10-Q

UNITED STATES

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 March 31, 2008

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: 000-31633

Kosan Biosciences Incorporated

(Exact name of registrant as specified in its charter)

Delaware	94-3217016
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3832 Bay Center Place, Hayward, California 94545

(address of principal executive offices)

(510) 732-8400

(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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, 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.

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

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 April 30, 2008, 42,656,290 shares of the registrant’s Common Stock, $.001 par value were outstanding.

KOSAN BIOSCIENCES INCORPORATED

Form 10-Q

Quarter Ended March 31, 2008

INDEX

		Page
PART I.	FINANCIAL INFORMATION
Item 1:	Financial Statements:
	Condensed Balance Sheets as of March 31, 2008 (unaudited) and December 31, 2007	3
	Condensed Statements of Operations (unaudited) for the three months ended March 31, 2008 and 2007	4
	Condensed Statements of Cash Flows (unaudited) for the three months ended March 31, 2008 and 2007	5
	Notes to Condensed Financial Statements (unaudited)	6
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4:	Controls and Procedures	19
PART II.	OTHER INFORMATION
Item 1A:	Risk Factors	20
Item 5:	Other Information	38
Item 6:	Exhibits	39
SIGNATURES		41

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

KOSAN BIOSCIENCES INCORPORATED

CONDENSED BALANCE SHEETS

(in thousands)

	March 31, 2008			December 31, 2007 (1)
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	43,661		$	46,950
Short-term investments		14,412			23,058
Accounts receivable		1,203			1,301
Prepaid and other current assets		594			521
Total current assets		59,870			71,830
Restricted cash		949			949
Property and equipment, net		5,119			4,848
Other assets		240			240
Total assets	$	66,178		$	77,867
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	2,593		$	2,840
Accrued liabilities		10,745			10,656
Current portion of deferred revenue		—			3,268
Current portion of equipment loans		730			844
Total current liabilities		14,068			17,608
Equipment loans, less current portion		541			699
Stockholders’ equity:
Common stock		43			43
Additional paid-in capital		249,012			248,452
Accumulated other comprehensive income		22			29
Accumulated deficit		(197,508	)		(188,964	)
Total stockholders’ equity	$	51,569		$	59,560
Total liabilities and stockholders’ equity	$	66,178		$	77,867

(1) The balance sheet data at December 31, 2007 has been derived from the audited financial statements at that date.

See accompanying notes.

3

KOSAN BIOSCIENCES INCORPORATED

CONDENSED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except per share data)

	Three Months Ended March 31,
	2008			2007
Contract revenue	$	4,649		$	12,918
Operating expenses:
Research and development		10,799			8,990
General and administrative		2,922			2,151
Total operating expenses		13,721			11,141
(Loss) income from operations		(9,072	)		1,777
Other income, net		528			967
Net (loss) income	$	(8,544	)	$	2,744
Basic and diluted net (loss) earnings per common share	$	(0.20	)	$	0.07
Shares used in computing basic net (loss) earnings per common share		42,593			39,100
Shares used in computing diluted net (loss) earnings per common share		42,593			39,170

See accompanying notes.

4

KOSAN BIOSCIENCES INCORPORATED

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

	Three Months Ended March 31,
	2008			2007
Operating activities
Net (loss) income	$	(8,544	)	$	2,744
Adjustment to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization		438			579
Amortization of investment premiums and discounts		(88	)		(110	)
Stock-based compensation		467			1,052
Changes in assets and liabilities:
Accounts receivable		98			(284	)
Prepaid and other assets		(73	)		(243	)
Accounts payable and accrued liabilities		30			(658	)
Deferred revenue		(3,268	)		(11,380	)
Net cash used in operating activities		(10,940	)		(8,300	)
Investing activities
Acquisition of property and equipment		(897	)		(45	)
Purchase of investments		(6,373	)		(23,026	)
Proceeds from maturity of investments		15,100			12,850
Net cash provided by (used in) investing activities		7,830			(10,221	)
Financing activities
Proceeds from issuance of common stock		93			43,014
Proceeds from equipment loans		—			678
Principal payments under equipment loans		(272	)		(407	)
Net cash (used in) provided by financing activities		(179	)		43,285
Net (decrease) increase in cash and cash equivalents		(3,289	)		24,764
Cash and cash equivalents at beginning of period		46,950			35,655
Cash and cash equivalents at end of period	$	43,661		$	60,419

See accompanying notes.

