice of termination. Alternatively, at DFCI’s option, with input from Licensee, DFCI may convert the exclusive licenses granted under this Agreement to a non-exclusive license, as further provided in paragraph 5.1.7.

5.1.5   Failure to Perform. Licensee’s failure to perform with any due diligence requirement provided in any paragraph in this Section 5.1 is grounds for DFCI to terminate this Agreement according to Section 8.2.3. or to convert this Agreement to a non-exclusive license agreement, at DFCI’s option. Note - Termination or conversion to a non-exclusive license may be with respect to the entire subject matter of the Agreement, a specific field within the Field of Use or a particular Licensed Product or Licensed Service, depending upon the nature and extent of Licensee’s failure to perform.

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5.1.6  Conversion to Non-exclusive License. If the exclusive license granted under this Agreement is converted to a non-exclusive license, this Agreement is automatically amended as follows; (a) the exclusive license of Section 2.1 becomes a non-exclusive license, (b) Licensee loses the right to grant sublicenses under Section 2.5, (c) the obligations of paragraphs 5.1.1. 5.1.2 and 5.1.5 continue to apply but the other paragraphs of Section 5.1 are waived, (d) the obligation under Section 5.2 no longer applies, (e) Licensee has no further rights under Section 6.1 and 6.2, and (f) DFCI has the sole right to pursue apparent infringements and the terms of Article 7 no longer apply.

5.2 U.S. Manufacture. Licensee shall manufacture Licensed Products leased, used or sold in the United States substantially in the United States as required by 35 U.S.C. 204 and 37 C.F.R. 401 et. seq., as amended. Licensee shall also require any Affiliate(s) or Sublicensee(s) to comply with this U.S. manufacture requirement.

5.3 Other Government Laws. Licensee shall comply with, and ensure that its Affiliates and Sublicensees comply with, all government statutes and regulations that relate to Licensed Products. These include but are not limited to FDA statutes and regulations, the Export Administration Act of 1979, as amended, codified in 50 App. U.S.C. 2041 et seq. and the regulations promulgated thereunder or other applicable export statutes or regulations.

5.4 Patent Marking. Licensee shall mark, and shall require its Sublicensees and Affiliates to mark, all Licensed Products sold in the United States with the word “Patent” and the number or numbers of Patent Rights applicable to the Licensed Product.

5.5 Publicity – Use of Name. Licensee, its Affiliate and Sublicensees are not permitted to use the names of DFCI, its related entities or its employees, or any adaptations thereof, in any advertising, promotional or sales literature, or in any securities report required by the Securities and Exchange Commission (except as required by law), without the prior written consent of DFCI in each case. However Licensee may (a) refer to publications in the scientific literature by employees of DFCI or (b) state that a license from DFCI has been granted as provided in this Agreement.

5.6 Confidentiality. Any information that is provided to Licensee in connection with patent filing and prosecution under the terms of Section 6 below is deemed to be DFCI Confidential Information. Licensee agrees that, during the term of this Agreement, and for five (5) years thereafter, to employ all reasonable efforts to maintain the information secret and confidential, such efforts to be no less than the degree of care employed by Licensee to preserve and safeguard its own confidential information. The information shall not be disclosed or revealed to anyone except employees or agents of or consultants to the Licensee who have a need to know the information and who have entered into a secrecy agreement with the licensee under which such employees, agents, or consultants are required to maintain confidential the DFCI Confidential Information and such employees, agents, or consultants shall be advised by the Licensee of the confidential nature of the information and that the information shall be treated accordingly. The Licensee’s obligations under this Section shall not extend to any part of the information:

(a) that can be demonstrated to have been in the public domain or publicly known and readily available to the trade or the public prior to the date of the disclosure; or

(b) that can be demonstrated, from written records to have been in the Licensee’s possession or readily available to the recipient from another source not under obligation of secrecy to the disclosing party prior to the disclosure; or

(c) that becomes part of the public domain or publicly known by publication or otherwise, not due to any unauthorized act by the Licensee; or

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(d) that is demonstrated from written records to have been developed by or for the Licensee without reference to confidential information disclosed by the DFCI; or

(e) that is required to be disclosed by law, government regulation or court order.

Licensee may publish manuscripts, abstracts or the like describing the Patent Rights and inventions contained therein, provided DFCI Confidential Information as defined in this Section, is not included without first obtaining written approval from DFCI to include such DFCI Confidential Information. Such approval not to be unreasonably withheld.

Article 6 – Patent Preparation, Filing, Prosecution and Maintenance

6.1 Responsibility. As of the Effective Date of this Agreement, DFCI will transfer to Licensee, the responsibility for preparing, filing, prosecuting, and maintaining the patent applications and patents included within Patent Rights. For purposes of this Agreement, patent prosecution includes ex parte prosecution, interference proceedings, reissues, reexaminations and oppositions. As long as the license remains exclusive, Licensee shall have the lead in preparing, filing, prosecuting and maintaining the patent applications and patents included within Patent Rights and shall provide, or cause its agent to provide, copies of relevant correspondence between Licensee and the United States Patent Office, or the various foreign patent offices, to DFCI and give DFCI reasonable opportunity to advise Licensee and Licensee’s counsel on such matters. DFCI designates the following individual or department for receiving the patent-related correspondence:

Pamela D. Ariniello, Esq

Associate General Counsel for Intellectual Property

Dana Farber Cancer Institute, Inc.

Office of General Counsel

44 Binney Street

Boston, MA 02115

Upon DFCI’s request, Licensee shall be available to consult with DFCI on matters relating to preparing, filing, prosecuting or maintaining any of the applications or patents within Patent Rights, which matters may be of particular interest to DFCI. Licensee, shall consider the legitimate interests of DFCI in performing its responsibility under this Section 6.1. Licensee designates the following individual or department to receive such requests by DFCI.

Craig Tuttle

President and CEO

Transgenomic Inc.

12325 Emmet Street

Omaha, NE 68164

Cooperation. DFCI shall cooperate with Licensee in preparing, filing, prosecuting and maintaining the patent applications and patents within Patent Rights. Each party shall provide prompt notice to the other party of any matter that comes to its attention that may affect the patentability, validity or enforceability of any patent application or patent within Patent Rights.

6.2 Relinquishing Rights. Licensee may surrender its licenses under any, of the patents or patent applications within Patent Rights in any country of the licensed Territory by giving ninety (90) days advance written notice to DFCI. However, if Licensee is surrendering any patent or application within Patent Rights on which an interference proceeding or opposition has been declared or filed, the notice period is one hundred and eighty (180) days. If Licensee so surrenders its rights, it will remain responsible for all patent-related expenses incurred during the applicable notice period. Thereafter, Licensee will have no further obligation to pay any patent expenses for the patents or patent applications that it surrendered. Not withstanding the foregoing, if such surrender results in termination of all rights under this agreement, then the termination notice provision in Section 8.3, below, shall apply.

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Article 7 – Patent Infringement and Enforcement

7.1 Notice. If at any time during the term of this Agreement, Licensee becomes aware of an apparent Substantial Infringement (as defined in Section 7.2) in a particular country of a patent within Patent Rights, it will promptly notify DFCI.

7.2 Action by DFCI

7.2.1   Procedure. DFCI is responsible for enforcing its Patent Rights and prosecuting apparent infringers when, in its judgment, such action may be reasonably necessary and justified. Licensee may request DFCI to take steps to protect the Patent Rights from an apparent infringement covering an Invention. However, before DFCI must respond to the request, Licensee shall supply DFCI (i) an opinion of qualified legal counsel demonstrating to DFCI’s reasonable satisfaction that an infringement of the Patent Rights exists in a particular country and (ii) written evidence demonstrating to DFCI’s reasonable satisfaction that a Substantial Infringer of the Patent Rights exists in a particular country (“Substantial Infringement”)

7.2.2   DFCI has three months from the date of receiving satisfactory written evidence from Licensee of a Substantial Infringement to decide whether it will seek to terminate the Substantial Infringement. DFCI shall give Licensee notice of its decision by the end of this three-month period. If DFCI notifies Licensee that it intends to prosecute the alleged infringer, then DFCI has SIX (6) months from the date of its notice to Licensee to either (a) cause the Substantial Infringement to terminate or (b) initiate legal proceedings against the alleged infringer. If any such suit is brought by DFCI in its own name, or jointly with Licensee if required by law, it will be at DFCI’s expense and on its own behalf, but DFCI shall not be obligated to bring more than one such suit at a time.

7.2.3   If DFCI notifies Licensee that it does not intend to prosecute an alleged Substantial Infringer and there is not at least one suit pending against an alleged infringer of the Patent Rights then in such case, Licensee shall be relieved of the obligation to pay 50% of royalties that would otherwise accrue from the time of notice until the day DFCI shall bring suit against the alleged infringer or shall obtain discontinuance of said infringement, with respect only as to the patent rights as alleged to be Substantially Infringed.

7.2.4   Cooperation. Licensee shall cooperate with and supply all assistance reasonably requested by DFCI, at DFCI’s request and expense.

7.2.5   Licensee’s Right to Join. Licensee independently has the right to join any legal proceeding brought by DFCI under this Section 7.2 and fund up to fifty percent of the cost of the legal proceeding from the date of joining. If Licensee elects to join as a party plaintiff pursuant to this paragraph 7.2.2, Licensee may jointly participate in the action with DFCI, but DFCI’s counsel will be lead counsel.