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KOSAN BIOSCIENCES INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS

(unaudited)

1. Organization and Summary of Significant Accounting Policies

Overview

Kosan Biosciences Incorporated (the “Company” or “Kosan”) was incorporated under the laws of the State of California on January 6, 1995 and commenced operations in 1996. In July 2000, the Company was reincorporated under the laws of the State of Delaware.

Kosan is a cancer therapeutics company focused on advancing two new classes of anticancer agents through clinical development: heat shock protein 90, or Hsp90, inhibitors and epothilones. Hsp90 inhibitors have a novel mechanism of action targeting multiple pathways involved in cancer cell growth and survival. Kosan’s Hsp90 inhibitor product candidates may have the potential to overcome resistance after relapse and to synergize the initial activity of existing cancer therapies. Kosan’s Hsp90 inhibitor product candidates have demonstrated antitumor activity in multiple indications in early clinical trials. Kosan’s proprietary injectable suspension formulation of tanespimycin (KOS-953), its first-generation Hsp90 inhibitor and most advanced product candidate, is in a Phase 3 clinical trial in combination with Velcade^® (bortezomib) for multiple myeloma, as well as a Phase 2 clinical trial in combination with Herceptin ^® (trastuzumab) for HER-2 positive metastatic breast cancer. In February 2008, the Company discontinued the development of alvespimycin, which it had evaluated in clinical trials, in order to focus the Company’s resources on the development of its lead Hsp90 inhibitor, tanespimycin.

Kosan is also developing KOS-1584, the Company’s lead epothilone product candidate, and has completed enrollment in Phase 1 dose escalating clinical trials in patients with solid tumors. A Phase 2 trial in patients with non-small cell lung cancer has been initiated. Epothilones inhibit cell division with a mechanism of action similar to taxanes, one of the most successful classes of anti-tumor agents.

Kosan has a motilin receptor agonist program for the stimulation of gastrointestinal movement, or GI motility. In December 2006, the Company established a worldwide exclusive license agreement with Pfizer Inc. for its motilin agonist program, including KOS-2187 and related compounds. Pfizer is responsible for all development, regulatory and commercial activities related to the motilin agonist program. Pfizer is conducting a Phase 1 clinical trial of KOS-2187 as a potential treatment for gastroesophageal reflux disease.

Kosan has next-generation Hsp90 inhibitor, next-generation epothilone and nuclear export inhibitor programs for cancer that are undergoing preclinical evaluation.

Kosan has funded its operations primarily through equity financing, contract payments under its collaboration agreements, equipment financing arrangements and government grants.

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. The information as of March 31, 2008, and for the three months ended March 31, 2008 and 2007, reflect all adjustments (including normal recurring adjustments) that management of the Company believes are necessary for a fair presentation of the results for the periods presented. Results for any interim period are not necessarily indicative of results for any future interim period or for the entire year. The accompanying unaudited condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 filed with the Securities and Exchange Commission on March 17, 2008.

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KOSAN BIOSCIENCES INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

(unaudited)

1. Organization and Summary of Significant Accounting Policies (continued)

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the accompanying notes. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the financial statements in the period they are determined. Actual results could differ from those estimates.