7.3 Declaratory Judgment Actions.

In the event that any third party initiates a declaratory judgment action alleging the invalidity or unenforceability of the Patent Rights, or if any third party brings an infringement action against Licensee or its Affiliates or Sublicensees because of the exercise of the rights granted Licensee under this Agreement, then Licensee shall have the right to defend such action under its own control and at its own expense; provided, however, that DFCI shall have the right to intervene and assume sole control of such defense, at its own expense. Neither party shall enter into any settlement, consent judgment or other voluntary final disposition of any action under this Section 7.3 without the consent of the other party, which consent shall not be unreasonably

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withheld unless the settlement includes any express or implied admission of liability or wrongdoing on DFCI’s part, in which case DFCI’s right to grant or deny consent is absolute and at its sole discretion. Any recovery shall be first applied to reimburse each party pro rata for any out-of pocket expenses it may have incurred with respect to defense of such action and the remainder shall be retained entirely by the party controlling the action; provided, however, that any recovery for infringement will be distributed as described in Section 7.4.

7.4 Distribution of Amounts Paid by Third Parties. In any legal proceeding brought by DFCI under Section 7.2 and funded solely by DFCI, any damages or other amounts recovered as a result of the proceeding will be retained by DFCI. In any legal proceeding brought by DFCI under Section 7.2 and funded jointly by DFCI and Licensee, any damages or other amounts will first be used to reimburse each party pro rata for any out-of pocket expenses it may have incurred with respect to defense of such action. The balance, if any, will be divided equally between the parties.

Article 8 – Term and Termination

8.1 Term. Unless terminated earlier under the provisions of this Agreement, this Agreement will terminate when Licensee ceases to sell Licensed Products and/or Licensed Services.

8.2 Termination by Licensor. DFCI has the right to immediately terminate this Agreement and all licenses granted hereunder by providing Licensee with written notice of termination, upon the occurrence of any of the following events.

8.2.1  Licensee ceases to carry on its business with respect to Licensed Products and Licensed Services.

8.2.2  Licensee fails to pay on schedule any royalty or other payment that has become due and is payable under Articles 3 or 4 of this Agreement and has not cured the default by making the required payment, together with interest due, within thirty days of receiving a written notice of default from DFCI requesting such payment..

8.2.3  Licensee fails to comply with any due diligence obligation provided for in Section 5.1, unless Licensee has cured the default by meeting the obligation within sixty days of receiving written notice of default from DFCI.

8.2.4  Licensee defaults in its obligations to procure and maintain insurance under Section 9.2.

8.2.5  An officer of the Licensee is convicted of a felony relating to the manufacture, use, sale or importation of Licensed Products.

8.2.6  Licensee materially breaches any other provision of this Agreement, unless Licensee has cured the breach within ninety of receiving written notice from DFCI specifying the nature of the breach.

8.2.7  Termination for Insurance and Insolvency. DFCI may terminate this Agreement immediately upon written notice, with no further notice obligation or opportunity to cure, if Licensee fails to obtain and maintain the insurance required by Section 9. DFCI or Licensee may terminate this Agreement immediately upon written notice, with no further notice obligation or opportunity to cure, if DFCI or Licensee shall become insolvent, shall make an assignment for the benefit of creditors, or shall have a petition in bankruptcy filed for or against it.

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8.3 Termination by Licensee. Licensee has the right to terminate this Agreement without cause by giving DFCI one hundred and eighty days prior written notice. Upon such termination by Licensee, any and all unpaid Initial License Fees, Milestone Payments, Running Royalties, Sublicense Fees and all past patent expenses incurred by DFCI prior to the Effective Date of the Agreement and patent expenses incurred by Licensee up until the official date of termination shall be payable in full by Licensee.

8.4 Effect of Termination.

8.4.1   No release. Upon termination of this Agreement for any reason, nothing in this Agreement may be construed to release either party from any obligation that matured prior to the effective date of the termination.

8.4.2   Survival. The provisions of Section 3.1.2 (patent expenses) Article 4 (Royalty Reports, Payments and Financial Records), Section 5.5 (Publicity – Use of Names), paragraph 8.4.3 (Inventory), Sections 9.1 – 9.5 (Indemnification and Defense), Sections 9.6 – 9.9 (Insurance), Article 11 (Warranty Disclaimers) and Article 12 (Dispute Resolution) survive termination or expiration of this Agreement.

8.4.3   Inventory. Licensee, any Affiliate(s) and any Sublicensees whose sublicenses are not converted as provided in paragraph 8.4.4, may, after the effective date of termination, sell all Licensed Products and Licensed Services that are in inventory as of the date of written notice of termination, and complete and sell Licensed Products and Licensed Services which the licensed entity(ies) can clearly demonstrate were in the process of manufacture as of the date of written notice of termination, provided that Licensee shall pay to DFCI the royalties thereon as required by Article 3 and shall submit the reports required by Article 4 on the sales of Licensed Products and Licensed Services.

8.4.4   Sublicenses. Any sublicenses will terminate contemporaneously with this Agreement. However, any Sublicensee not in default under its sublicense may request conversion of the sublicense to a license directly between DFCI and Sublicensee. DFCI shall not unreasonably withhold its acceptance of such conversion, however, as a condition of DFCI’s acceptance, the Sublicensee must first agree to be bound by all of the provisions of this Agreement.

Article 9 – Indemnification, Defense and Insurance

Indemnification and Defense.

9.1 Licensee shall indemnify, defend and hold harmless DFCI and its trustees officers, medical and professional staff, employees, and agents and their respective successors, heirs and assigns (the “Indemnitees”), against any liability, damage, loss or expense (including reasonable attorneys’ fees and expenses of litigation) incurred by or imposed upon the Indemnitees, or any one of them, in connection with any claims, suits, actions, demands or judgments (a) arising out of the design, production, manufacture, sale, use in commerce, lease, or promotion by Licensee or by a Sublicensee, Affiliate or agent of Licensee, or any product, process or service relating to, or developed pursuant to, this Agreement or (b) arising out of any other activities to be carried out pursuant to this Agreement.

9.2 Licensee’s indemnification under Section 9.1 (a) applies to any liability, damage, loss or expense whether or not it is attributable to the negligent activities of the Indemnitees. Licensee’s indemnification under 9.1 (b) does not apply to any liability, damage, loss or expense to the extent that it is attributable to (a) the negligent activities of the Indemnitees, or (b) the intentional wrongdoing or intentional misconduct of the Indemnitees.

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9.3 Licensee shall, at its own expense, provide attorneys reasonably acceptable to DFCI to defend against any actions brought or filed against any party indemnified hereunder with respect to the subject of indemnity contained herein, whether or not such actions are rightfully brought.

9.4 If any such action is commenced or claim made or threatened against DFCI or other Indemnitees as to which Licensee is obligated to indemnify it (them) or hold it (them) harmless, DFCI or the other Indemnitees shall promptly notify Licensee of such event. Licensee shall assume the defense of, and may settle, that part of any such claim or action commenced or made against DFCI (or other Indemnitees) which relates to Licensee’s indemnification and Licensee may take such other steps as may be necessary to protect it. Licensee will not be liable to DFCI or other Indemnitees on account of any settlement of any such claim or litigation affected without Licensee’s consent. The right of Licensee to assume the defense of any action is limited to that part of the action commenced against DFCI and/or Indemnitees that relates to Licensee’s obligation of indemnification and holding harmless.

9.5 Licensee shall require any Affiliates or Sublicensee(s) to indemnify, hold harmless and defend DFCI under the same terms set forth in Sections 9.1 – 9.4.

Insurance.

9.6 At such time as any product, process or service relating to, or developed pursuant to, this Agreement is being commercially distributed or sold (other than for the purpose of obtaining regulatory approvals) by Licensee or by a Sublicensee, Affiliate or agent of Licensee, Licensee shall, at its sole cost and expense, procure and maintain policies of commercial general liability insurance in amounts not less than $2,000,000 per incident and $2,000,000 annual aggregate and naming the Indemnitees as additional insureds. Such commercial general liability insurance must provide (a) product liability coverage and (b) contractual liability coverage for Licensee’s indemnification under Sections 9.1 through 9.3 of this Agreement. If Licensee elects to self-insure all or part of the limits described above (including deductibles or retentions which are in excess of $250,000 annual aggregate), such self-insurance program must be acceptable to the DFCI and the DFCI’s associated Risk Management Foundation. The minimum amounts of insurance coverage required under these provisions may not be construed to create a limit of Licensee’s liability with respect to its indemnification obligation under Sections 9.1 through 9.3 of this Agreement.

9.7 Licensee shall provide DFCI with written evidence of such insurance upon request of DFCI. Licensee shall provide DFCI with written notice at least fifteen (15) days prior to the cancellation, non-renewal or material change in such insurance; if Licensee does not obtain replacement insurance providing comparable coverage within such fifteen (15) day period, DFCI has the right to terminate this Agreement effective at the end of such fifteen (15) day period without any notice or additional waiting periods.

9.8 Licensee shall maintain such comprehensive general liability insurance beyond the expiration or termination of this Agreement during (a) the period that any product, process, or service, relating to, or developed pursuant to, this Agreement is being commercially distributed or sold (other than for the purpose of obtaining regulatory approvals) by Licensee or by a Sublicensee, Affiliate or agent of Licensee and (b) a reasonable period after the period referred to in 9.8 (a) above which in no event shall be less than fifteen (15) years.

9.9 Licensee shall require any Affiliates or Sublicensee(s) to maintain insurance in favor of DFCI and the Indemnitees under the same terms set forth in Sections 9.6 – 9.8.

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Agreement no. 3899

Article 10 – Disclaimer of Warranties

10.1 DFCI MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY PATENT, TRADEMARK, SOFTWARE, NON-PUBLIC OR OTHER INFORMATION, OR TANGIBLE RESEARCH PROPERTY, LICENSED OR OTHERWISE PROVIDED TO LICENSEE HEREUNDER AND HEREBY DISCLAIMS THE SAME.

10.2 DFCI DOES NOT WARRANT THE VALIDITY OF THE PATENT RIGHTS LICENSED HEREUNDER AND MAKES NO REPRESENTATION WHATSOEVER WITH REGARD TO THE SCOPE OF THE LICENSED PATENT RIGHTS OR THAT SUCH PATENT RIGHTS MAY BE EXPLOITED BY LICENSEE, AFFILIATE OR SUBLICENSEE WITHOUT INFRINGING OTHER PATENTS. IF BIOLOGICAL MATERIALS ARE LICENSED HEREUNDER, DFCI MAKES NO REPRESENTATION THAT SUCH MATERIALS OR THE METHODS USED IN MAKING OR USING SUCH MATERIALS ARE FREE FROM LIABILITY FOR PATENT INFRINGEMENT.

10.3 THE LIABILITY OF DFCI, ITS AGENTS, OR ITS EMPLOYEES, WITH RESPECT TO ANY AND ALL SUITS, ACTIONS, LEGAL PROCEEDINGS, CLAIMS, DEMANDS, DAMAGES, COSTS AND EXPENSE ARISING OUT OF THE PERFORMANCE OR NON PERFORMANCE OF ANY OBLIGATION UNDER THIS AGREEMENT WHETHER BASED ON CONTRACT, WARRANTY, TORT (INCLUDING WITHOUT LIMITATION NEGLIGENCE), STRICT LIABILITY, STATUTORY OR OTHERWISE SHALL BE LIMITED TO DIRECT, ACTUAL DAMAGES INCURRED AS A RESULT OF DFCI’s FAILURE TO PERFORM ITS OBLIGATIONS AS REQUIRED BY THIS AGREEMENT AND SHALL NOT EXCEED IN THE AGGREGATE A SUM EQUAL TO THE TOTAL AMOUNTS PAID TO DFCI UNDER THIS AGREEMENT.

Article 11 – Notices

11.1 Notices to DFCI. Unless otherwise specified in this Agreement, reports, notices and other communications from Licensee to DFCI as provided hereunder must be sent to:

Vice-President, Research and Technology Ventures

Dana-Farber Cancer Institute

44 Binney Street, BP304E

Boston, MA 02115

or other individuals or addresses as DFCI subsequently furnish by written notice to Licensee.

A copy of the notice must also be sent to the attention of DFCI’s Senior Vice-President for Research, as the same address as provided above.

11.2 Notices to Licensee. Unless otherwise specified in this Agreement, reports, notices and other communications from DFCI to Licensee as provided hereunder must be sent to:

Craig Turtle

President and CEO

Transgenomic Inc.

12325 Emmet Street

Omaha, NE 68164

or other individuals or addresses as Licensee subsequently furnish by written notice to DFCI.

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Article 12 – Dispute Resolution

12.1 Negotiation between the Parties. The parties shall first attempt to resolve any controversy that arises from this Agreement, or claim for breach of the Agreement, by good faith negotiations, first between their respective business development representatives and then, if necessary, between senior representatives for the parties, such as the Senior Vice-President for Research or President of DFCI and the CEO or President of Licensee.

12.2 Non-Binding Mediation. If the controversy or claim cannot be settled through good faith negotiation between the parties, the parties agree first to try in good faith to settle their dispute by non-binding mediation under the Mediation Rules of the American Arbitration Association, before resorting to arbitration, litigation or other dispute resolution procedure.

Article 13 – Independent Contractor

13.1 For the purpose of this Agreement and all services to be provided hereunder, both parties are and will be deemed to be, independent contractors and not agents or employees of the other. Neither party has authority to make any statements, representations or commitments of any kind, or to take any action, that will be binding on the other party.

Article 14 – Severability

14.1  If any one or more of the provisions of this Agreement is held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement will not in any way be affected or impaired thereby.

Article 15 – Force Majeure

14.1  Neither Party shall be held liable or responsible to the other Party nor be deemed to have defaulted under or breached this Agreement for failure or delay in fulfilling or performing any term of this Agreement when such failure or delay is caused by or results from causes beyond the reasonable control of the affected Party, including without limitation, fire, floods, embargoes, war, acts of war (whether war is declared or not), insurrections, riots, civil commotions, strikes, lockouts or other labor disturbances, acts of God or acts, omissions or delays in acting by any governmental authority or the other Party. Performance shall be excused only to the extent of and during the reasonable continuance of such disability

Article 15 – Non-assignability

15.1  Neither this Agreement nor any part of the Agreement is assignable by either party without the express written consent of the other, which consent a party will not unreasonably withhold. However, Licensee may assign this agreement in conjunction with the sale of essentially all of its related business assets. Any attempted assignment without such consent is void.

Article 16 – Entire Agreement

16.1  This instrument contains the entire Agreement between the parties. No verbal agreement, conversation or representation between any officers, agents, or employees of the parties either before or after the execution of this Agreement may affect or modify any of the terms or obligations herein contained.

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Agreement no. 3899

Article 17 – Modifications in Writing

17.1 No change, modification, extension, or waiver of this Agreement, or any of the provisions herein contained is valid unless made in writing and signed by a duly authorized representative of each party.

Article 18 – Governing Law

18.1 The validity and interpretation of this Agreement and the legal relations of the parties to it are governed by the laws of the Commonwealth of Massachusetts without regard to any choice of law principle that would dictate the application of the law of another jurisdiction.

Article 19 – Captions

19.1 The captions are provided for convenience and are not to be used in construing this Agreement.

Article 20 – Construction

20.1 The parties agree that they have participated equally in the formation of this Agreement and that the language herein should not be presumptively construed against either of them.

IN WITNESS WHEREOF, the parties hereto have caused this agreement to be executed in duplicate by their duly authorized representatives as of the date first above written.

DANA-FARBER CANCER INSTITUTE, INC. (DFCI)
By:	/s/ Anthony A. del Campo
	Anthony A. del Campo, M.B.A.
Title:	Vice President Research and Technology Ventures Dana Farber Cancer Institute
Date:	9/29/09
TRANSGENOMIC, INC. (Licensee)
By:	/s/ Craig J. Tuttle
Title:	President & CEO
Date:	9/30/09

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EX-10.2

Exhibit 10.2

COLLABORATION AND EXCLUSIVE LICENSE AGREEMENT

This Collaboration and Exclusive License Agreement, dated as of January 23, 2009 (this “Agreement”), is entered into between Transgenomic, Inc., a Delaware corporation (“Transgenomic”), and Power3 Medical Products, Inc., a New York corporation (“Power3”).

W I T N E S S E T H :

WHEREAS, Power3 has rights in and is developing the Licensed Technology as a diagnostic tool for the early detection of neurodegenerative diseases, including Alzheimer’s disease, Amyotrophic lateral sclerosis (ALS), and Parkinson’s disease;

WHEREAS, Power3 is currently conducting clinical validation studies of the Licensed Technology in order to commercialize the Licensed Technology;

WHEREAS, Transgenomic is willing to provide certain funds to Power3 for use in the reimbursement of costs incurred by Power3 in the clinical validation studies of the Licensed Technology necessary to commercialize the Licensed Technology;

WHEREAS, Transgenomic may also desire to collaborate in the performance of clinical validation studies of the Licensed Technology; and

WHEREAS, Transgenomic desires to obtain, and Power3 is willing to grant, an exclusive license in the Licensed Technology on the terms and conditions of this Agreement.

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, the parties, intending to be legally bound, agree as follows:

ARTICLE 1

DEFINITIONS

For purposes of this Agreement, the terms defined in this Article 1 shall have the respective meanings set forth below:

1.1     “Affiliate”     means with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, such Person. A Person shall be regarded as in control of another Person if it owns, or directly or indirectly controls, at least fifty percent (50%) of the voting stock or other ownership interest of the other Person, or if it directly or indirectly possesses the power to direct or cause the direction of the management and policies of the other Person by any means whatsoever.

1.2     “First Commercial Sale”     means, with respect to a Licensed Product, the first bona fide transaction in a country in the Territory for which consideration is received for the sale, use, lease, transfer or similar disposition of such Licensed Product by Transgenomic, its Affiliate or (sub)licensee to customers who are not Affiliates in such country after all applicable marketing and pricing approvals (if any) have been granted by the applicable governing health authority of such country or, prior to any pricing approval by any applicable governing health authority, the first bona fide transaction in a country in the Territory for which consideration (revenue) is received for performing an assay of the Licensed Product by Transgenomic.

1.3     “Improvements”     means Power3 Improvements and Transgenomic Improvements.