Cash Equivalents and Investments

The Company considers all highly liquid investments with a maturity from date of purchase of three months or less to be cash equivalents. The Company limits its concentration of risk by diversifying its investments among a variety of issuers. All investment securities are classified as available-for-sale and are recorded at fair value based on quoted market prices, with unrealized gains and losses excluded from earnings and reported in other comprehensive income (loss). Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Realized gains and losses and declines in the fair value that are deemed to be other-than-temporary are reflected in earnings. The cost of securities sold is based on the specific identification method.

The Company recognizes an impairment charge when the decline in the estimated fair value of a marketable security below the amortized cost is determined to be other-than-temporary. The Company considers various factors in determining whether to recognize an impairment charge, including the duration of time during which the fair value has been less than its amortized cost, any adverse changes in the investees’ financial condition and associated downgrades to credit ratings and the Company’s intent and ability to hold the marketable security for a period of time sufficient to allow for any anticipated recovery in market value. For the three months ended March 31, 2008 and 2007, the Company did not recognize an impairment charge related to its investment securities.

Revenue Recognition

The Company generated revenue under license agreements with pharmaceutical companies. The arrangements included up-front non-refundable fees, reimbursement for personnel and supply costs, milestone payments for the achievement of defined collaboration objectives and royalties on potential sales of commercialized products. The Company recognizes revenue under these arrangements when (i) persuasive evidence of an arrangement exists; (ii) delivery of the services, supplies or technology license has occurred; (iii) the price is fixed and determinable; and (iv) collectibility is reasonably assured.

The Company recognizes license and other up-front fees pursuant to research and development collaboration agreements over the Company’s estimated period of continuing involvement with research and development of the respective agreement. These estimates are reviewed on a periodic basis and updated if the underlying assumptions are modified. Any changes in these estimates will result in either an acceleration or further deferral of the related revenue recognition. Payments related to substantive performance milestones that are at risk at the initiation of an agreement are recognized upon successful completion of a performance milestone event.

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KOSAN BIOSCIENCES INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

(unaudited)

1. Organization and Summary of Significant Accounting Policies (continued)

Revenue Recognition (continued)

Contract revenues related to research and development efforts are recognized as revenue as the related services are performed or delivered in accordance with contract terms. Such payments generally are made based on the number of full-time equivalent researchers assigned to the project and the related research and development expenses incurred or as other deliverables under the contracts are fulfilled.

Research and Development

Research and development consists of costs incurred for Company-sponsored and collaborative research and development activities. These costs consist primarily of salaries and other personnel-related expenses, including associated stock-based compensation, facility-related expenses, licensing-related expenses, depreciation of facilities and equipment, lab consumables, services performed by clinical research organizations and research institutions and other outside service providers. Expenses related to clinical trials and drug manufacturing generally are accrued based on estimates of work performed or the level of patient enrollment and activities according to the protocols and agreements. The Company monitors planned protocols, work performed, patient enrollment levels and related activities to the extent possible and adjusts estimates accordingly.

Net (Loss) Earnings per Share

Basic (loss) earnings per common share has been computed using the weighted-average number of shares of common stock outstanding during the period. Diluted (loss) earnings per common share is calculated based on the weighted-average number of shares of common stock and other dilutive securities outstanding during the period. The Company excludes convertible preferred stock, outstanding stock options, restricted stock unit awards and warrants from the calculation of diluted net (loss) earnings per common share when such securities are antidilutive. The total number of outstanding stock options, restricted stock unit awards and warrants excluded from the calculations of diluted net (loss) earnings per share, prior to application of the treasury stock method for options, was 5,247,418 and 5,141,190 for the three months ended March 31, 2008 and 2007, respectively. The following table presents the calculation of basic and diluted (loss) earnings per share (in thousands, except per share data):

	Three Months Ended March 31,
	2008			2007
Numerator:
Net (loss) income	$	(8,544	)	$	2,744
Denominator:
Weighted-average shares outstanding used to compute basic earnings per share		42,593			39,100
Effect of dilutive securities		—			70
Weighted-average shares outstanding and dilutive securities used to compute dilutive earnings per share		42,593			39,170
Basic and diluted (loss) earnings per share	$	(0.20	)	$	0.07