1.4     “Licensed Know-How”     means proprietary information or other know-how, whether or not patentable, and whether stored or transmitted in oral, documentary, electronic, or other form, including without limitation, ideas, concepts, formulas, methods, procedures, designs, compositions, plans, documents, data, inventions, discoveries, developments, works of authorship, biological and chemical materials, and any information relating to research and development plans, experiments, results, compounds, products, preclinical and clinical data, trade secrets, chemical synthesis, scale-up and manufacturing, toxicology, regulatory, stability, and any other information relevant to Neurodegenerative Diagnostic Tests.

1.5     “Licensed Patent Rights”     means (a) all patents and patent applications listed on Exhibit A hereto which are owned by or licensed to Power3, and have application in connection with Neurodegenerative Diagnostic Tests; (b) all patents that have issued or in the future shall issue therefrom, including utility, model and design patents and certificates of invention; and (c) all divisionals, continuations, continuations-in-part, reissues, renewals, reexaminations, extensions or additions to any such patent applications and patents.

1.6     “Licensed Product”     means test kits or systems for performing Neurodegenerative Diagnostic Tests using the Licensed Technology.

1.7     “Licensed Technology”     means, collectively, the Licensed Patent Rights, the Licensed Know-How, the Improvements and as related to the foregoing items, all laboratory notebooks, research plans, inventions, proteins and protein fragments, biomarkers, assay methodology, processes, materials and methods for production, recovery and purification of natural products, formulae, plans, specifications, characteristics, marketing surveys and plans and business plans.

1.8     “Net Sales”     means, with respect to any Licensed Product or Reference Laboratory Service, the gross sales price of such Licensed Product or Reference Laboratory Service invoiced by Transgenomic, its Affiliate, or its (sub)licensee to customers who are not Affiliates (or are Affiliates but are the end users of such Licensed Product) less, to the extent actually paid or accrued by Transgenomic or its Affiliate (as applicable), (a) credits, allowances, discounts and rebates to, and chargebacks from the account of, such customers for spoiled, damaged, out-dated or returned Licensed Product or for Reference Laboratory Services erroneously performed; (b) freight and insurance costs incurred by Transgenomic or its Affiliate (as applicable) in transporting such Licensed Product; (c) cash, quantity and trade discounts, rebates and other price reductions for such Licensed Product or Reference Laboratory Service given to customers under price reduction programs that are consistent with industry practices; (d) sales, use, value-added and other direct taxes incurred on the sale of such Licensed Product and Reference Laboratory Service; (e) customs duties, surcharges and other governmental charges incurred in exporting or importing such Licensed Product and (f) reimbursement decreases from list price

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due to insurance company, hospital or government reimbursement price reductions. Notwithstanding anything to the contrary in this Agreement, if any reusable instrument (that is itself a Licensed Product) is used in combination with a separate diagnostic device (that is itself a Licensed Product) to detect or measure one or more analytes from a patient sample on or in such device, then for purposes of calculating Net Sales, such diagnostic device shall constitute a Licensed Product, but such instrument shall not constitute a Licensed Product.

1.9     “Neurodegenerative Diagnostic Tests”     means proteomic neurodegenerative diagnostic screening tests performed as a series of blood serum tests designed to diagnose motor neuron, cognitive, and other neurodegenerative disorders including, but not limited to, Alzheimer’s, Parkinson’s, Lou Gehrig’s disease (ALS), psychiatric diseases or movement disorders in individuals. The test monitors the concentration of selected biomarkers residing in a panel of blood serum protein biomarkers to distinguish normal patients from those with neurodegenerative diseases, by applying a statistical model that evaluates the quantitative information of the protein biomarkers and automatically assigning a probability score for the individual.

1.10     “Person”     means an individual, corporation, partnership, limited liability company, trust, business trust, association, joint stock company, joint venture, pool, syndicate, sole proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed herein.

1.11     “Power3”     means Power3 Medical, Inc., a New York corporation, and its Affiliates.

1.12     “Power3 Improvement”     means any and all intellectual property developed, created, reduced to practice, conceived, or otherwise made by Power3, its employees, agents or independent contractors that are derived from or based upon the Licensed Technology.

1.13     “Publications”     means the publicly available information describing Power3’s work with respect to Neurodegenerative Diagnostic Tests, including but not limited to published patents and patent applications listed in Exhibit A, conference presentations and peer-reviewed publications.

1.14     “Reference Laboratory Services”     shall mean use of a laboratory developed and laboratory validated test service that (a) is offered or sold by reference laboratories and/or service laboratories and (b) is developed and validated in accordance with regulations promulgated under the Clinical Laboratory Improvement Amendments of 1988 (CLIA) (or under an equivalent subsequent legislation) for the evaluation of a Neurodegenerative Diagnostic Test performed using a Licensed Product.

1.15     “Territory”     means the entire world except for those territories listed on Exhibit B hereto.

1.16     “Third Party”     means any Person other than Power3 and Transgenomic and their respective Affiliates.

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1.17     “Transgenomic”     means Transgenomic, Inc., a Delaware corporation.

1.18     “Transgenomic Common Stock”     means the Common Stock, par value $0.01, of Transgenomic.

1.19     “Transgenomic Improvements”     means any and all intellectual property developed, created, reduced to practice, conceived, or otherwise made by employees or independent contractors of Transgenomic, in the course of performing any activities pursuant to this Agreement or under the license granted thereunder, and that are specific to the Licensed Technology.

ARTICLE 2

REPRESENTATIONS AND WARRANTIES OF POWER3

Power3 hereby represents and warrants to Transgenomic as follows:

2.1     Corporate Existence and Power.     Power3 (a) is a corporation duly organized, validly existing and in good standing under the laws of New York (b) has the corporate power and authority and the legal right to own and operate its property and assets, to lease the property and assets it operates under lease, and to carry on its business as it is now being conducted and (c) is in compliance with all requirements of applicable law, except to the extent that any noncompliance would not have a material adverse effect on the properties, business, financial or other condition of Power3 and would not materially adversely affect its ability to perform its obligations under this Agreement.

2.2     Authorization and Enforcement of Obligations.     Power3 (a) has the corporate power and authority to enter into this Agreement and to perform its obligations hereunder and (b) has taken all necessary corporate action on its part to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder. This Agreement has been duly executed and delivered on behalf of Power3, and constitutes a legal, valid, binding obligation, enforceable against Power3 in accordance with its terms.

2.3     No Consents.     All necessary consents, approvals and authorizations of all governmental authorities and other Persons required to be obtained by Power3 in connection with this Agreement have been obtained.

2.4     Rights in Licensed Technology.     Power3 is the legal and beneficial owner of all right, title and interest in and to the Licensed Technology or has sufficient rights thereto (including, without limitation, the rights under that certain license agreement referred to in the next succeeding sentence), having good title or a valid license thereto, free and clear of any and all mortgages, liens, and security interests created by Power3. Power3 previously has delivered to Transgenomic a full and complete copy, together with all amendments thereto, of the BCM License (defined in Section 4.7 of this Agreement). The BCM License is in full force and effect and neither party thereto is in default under the BCM License. Power3 shall comply with all applicable laws, rules, and regulations of any governmental authority in the performance of its obligations under this Agreement.

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2.5     Non-Infringement.     To the best knowledge of Power3, the Licensed Technology does not infringe upon or unlawfully or wrongfully use any proprietary rights, including but not limited to patent rights, owned or claimed by a Third Party. Power3 has not received any notice of any claim of infringement relating to the Licensed Technology.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF TRANSGENOMIC

Transgenomic hereby represents and warrants to Power3 as follows:

3.1     Corporate Existence and Power.     Transgenomic (a) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; (b) has the corporate power and authority and the legal right to own and operate its property and assets, to lease the property and assets it operates under lease, and to carry on its business as it is now being conducted and (c) is in compliance with all requirements of applicable law, except to the extent that any noncompliance would not have a material adverse effect on the properties, business, financial or other condition of Transgenomic and would not materially adversely affect its ability to perform its obligations under this Agreement.

3.2     Authorization and Enforcement of Obligations.     Transgenomic (a) has the corporate power and authority and the legal right to enter into this Agreement and to perform its obligations hereunder and (b) has taken all necessary corporate action on its part to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder. This Agreement has been duly executed and delivered on behalf of Transgenomic, and constitutes a legal, valid, binding obligation, enforceable against Transgenomic in accordance with its terms.

3.3     No Consents.     All necessary consents, approvals and authorizations of all governmental authorities and other Persons required to be obtained by Transgenomic in connection with this Agreement have been obtained.

3.4     Compliance with Laws.     Transgenomic shall comply with all applicable laws, rules, and regulations of any governmental authority in the performance of its obligations under this Agreement.

ARTICLE 4

LICENSE GRANT

4.1     Exclusive License.     On the terms and subject to the conditions of this Agreement, Power3 hereby grants to Transgenomic an exclusive, royalty-bearing license for the Territory (together with the right to grant sublicenses) to research, develop, obtain regulatory approval for, commercialize, make, have made, use, have used, offer for sale and sell the Licensed Technology, the Licensed Products, and the Reference Laboratory Services in connection with performing or having performed Neurodegenerative Diagnostic Tests. On the terms and subject to the conditions of this Agreement, the exclusive license granted (i)

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with respect to Licensed Patent Rights, continues until the earlier of the expiration of such patents or the expiration or termination of this Agreement (provided that upon the expiration of any such patent Transgenomic shall have a perpetual license in the technology covered by such patent in the Territory) and (ii) with respect to unpatented Licensed Technology, continues until the expiration or termination of this Agreement.

4.2     Trademark Licensed.     Power3 hereby grants to Transgenomic a license to use Power3’s NuroPro^® trademark registered with the United States Patent and Trademark Office in connection with the license granted in Section 4.1 and shall execute a license agreement for such trademark in the form of Exhibit C to this Agreement.

4.3.     Licensed Know How.     After the effective date of this Agreement, Power3 will make available to Transgenomic all relevant Licensed Know How relating to the Licensed Patent Rights.

4.4     Reservation of Rights.     Power3 retains all right, title and interest in and to the Licensed Technology other than those expressly granted in this Agreement.

4.5     365(n) of Bankruptcy Code.     All rights and licenses now or hereafter granted under or pursuant to any Section of this Agreement, are rights to “intellectual property” (as defined in Section 101 (35A) of Title 11 of the United States Code, as amended (such Title 11, the “Bankruptcy Code”)). Power3 grants to Transgenomic and its Affiliates a right of access and to obtain possession of, and to benefit from copies of, (i) pre-clinical and clinical research data and results, (ii) laboratory and compound samples required to be delivered to Transgenomic to the extent not previously delivered, all of which ((i) and (ii)) constitute “embodiments” of intellectual property pursuant to Section 365(n) of the Bankruptcy Code), and (iii) all other embodiments of such intellectual property, whether any of the foregoing are in Power3’s possession or control or in the possession and control of Third Parties.

4.6     Sublicenses.     The right of Transgenomic to sublicense under this Agreement is subject to the following conditions: (a) in each such sublicense, the sublicensee shall be prohibited from granting further sublicenses and shall be subject to the applicable terms and conditions of the license granted to Transgenomic under this Agreement; (b) in each such sublicense, Transgenomic shall use its best efforts to obtain limitations of liability and indemnity protection for Power3 that are at least as comprehensive as that granted to Transgenomic; (c) Transgenomic shall forward to Power3, within thirty (30) days following execution, a complete and accurate copy written in the English language of each sublicense granted hereunder; and (d) notwithstanding any such sublicense, Transgenomic shall remain primarily liable to Power3 for all of the duties and obligations of Transgenomic contained in this Agreement.

4.7     Sublicense of Baylor College of Medicine License.     For the avoidance of doubt, as a part of the Licensed Patent Rights included in the Licensed Technology, Power3 sublicenses to Transgenomic all technology licensed by Power3 as licensee under that certain Exclusive License Agreement between Baylor College of Medicine (“BCM”) and Power 3, dated June 28, 2004, attached

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hereto as a part of Exhibit A (the “BCM License”), subject to and in accordance with the terms and provisions of the BCM License. Transgenomic agrees to comply with the requirements of the BCM License as applicable to sublicensees; provided that in the event that Power3 breaches any provision of the BCM License or receives any notice of default from BCM relating to a possible termination of the BCM License, Power3 shall immediately notify Transgenomic of such breach or notice and Transgenomic shall have the right, but not the obligation, to cure such default or to perform an act or duty of Power3 under the BCM License necessary to cure such default, and the cost of such performance by Transgenomic, including but not limited to reasonable attorneys’ fees, shall be deducted from any payments otherwise due to Power3 under this Agreement. In the event of the termination of the BCM License as a result of any insolvency, dissolution, bankruptcy or receivership proceedings of Power3, Power3 acknowledges that Transgenomic shall have the right, but not the obligation, to seek to enter into a new license agreement for all patents and technology covered by the BCM License, directly with BCM, but subject to BCM’s consent and the payment by Transgenomic of any additional fees required by BMC; provided that Transgenomic shall continue to comply with its obligations to Power3 under this Agreement, subject to its right to deduct the cost of any payments or performance required under the new license with BCM from any payments otherwise due to Power3 under this Agreement. Power3 shall not take any action to amend or terminate the BCM License without the express advance written consent of Transgenomic. Power3 covenants to Transgenomic to duly and faithfully observe all terms and restrictions and perform all of the obligations imposed on Power3 under the BCM License, including without limitation payment of all royalties, license fees and other payments. Power3 shall neither do nor permit anything to be done which would cause the BCM License to be terminated or forfeited by reason of any right of termination or forfeiture reserved or vested in BCM under the BCM License.

ARTICLE 5

COMPENSATION

5.1     Royalties.     In partial consideration for the license granted hereunder, during the term of this Agreement, Transgenomic shall pay to Power3 royalties as follows:

5.1.1     Transgenomic shall pay to Power3 royalties for the license granted in Section 4.1 at a rate (the “Royalty Rate”) of 20% of Net Sales, but not to exceed 25% of the gross profit (as calculated pursuant to U.S. generally accepted accounting principles) derived by Transgenomic from such Net Sales; provided, however, such royalties shall in no case be less than 10% of Net Sales. Such royalties shall be due and payable on a calendar quarterly basis and shall be submitted by Transgenomic along with the report as specified in Section 6.1 below.

5.2     Third Party Licenses.     If Transgenomic is reasonably required to take a license under any Third Party patents to use the Licensed Technology as reasonably determined by Transgenomic, and Transgenomic’s total royalty burden for Net Sales exceeds the applicable Royalty Rate plus four percent (4%) (in sum, the “Royalty Cap”), the Royalty Rate payable hereunder shall be reduced proportionally in accordance with the following formula:

R2 = Rlx (Royalty Cap/T)

Where:

Rl is the Royalty Rate

R2 is the adjusted reduced Royalty Rate hereunder

T is the total royalty rates (on a percentage basis) due to all licensors

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By way of example, if the Royalty Rate owed under Section 5.1.1. is 20% (Rl) and two additional patent licenses are needed from two Third Parties and these two other royalty rates are 3% and 3.25% (total of 6.25%), the value of T is 26.25%, the Royalty Cap is 24% and the Royalty Rate due under this Agreement, as adjusted (R2), is 20 x (24% /26.25%) or 18.29 %.

Notwithstanding the foregoing, in no event will the Royalty Rate due under this Agreement be reduced to less than ten percent (10%) of Net Sales.

5.3     License Execution Fee.

5.3.1     Within three (3) days following execution of this Agreement Transgenomic shall deliver to Power3 via wire transfer the amount of $100,000.

5.3.2     Within thirty (30) days following execution of this Agreement Transgenomic shall create an account for funding Power3’s clinical validation efforts. These funds, referred to in Section 8.1 of this Agreement, shall be disbursed in the manner and subject to the conditions set forth in Section 8.1 and the Disbursement Control Agreement referred to therein.

5.4     Milestone Fees.     Transgenomic shall pay to Power3 the following milestone fees within thirty (30) days of the occurrence of the applicable milestone event:

• $15,000 upon publication of peer reviewed scientific journal article(s) on biomarkers, clinical validations, medical and scientific findings and implications of the Alzheimer’s, Parkinson’s, and Lou Gehrig’s disease blood tests.

• Shares of Transgenomic Common Stock with an aggregate Fair Market Value of $100,000 upon the First Commercial Sale

• Shares of Transgenomic Common Stock with an aggregate Fair Market Value of $500,000 upon reaching a cumulative total of $15,000,000 of Net Sales

For purposes of this Section 5.4, the “Fair Market Value” of each share of Transgenomic Common Stock means the average of its market prices on each of the 20 trading days prior to the date for which the determination is being made, with each market price being the average of the high and low sale prices of the Transgenomic Common Stock as quoted on the Nasdaq National Market System on such trading day, or, in the event that no such sale takes place on such day, the average of the reported closing bid and asked prices on such day, or, if the Transgenomic Common Stock is listed on a national securities exchange, the average of the high and low sale prices reported on the principal national securities exchange on which the Transgenomic Common Stock is listed or admitted to trading on such trading day, or, if no such reported sale takes place on such day, the average of the closing bid and asked prices on

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such day on the principal national securities exchange on which the Transgenomic Common Stock is listed or admitted to trading, or, if the Transgenomic Common Stock is not quoted on such National Market System nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices in the over-the-counter market on such day as reported through Nasdaq, or, if bid and asked prices for the Transgenomic Common Stock on such day are not reported through Nasdaq, the average of the bid and asked prices for such day as furnished by any New York Stock Exchange member firm regularly making a market in the Transgenomic Common Stock selected in good faith for such purpose by Transgenomic, or, if none of the foregoing is applicable, then the fair market value of the Transgenomic Common Stock as mutually determined in good faith by Transgenomic and Power3.

5.5     Sample Use and Reimbursement.     Power3 shall provide to Transgenomic samples for use in its concordance and validation studies, such sample amounts and properties to be further specified by Transgenomic and to be agreed by Power3. Transgenomic shall reimburse Power3 for its full cost incurred as a result of such sample use; provided, however, the payment referred to in Section 5.3.1 of this Agreement represents payment in full for all samples delivered to Transgenomic prior to the execution of this Agreement.