8

KOSAN BIOSCIENCES INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

(unaudited)

1. Organization and Summary of Significant Accounting Policies (continued)

Income Taxes

The Company recognizes income taxes under the liability method. Deferred income taxes are recognized for differences between the financial statement and tax basis of assets and liabilities at enacted statutory rates in effect for years in which the differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. In addition, valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. The Company accounts for its uncertain income tax positions in accordance with FASB Interpretation No. (“FIN”) 48 “Accounting for Uncertainty in Income Taxes”. FIN 48 prescribes the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. The Company’s policy is to classify interest accrued or penalties related to unrecognized tax benefits as a component of income tax expense. All tax years remain open to examination by the major taxing jurisdictions to which the Company is subject. The Company does not anticipate significant changes to its uncertain tax positions through the next twelve months.

New Accounting Pronouncements

On January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”) for financial instruments. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements. With respect to nonfinancial assets and nonfinancial liabilities, SFAS 157 is effective January 1, 2009 and the Company is currently evaluating the impact on its financial statements. SFAS 157 establishes a three tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers are Level 1, quoted prices in active markets for identical assets or liabilities using observable inputs; Level 2, inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, significant unobservable inputs in which little or no market data exists. The adoption of SFAS 157 for financial assets and liabilities did not significantly impact the Company’s financial statements.

On January 1, 2008, the Company adopted Emerging Issues Task Force (“EITF”) No. 07-3, “Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities.” Under EITF 07-3, nonrefundable advance payments for goods or services to be received in the future for use in research and development activities should be deferred and capitalized. Such amounts should be expensed as the related goods are delivered or services are performed. If the Company’s expectations change such that it does not expect the goods to be delivered or services to be rendered, the capitalized advance payment should be charged to expense. EITF 07-3 is effective for new contracts entered into beginning January 1, 2008. The adoption of EITF 07-3 did not have a significant impact on the Company’s financial statements.

On January 1, 2008, the Company adopted Staff Accounting Bulletin (“SAB”) No. 110, which permits entities, under certain circumstances, to continue to use the simplified method as the basis for estimating the expected term of plain vanilla share options as allowed under the provisions of SAB 107. Expected term is a valuation assumption used to determine stock-based compensation expense. The use of the simplified method was scheduled to expire on December 31, 2007. Through December 31, 2007, the Company was applying the simplified method as prescribed by SAB 107 and the extension of this method under SAB 110 had no impact on the Company’s financial statements.

9

KOSAN BIOSCIENCES INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

(unaudited)

2. Research and Development Agreements

Roche

In September 2002, the Company entered into a research and development collaboration agreement (the “Roche Agreement”) with Hoffmann-La Roche, Inc. and F. Hoffmann-La Roche Ltd. (collectively, “Roche”). Under the terms of the Roche Agreement, Roche was granted worldwide exclusive rights to market and sell KOS-1584 and any other epothilones developed under the collaboration in the field of oncology, and the Company was granted the right to co-promote in the United States any epothilone products developed under the collaboration. The Roche Agreement provided, among other things, for the Company to receive payments for the reimbursement of agreed upon research and development expenditures. The Roche Agreement was terminated in its entirety effective in late February 2008 and the rights licensed to Roche reverted to the Company. Roche’s development funding commitments under the agreement continued until the termination date, after which Roche is obligated to reimburse the Company for certain costs of completing the KOS-1584 Phase 1 clinical trials.

The Company recognized revenue related to the Roche Agreement of approximately $4.6 million and $2.2 million for the three months ended March 31, 2008 and 2007, respectively. Such amounts, excluding the ratable portion of up-front fees and milestone payments, approximated research and development expenses incurred under the Roche Agreement. Included in total Roche-related revenue was approximately $3.3 million and $0.7 million for the three months ended March 31, 2008 and 2007, respectively, related to the ratable portion of the $25.0 million up-front fee that was recognized through February 2008. At March 31, 2008, approximately $1.2 million, or 100%, of accounts receivable represented unbilled accounts receivable due from Roche.