ARTICLE 6

ROYALTY REPORTS AND ACCOUNTING

6.1     Reports.     During the term of this Agreement following the First Commercial Sale of a Licensed Product, Transgenomic shall furnish to Power3 a report for each calendar quarter showing in reasonably specific detail (a) the gross sales of Licensed Product sold by Transgenomic or its Affiliates during the reporting period and the calculation of Net Sales from such gross sales; (b) the royalties payable in United States dollars, if any, which shall have accrued hereunder based upon Net Sales; (c) the withholding taxes, if any, required by law to be deducted in respect of such sales; and (d) the date of the First Commercial Sale of the Licensed Product during the reporting period. Reports shall be due on the forty-fifth (45th) day following the close of each calendar quarter. Transgenomic shall keep, and shall cause its Affiliates to keep, complete and accurate records in sufficient detail to properly reflect all gross sales and Net Sales and to enable the royalties payable hereunder to be determined. Such records shall be maintained for a minimum of five (5) years from the end of the subject calendar year.

6.2     Audits.     Upon the written request of Power3, and not more than once in each calendar year, Transgenomic shall permit an independent certified public accounting firm of nationally recognized standing, selected by Power3 and reasonably acceptable to Transgenomic, to have access during normal business hours to such of the records of Transgenomic and its Affiliates as may be reasonably necessary to verify the accuracy of the reports delivered by Transgenomic hereunder for any year ending not more than thirty-six (36) months prior to the date of such request. The accounting firm shall disclose to Power3 only whether the records and calculation of royalties are correct and the details concerning any specific discrepancies other than the amount of such discrepancy. No other information shall be shared. In the event that any audit report reveals an underpayment to Power3, Transgenomic will immediately pay to Power3 the amount of such underpayment. Any such audit will be performed at Power3’s expense, provided that

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the reasonable fees and expenses of such audit will be paid by Transgenomic if such audit reveals an underpayment by Transgenomic of more than ten percent (10%) or $10,000 (whichever is greater) of the amounts payable by Transgenomic to Power3 in any twelve (12) month period.

6.3     Confidential Financial Information.     Power3 shall treat all financial information subject to review under this Article 6 as Confidential Information pursuant to Article 9 below, and shall cause its accounting firm to retain all such financial information in confidence.

ARTICLE 7

PAYMENTS

7.1     Payment Terms.     Royalties shown to have accrued by each royalty report provided for under Article 6 of this Agreement shall be due and payable on the date such royalty report is due.

7.2     Payment Method.     All payments by Transgenomic to Power3 under this Agreement shall be paid in United States Dollars, and all such payments shall be made by bank wire transfer in immediately available funds to such account as Power3 shall designate before such payment is due.

7.3     Taxes.     All payments under this Agreement will be made without any deduction or withholding for or on account of any tax unless such deduction or withholding is required by applicable laws or regulations. If Transgenomic is so required to deduct or withhold, Transgenomic will (a) promptly notify Power3 of such requirement, (b) pay to the relevant authorities the full amount required to be deducted or withheld promptly upon the earlier of determining that such deduction or withholding is required or receiving notice that such amount has been assessed against Power3, and (c) promptly forward to Power3 an official receipt (or certified copy) or other documentation reasonably acceptable to Power3 evidencing such payment to such authorities, and provide any further assistance reasonably requested by Power3 to enable Power3 to obtain the benefit of any such deduction.

7.4     Late Fees.     Any payments required to be made by Transgenomic pursuant to this Agreement shall, if overdue, bear interest at the “prime rate” of interest as published by the Wall Street Journal for the first business day following the due date, plus one percent (1%), or the maximum rate permitted by applicable law, whichever is less. The payment of such interest shall not preclude Power3 from exercising any other rights it may have because any payment is overdue.

ARTICLE 8

DEVELOPMENT AND COMMERCIALIZATION OBLIGATIONS

8.1.     Continued Development.     Within thirty (30) days following the execution of this Agreement, Transgenomic shall create a bank account funded with the amount of One Hundred Fifty Thousand Dollars ($150,000), said account to be owned by Transgenomic, and which funds will be used by Power3, with prior agreement by Transgenomic, to fund Power3’s clinical

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validation activities of the Neurodegenerative Diagnostic Tests; provided that the availability of such funds to Power3 shall be governed by the terms and conditions set forth in the Disbursement Control Agreement attached hereto as Exhibit D. Clinical validation of the Neurodegenerative Diagnostic Tests shall be the responsibility of Power3 until such time, if any, as Transgenomic shall assume some or all of the future responsibility for clinical validation of the Neurodegenerative Diagnostic Tests pursuant to Section 8.2. Power3 shall use commercially reasonable efforts for said development and shall keep Transgenomic informed about its progress in regular reports. Power3 shall disclose to Transgenomic the available technical and clinical performance data of the then-current version of its tests on regular basis, but in no event less often than monthly.

8.1.1     During the period of continued development of the Neurodegenerative Diagnostic Tests by Power3, Power3 shall:

(a) prepare an Operating Plan and Budget for the clinical validation activities;

(b) provide suitable laboratory facilities, equipment and personnel for the work to be done in carrying out the clinical validation activities;

(c) coordinate and obtain the approval of Transgenomic prior to the publication of research results obtained from such continued development activities;

(d) discuss with Transgenomic whether a license(s) need be obtained from any Third Person(s) in order to make, use or sell the Licensed Product;

(e) determine, subject to the approval of Transgenomic, the priority of assays to be commercialized;

(f) discuss the patent/intellectual property strategy and implementation plan for development and commercialization;

(g) furnish Transgenomic with summary reports within fifteen (15) days after the end of each calendar quarter, describing its progress under the Operating Plan and Budget; and

(h) prepare and furnish to Transgenomic comprehensive written reports within thirty (30) days after the end of each calendar quarter describing in detail the work accomplished by Power3 during such quarter and evaluating the results of such work.

(i) Discuss the plan and timing of development by Transgenomic of next-generation high-throughput immunoassays and platforms, and the plan, timing and budget for the supporting role to be taken by Power3 in these efforts.

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8.1.2     Power3 shall keep complete and accurate records of its expenditures under the Operating Plan and Budget. Transgenomic shall have the right, at its own expense, to appoint an independent certified public accountant to examine such records, during regular business hours at the place or places where such records are customarily kept, upon reasonable notice from Transgenomic, to the extent reasonably necessary to verify the accuracy of the expenditures and required reports. Transgenomic agrees to hold in confidence all information concerning such expenditures, other than their total amounts, and all information learned in the course of any audit or inspection, except to the extent that it is necessary for Transgenomic to reveal the information in order to enforce any rights it may have pursuant to this Agreement or if disclosure is required by law. Failure by Transgenomic to request verification of any expenditures within two years after such expenditure has been made shall be considered acceptance of the accuracy of such expenditure, and Power3 shall have no obligation to maintain any records pertaining to such report or statement beyond the two-year period.

8.2     Assumption of Development by Transgenomic.     If, at any time during the term of this Agreement, Power3 breaches its obligations under this Agreement or the Disbursement Control Agreement attached hereto as Exhibit D or Transgenomic is dissatisfied with Power3’s clinical validation activities of the Neurodegenerative Diagnostic Tests pursuant to this Agreement or such Disbursement Control Agreement, Transgenomic may assume some or all of the responsibility for future development of the Neurodegenerative Diagnostic Tests if Power3 has not cured such breaches or the reasons for Transgenomic’s dissatisfaction within forty-five (45) days after notice thereof by Transgenomic, which notice will specifically state the nature of such breaches or the reasons for such dissatisfaction in reasonable detail. In addition, Transgenomic may, in its discretion, assume some or all of the responsibility for future development of the Neurodegenerative Diagnostic Tests at any time after the entire $150,000 referred to in Section 8.1 of this Agreement has been disbursed to Power3. At such time as Transgenomic assumes responsibility for development of the Neurodegenerative Diagnostic Tests, Power3 shall transfer to Transgenomic the physical embodiment of all Licensed Technology useful or necessary for use in such future development activities, including but not limited to (i) pre-clinical and clinical research data and results, (ii) laboratory and compound samples, (iii) all other embodiments of the Licensed Technology, whether any of the foregoing are in Power3’s possession or control or in the possession and control of Third Parties.

ARTICLE 9

CONFIDENTIALITY

9.1     Confidential Information.     During the term of this Agreement, and for a period of five (5) years following the expiration or earlier termination hereof, each party shall maintain in confidence all written information and data provided by one party to the other hereunder and marked “Confidential” or, if information disclosed orally, visually or in some other form, which is summarized in writing, is confirmed in writing as “Confidential” to the other party within thirty (30) days of such disclosure (the “Confidential Information”), and shall not use, disclose or grant the use of the Confidential Information of the other except on a need-to-know basis to those directors, officers, employees, agents, attorneys, accountants, advisors, counterparties and permitted assignees of it and its Affiliates, to the extent such disclosure is reasonably necessary in connection with such party’s activities as expressly authorized by this Agreement. To the extent that disclosure is authorized by this Agreement, prior to disclosure, each party hereto shall obtain

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agreement of any such Person to hold in confidence and not make use of the Confidential Information for any purpose other than those permitted by this Agreement. Notwithstanding the foregoing, all orally disclosed Licensed Know-How shall be deemed the Confidential Information of Power3 without marking or other designation.