Pfizer

In December 2006, the Company entered into an exclusive license agreement (the “Pfizer Agreement”) with Pfizer Inc. under which the Company granted to Pfizer a worldwide exclusive license to its motilin agonist program. Under the terms of the Pfizer Agreement, Pfizer and the Company agreed to collaborate on filing of regulatory documents for the initiation of a Phase 1 clinical trial of the Company’s product candidate, KOS-2187. Pfizer is responsible for all development, regulatory and commercial activities related to the motilin agonist program. The Company received an up-front fee of $12.5 million in December 2006 and is eligible to receive milestone payments for the successful development and commercialization of licensed compounds, including milestone payments for achieving certain sales amounts, as well as royalties on worldwide sales. For the three months ended March 31, 2007, the Company recognized revenue of approximately $10.7 million related to the up-front fee. The $12.5 million up-front fee was fully recognized as of March 31, 2007.

License Agreements

The Company has license agreements with several academic, government and medical institutions. Included in research and development expenses were fees incurred in connection with these agreements of approximately $115,000 and $92,000 for the three months ended March 31, 2008 and 2007, respectively.

10

KOSAN BIOSCIENCES INCORPORATED

NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)

(unaudited)

3. Cash Equivalents and Investments

The Company’s cash equivalents and investments are measured at fair value using the following inputs (in thousands) as of March 31, 2008:

			Fair Value Measurement at Reporting Date Using
	Total		Level 1		Level 2		Level 3
Cash equivalents	$	42,233	$	—	$	42,233	$	—
Short-term investments		14,412		—		14,412		—
Total	$	56,645	$	—	$	56,645	$	—

4. Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

	March 31, 2008		December 31, 2007
Research and development-related	$	8,003	$	7,775
Compensation-related		1,629		1,639
Professional services		516		632
Facilities-related		529		514
Other		68		96
	$	10,745	$	10,656

5. Stockholders’ Equity

In January 2008, the Company granted approximately 291,000 restricted stock unit, or RSU, awards under the Company’s 2006 Equity Incentive Plan. Each RSU represents a nontransferable right to receive one share of the Company’s common stock (subject to adjustment for certain specified changes in the capital structure of the Company) upon meeting certain vesting criteria. The RSUs vest over three years, 50% based on the achievement of performance goals in the next fiscal year and the remaining 50% in equal annual amounts for the following two years of service. During the three months ended March 31, 2008, no RSUs vested, approximately 68,000 RSUs were forfeited and approximately 223,000 unvested RSUs were outstanding.

6. Restructuring Charge

In March 2008, the Company committed to a restructuring that will result in a workforce reduction of approximately 35 full-time employees, primarily in research and general and administration. The Company undertook the workforce reduction in order to focus its resources on supporting the advancement of its lead clinical programs, Hsp90 inhibitor candidate tanespimycin in multiple myeloma and in metastatic breast cancer, and KOS-1584 in non-small cell lung cancer. The reduction in workforce resulted in a one-time severance-related charge of approximately $0.7 million, substantially all of which was recognized in research and development and general and administrative expenses in the first quarter of 2008. As of March 31, 2008, approximately $0.2 million of severance-related charges remained unpaid and were classified as accrued liabilities in the balance sheet.

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

Forward-Looking Statements

The following discussion of our financial condition and results of operations contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to, statements about:

• our strategy, including our plans with respect to presenting clinical data and initiating clinical trials;

• our research and development programs, including clinical testing;

• sufficiency of our cash resources;

• revenues from our current licensing arrangement with Pfizer;

• our research and development and other expenses; and

• our operations and legal risks.