9.2     Permitted Disclosures.     The confidentiality obligations contained in Section 9.1 of this Agreement shall not apply to the extent that (a) any receiving party (the “Recipient”) is required (i) to disclose information by law, order or regulation of a governmental agency or a court of competent jurisdiction, or (ii) to disclose information to any governmental agency for purposes of obtaining approval to test or market a product, provided in either case that the Recipient shall provide written notice thereof to the other party and sufficient opportunity to object to any such disclosure or to request confidential treatment thereof; or (b) the Recipient can demonstrate that (i) the disclosed information was public knowledge at the time of such disclosure to the Recipient, or thereafter became public knowledge, other than as a result of actions of the Recipient in violation hereof; (ii) the disclosed information was rightfully known by the Recipient (as shown by its written records) prior to the date of disclosure to the Recipient by the other party hereunder; or (iii) the disclosed information was disclosed to the Recipient on an unrestricted basis from a source unrelated to any party to this Agreement and not under a duty of confidentiality to the other party.

9.3     Equitable Relief.     Each party hereby acknowledges and agrees that, in the event of any breach or threatened breach of this Article 9 by the Recipient, the disclosing party may suffer irreparable injury for which damages at law may not be an adequate remedy. Accordingly, without prejudice to any other rights and remedies otherwise available to the disclosing party, the disclosing party shall be entitled to seek equitable relief, including injunctive relief and specific performance, for any breach or threatened breach of this Article 9 by the Recipient, its Affiliates, or any of its or their employees, directors, officers, members, agents, or representatives.

9.4     Non-Use of Names; Confidentiality of Agreement.     Subject to Section 9.5, neither party shall make any public announcement, issue any press release or publish any study (collectively, all such communications, “Publication”) concerning the transactions contemplated herein, or make any Publication which includes the name of the other party or any of its Affiliates, or otherwise use the name or names of the other party or any of their employees or any adaptation, abbreviation or derivative of any of them, whether oral or written, related to the terms, conditions or subject matter of this Agreement, without the prior written permission of such other party, except as may be required by applicable law, regulation or judicial order (and then only following consultation with the other party). Such permission may not unreasonably be withheld.

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9.5     Press Release.     The parties shall issue a press release substantially in the form attached hereto as Exhibit E promptly after the execution of this Agreement.

ARTICLE 10

INTELLECTUAL PROPERTY

10.1     Ownership.

10.1.1     Assignment of Transgenomic Improvements.     Subject to a perpetual, exclusive, royalty-free (other than Transgenomic’s continuing obligations to pay royalties as provided in Article 5 of this Agreement), world-wide license, with the right to sub-license, hereby retained by Transgenomic, Transgenomic hereby irrevocably assigns and agrees to assign to Power3 all worldwide right, title and interest in and to Transgenomic Improvements. Transgenomic agrees that Transgenomic shall sign, execute and acknowledge or cause to be signed, executed and acknowledged (any out-of-pocket costs for which shall be at Power3’s sole cost) any and all documents and to perform such acts as may be necessary, useful or convenient for the purposes of perfecting the foregoing assignment and obtaining, enforcing and defending intellectual property rights with respect to Transgenomic Improvements.

10.1.2     Retention of Rights.     Except for the rights and licenses expressly provided herein, Power3 and Transgenomic retain all of their respective worldwide right, title and interest in and to any intellectual property made, conceived or reduced to practice by or on behalf of Power3 and Transgenomic, respectively. No licenses are granted by implication, estoppel or otherwise.

10.2     Actual or Threatened Disclosure or Infringement.     If information comes to the attention of Transgenomic to the effect that any patent rights relating to a Licensed Product or Reference Laboratory Service, have been or are threatened to be infringed, Transgenomic shall have the right, at its expense, to take such action as it may deem necessary to prosecute or prevent such infringement, including the right to bring or defend any suit, action or proceeding involving any such infringement. Transgenomic shall notify Power3 promptly of the receipt of any such information and of the commencement of any such suit, action or proceeding. If Transgenomic determines that it is necessary or desirable for Power3 to join any such suit, action or proceeding, Power3 shall execute all papers and perform such other acts as may be reasonably required to permit Transgenomic to act in Power3’s name. In the event that Transgenomic brings a suit, it shall be entitled to all sums recovered in such suit or in its settlement without any further obligation to Power3. If Transgenomic does not, within 120 days after giving notice to Power3 of the above-described information, notify Power3 of Transgenomic’s intent to bring suit against any infringer, Power3 shall have the right to bring suit for such alleged infringement, but it shall not be obligated to do so. Power3 may join Transgenomic as party plaintiff, if appropriate, in which event Power3 shall hold Transgenomic free, clear and harmless from any and all costs and expenses of such litigation, including reasonable attorneys’ fees, and all sums recovered in any such suit or in its settlement shall belong to Power3 without any further obligation to Transgenomic. Each party shall always have the right to be represented by counsel of its own selection and at its own expense in any suit instituted by the other for infringement, under the terms of this Section. If Transgenomic lacks standing to bring any such suit, action or proceeding, then Power3 shall do so at the request of Transgenomic and at Transgenomic’s expense.

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10.3     Infringement Claims.

10.3.1     Defense of Infringement Claims.     Each party will cooperate with the other in the defense of any suit, action or proceeding against either such party or any sublicensee of such party alleging the infringement of the intellectual property rights of a Third Person by reason of the use of the Licensed Technology in the manufacture, use or sale of a Licensed Product or a Reference Laboratory Service. Each party shall give the other party prompt written notice of the commencement of any such suit, action or proceeding or claim of infringement and will furnish the other party with a copy of each communication relating to the alleged infringement. The party defending any such suit or action shall have full authority (including the right to exclusive control of defense of any such suit, action or proceeding and the exclusive right to compromise, litigate, settle or otherwise dispose of any such suit, action or proceeding), to defend or settle any such suit, action or proceeding. If the parties agree that the other party should institute or join any suit, action or proceeding pursuant to this Section 10.3.1, the non-moving party may join the other party as a defendant if necessary or desirable, and each such party shall execute all documents and take all other actions, including giving testimony, which may reasonably be required in connection with the prosecution of such suit, action or proceeding.

10.3.2     Costs of Infringement Claims.     With regard to a suit, action or proceeding brought against Transgenomic for infringement arising out of the use of the Licensed Technology by Transgenomic, Power3 will be responsible for the costs incurred by Transgenomic under Section 10.3.1 above (“Infringement Litigation Costs”). Transgenomic may recover Infringement Litigation Costs from Power3 to the extent of all royalties and milestone previously paid under this and Agreement and may recoup any excess amount of Infringement Litigation Costs from future royalties and milestones due to Power3.

10.4     Additional Patents.

10.4.1     Power3 shall decide whether (and where) to file any patent application relating to Improvements. Power3 may select counsel, prepare and prosecute such applications. Power3 shall be responsible for in all expenses incurred by such counsel.

10.4.2     In the event Power3 elects not to file or elects not to continue prosecution of an application on any Improvement, Transgenomic may file and prosecute any such application(s) at its own expense.

10.4.3     In the event that Power3 determines that it is no longer interested in prosecuting or maintaining a particular patent application or granted patent included in Licensed Patents, Power3 shall so inform Transgenomic in sufficient time to permit Transgenomic to assume the responsibility and expense for the further prosecution and/or maintenance of such application or patent. If Transgenomic assumes such responsibility and expense, any expenses incurred by Transgenomic in prosecuting or maintaining such patent shall be deducted from future royalties or milestone payments due to Power3.

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ARTICLE 11

TERMINATION

11.1     Expiration.     Subject to the provisions of Sections 11.2, 11.3 and 11.4 of this Agreement, this Agreement shall expire on the termination of Transgenomic’s obligation to pay royalties to Power3 under Article 5 of this Agreement.

11.2     Termination by Transgenomic.     Transgenomic may terminate this Agreement, in its sole discretion, upon ninety (90) days prior written notice to Power3.

11.3     Termination by Power3.     Power3 may terminate this Agreement, in its sole discretion, upon ninety (90) days prior written notice to Transgenomic if (i) the First Commercial Sale has not occurred within 12 months after execution of this Agreement, unless such failure is due to events of force majeure referred to in Article 13 of this Agreement, or (ii) Power3 has not received at least $10,000 in royalties under Section 5.1 prior to 18 months after execution of this Agreement, unless such failure is due to events of force majeure referred to in Article 13 of this Agreement; provided, however, Transgenomic may avoid the occurrence of the event described in this clause by paying to Power3 prior to the expiration of such 90-day period an amount which, when added to the royalties paid to Power3 under Section 5.1, totals $10,000.

11.4     Termination for Cause.     Except as otherwise provided in Article 13 of this Agreement, a party may terminate this Agreement upon or after the breach of any material provision of this Agreement by the other party if the other party has not cured such breach within forty five (45) days after notice thereof by the non-breaching party.

11.5     Effect of Expiration or Termination.     Expiration or termination of this Agreement shall not relieve the parties of any obligation accruing prior to such expiration or termination, and the provisions of Articles 9, 10, 12, 14 and 15 shall survive the expiration or termination of this Agreement.

ARTICLE 12

INDEMNIFICATION

Transgenomic shall defend, indemnify and hold Power3 harmless from all losses, liabilities, damages, fines, penalties and expenses (including reasonable attorneys’ fees and costs) incurred by Power3 as a result of any Third Party claim, demand, action or other proceeding arising out of the manufacture, use, sale, performance or other exploitation of the Licensed Technology by Transgenomic, or their respective customers or a breach of the warranty set forth in Section 3.4. Power3 shall defend, indemnify and hold Transgenomic harmless from all losses, liabilities, damages, fines, penalties and expenses (including reasonable attorneys’ fees and costs) incurred by Transgenomic as a result of any Third Party claim, demand, action or other proceeding arising from a breach by Power3 of the warranties set forth in Sections 2.4 or 2.5. If either party proposes to seek indemnification from the other party under the provisions of this Section 12.1, it shall notify the indemnifying party within thirty (30) days of receipt of notice of any such claim or suit; provided, that the failure to notify shall not preclude a party’s obligations under this Section unless the failure to timely

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notify the other party materially prejudices the other party. The indemnified party shall have the right but not the obligation to participate in the defense of such claim, and the parties shall mutually agree upon counsel and settlement terms with respect to any such claim.

ARTICLE 13

FORCE MAJEURE

Neither party shall be held liable or responsible to the other party nor be deemed to have defaulted under or breached this Agreement for failure or delay in fulfilling or performing any term of this Agreement to the extent, and for so long as, such failure or delay is caused by or results from causes beyond the reasonable control of the affected party including but not limited to fire, floods, embargoes, war, acts of terror, acts of war (whether war be declared or not), insurrections, riots, civil commotions, strikes, lockouts or other labor disturbances, acts of God or acts, omissions or delays in acting by any governmental authority (including the FDA) or other party. The foregoing shall not apply to monetary obligations.

ARTICLE 14

LIMITATION OF LIABILITY; WARRANTY DISCLAIMER

14.1     Limitation of Liability.     EXCEPT FOR CLAIMS ARISING FROM BREACH OF ARTICLE 9 OR INFRINGEMENT OR MISAPPROPRIATION OF A PARTY’S INTELLECTUAL PROPERTY RIGHTS OR CLAIMS INDEMNIFIED HEREUNDER, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, OR DAMAGES FOR LOSS OF PROFITS, REVENUE, DATA OR USE, INCURRED BY EITHER PARTY OR ANY THIRD PARTY, WHETHER IN AN ACTION IN CONTRACT OR TORT, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

14.2     Disclaimer of Warranties.     EXCEPT AS EXPRESSLY WARRANTED IN THIS AGREEMENT, POWER3 DISCLAIMS AND TRANSGENOMIC HEREBY WAIVES ANY AND ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION REGARDING THE SCOPE, COVERAGE, VALIDITY OR ENFORCEABILITY OF ANY OF THE LICENSED TECHNOLOGY AND REGARDING THE INTENDED USE BY TRANSGENOMIC OF THE LICENSED TECHNOLOGY OR LICENSED PRODUCTS (INCLUDING, BUT NOT LIMITED TO, ANY INFRINGEMENT, MISAPPROPRIATION OR VIOLATION OF ANY INTELLECTUAL PROPERTY RIGHT OF ANY THIRD PARTY AND ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE). FURTHER, POWER3 MAKES NO REPRESENTATION OR WARRANTY THAT TRANSGENOMIC CAN SUCCESSFULLY MAKE, SELL OR USE ANY LICENSED PRODUCTS.

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ARTICLE 15

MISCELLANEOUS

15.1     Notices.     Any consent, notice or report required or permitted to be given or made under this Agreement by one of the parties hereto to the other party shall be in writing, delivered by any lawful means, and addressed to such other party at its address indicated below, or to such other address as the addressee shall have last furnished in writing to the addressor and (except as otherwise provided in this Agreement) shall be effective upon receipt by the addressee as evidenced by the delivery receipt.

If to Power3:

Power3 Medical Products, Inc.

3400 Research Forest Drive

Suite B2-3

The Woodlands, Texas 77381

Facsimile: 281-466-1481

If to Transgenomic:

Transgenomic, Inc.

12325 Emmet Street

Omaha, Nebraska 68164

Attn: Legal Department

Facsimile: 402-452-5461

15.2     Governing Law.     This Agreement shall be governed by and construed in accordance with the laws of the State of Nebraska, without regard to the conflicts of law principles thereof.

15.3     Assignment.     Neither party shall assign its rights or obligations under this Agreement, in whole or in part, by operation of law or otherwise, without the prior written consent of the other party, which consent shall not be unreasonably withheld; provided, however, that either party may assign this Agreement to the successor to all or substantially all of its assets or business to which this Agreement relates or to a successor through a merger. Any purported assignment in violation of this Section 15.3 shall be void.

15.4     Waivers and Amendments.     No change, modification, extension, termination or waiver of this Agreement, or any of the provisions herein contained, shall be valid unless made in writing and signed by duly authorized representatives of the parties hereto.

15.5     Entire Agreement.     This Agreement embodies the entire understanding between the parties and supersedes any prior understanding and agreements between and among them respecting the subject matter hereof. There are no representations, agreements, arrangements or understandings, oral or written, between the parties hereto relating to the subject matter of this Agreement which are not fully expressed herein.

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15.6     Severability.     Any of the provisions of this Agreement which are determined to be invalid or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability in such jurisdiction, without rendering invalid or unenforceable the remaining provisions hereof and without affecting the validity or enforceability of any of the terms of this Agreement in any other jurisdiction.

15.7     Waiver.     The waiver by either party hereto of any right hereunder or the failure to perform or of a breach by the other party shall not be deemed a waiver of any other right hereunder or of any other breach or failure by said other party whether of a similar nature or otherwise.

15.8     Counterparts.     This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

15.9     Relationship of Parties.     Nothing in this Agreement or in the course of business between Power3 and Transgenomic shall make or constitute either Party a partner, employee or agent of the other and the relationship between the Parties is not a partnership, joint venture or agency. Neither Party shall have any right or authority to commit or legally bind the other in any way whatsoever including, without limitation, the making of any agreement, representation or warranty.

15.10     Resolution of Disputes.     In the event of any dispute or disagreement between the parties either in interpreting any provision of this Agreement or about the performance of either party and upon the written request of either party (“Dispute Notice”), each of the parties will appoint a designated representative to attempt to resolve such dispute or disagreement. The designated representatives will discuss the problem and negotiate in good faith in an effort to resolve the dispute without any formal proceedings. The specific format of such discussion shall be left to the discretion of the designated representatives. In the event a dispute is not resolved within thirty (30) days following the date of the Dispute Notice, the parties agree to proceed to mediation under the Mediation Rules of the American Arbitration Association and to conclude such mediation within ninety (90) days following the date of the Dispute Notice. If the parties are unable to agree upon a mutually convenient place for the mediation, the mediation shall take place in Omaha, Nebraska. Each party will pay its own costs, plus an equal share of the cost of the mediator and mediation facilities. If any dispute is not resolved by mediation, then either party in its sole discretion may invoke litigation, provided that failure to invoke litigation shall not be a waiver of any such dispute. During any mediation or litigation which arises out of a dispute, all parties will continue to proceed pursuant to the provisions of this Agreement without prejudice to the rights of such parties under this Agreement. Notwithstanding the foregoing, either party shall have the right, without waiving any right or remedy available to such party under this Agreement or otherwise, to seek and obtain from any court of competent jurisdiction any interim or provisional relief that is necessary or desirable to protect the rights or property of such party, pending the discussions and negotiations set forth above.

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above.

P0WER3 MEDICAL PRODUCTS, INC.
By	/s/ Helen R. Park
Title	Interim CEO
TRANSGENOMIC, INC.
By	/s/ Craig J. Tuttle
Title	President & CEO

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EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Craig J. Tuttle, certify that:

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

2. Based on my knowledge, this quarterly 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 quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and 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 quarterly report is being prepared;

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

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

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

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, 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 data and have identified for the Registrant’s auditors any material weaknesses in internal controls; 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.

/s/ CRAIG J. TUTTLE

Craig J. Tuttle

President and Chief Executive Officer

Date: November 5, 2009

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Debra A. Schneider, certify that:

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

2. Based on my knowledge, this quarterly 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 quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and 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 quarterly report is being prepared;

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

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

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

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, 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 data and have identified for the Registrant’s auditors any material weaknesses in internal controls; 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.

/s/ DEBRA A. SCHNEIDER

Debra A. Schneider

Chief Financial Officer

Date: November 5, 2009

EX-32.1

Exhibit 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the accompanying Quarterly Report on Form 10-Q of Transgenomic, Inc. for the quarter ended September 30, 2009, I, Craig J. Tuttle, 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 Quarterly Report on Form 10-Q of Transgenomic, Inc. for the quarter ended September 30, 2009, 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 Quarterly Report on Form 10-Q of Transgenomic, Inc. for the quarter ended September 30, 2009, fairly presents, in all material respects, the financial condition and results of operations of Transgenomic, Inc.

/s/ CRAIG J. TUTTLE

Craig J. Tuttle

President and Chief Executive Officer

Date: November 5, 2009

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.

EX-32.2

Exhibit 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the accompanying Quarterly Report on Form 10-Q of Transgenomic, Inc. for the quarter ended September 30, 2009, I, Debra A. Schneider, 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 Quarterly Report on Form 10-Q of Transgenomic, Inc. for the quarter ended September 30, 2009, 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 Quarterly Report on Form 10-Q of Transgenomic, Inc. for the quarter ended September 30, 2009, fairly presents, in all material respects, the financial condition and results of operations of Transgenomic, Inc.

/s/ DEBRA A. SCHNEIDER

Debra A. Schneider

Chief Financial Officer

Date: November 5, 2009

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.