In some cases, forward-looking statements can be identified by words such as “expect,” “anticipate,” “intend,” “believe,” “hope,” “assume,” “estimate,” “plan,” “will” and other similar words and expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. Discussions containing these forward-looking statements may be found throughout this Form 10-Q, including the section entitled Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These forward-looking statements involve risks and uncertainties, including the risks discussed below in Part II, Item 1A “Risk Factors” that could cause our actual results to differ materially from those in the forward-looking statements. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document. The risks discussed below in Part II, Item 1A “Risk Factors” and elsewhere in this report should be considered in evaluating our prospects and future financial performance.

The name Kosan Biosciences Incorporated, our logo and all other Kosan names are our trademarks. All other trademarks or brand names appearing in this Quarterly Report are the property of their respective holders.

Overview

We are a cancer therapeutics company focused on advancing two new classes of anticancer agents through clinical development: Hsp90 inhibitors and epothilones. The following is the status of our product candidates.

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Hsp90 Inhibitors

Tanespimycin

Our proprietary injectable suspension formulation of tanespimycin, or KOS-953 (also known as 17-AAG), is in a Phase 3 clinical trial in combination with Velcade^® (bortezomib) for multiple myeloma, as well as a Phase 2 clinical trial in combination with Herceptin^® (trastuzumab) for HER2-positive metastatic breast cancer. Our Tanespimycin in Myeloma Evaluation, or TIME, clinical program includes TIME-1, a Phase 3 pivotal clinical trial of tanespimycin in combination with Velcade in first-relapse patients with multiple myeloma, which has been initiated. We also plan to conduct a second clinical trial in multiple myeloma to support the pivotal TIME-1 clinical trial with additional safety and efficacy data. We plan to initiate this supporting clinical trial in early 2009 and anticipate that the clinical trial can be completed within the timeframe of TIME-1. In addition to multiple myeloma, we intend to advance tanespimycin in metastatic breast cancer. We anticipate presenting updated data with the injectable suspension formulation of tanespimycin from our Phase 2 clinical trial of tanespimycin in combination with Herceptin in patients with HER2-positive metastatic breast cancer in the second quarter of 2008. We expect to conduct enabling studies evaluating tanespimycin as monotherapy and in combination with other agents.

Alvespimycin

Alvespimycin, or KOS-1022 (also known as 17-DMAG), is a highly-potent, water-soluble and orally-active Hsp90 inhibitor. We have evaluated both intravenous and oral formulations of alvespimycin in clinical trials. In February 2008, we discontinued development of alvespimycin in order to focus our resources on the development of our lead Hsp90 inhibitor, tanespimycin.

Epothilones

KOS-1584

KOS-1584 is our lead epothilone anticancer product candidate. Enrollment in Phase 1 dose escalating clinical trials in patients with solid tumors has been completed. KOS-1584 has demonstrated antitumor activity and favorable tolerability in Phase 1 clinical trials in patients with solid tumors, including non-small cell lung, ovarian and pancreatic cancers. In April 2008, we initiated a Phase 2 clinical trial of KOS-1584 in non-small cell lung cancer patients who have received one prior chemotherapy regimen.

Our epothilone program was partnered with Hoffmann-La Roche, Inc. and F. Hoffmann-La Roche Ltd., or collectively Roche, through a global development and commercialization agreement. Our agreement with Roche was terminated in its entirety effective late in February 2008. Following the termination of the agreement, the rights licensed to Roche reverted to us, and in connection with the termination, Roche provided us with certain license rights, data and other assistance related to the product candidates licensed to Roche under the agreement. Roche’s development funding commitments under the agreement continued until the termination date in late February 2008, after which Roche is obligated to reimburse us for certain costs of completing the KOS-1584 Phase 1 clinical trials.

Other Programs

We have a motilin receptor agonist program for the stimulation of gastrointestinal movement, or GI motility. In December 2006, we established a worldwide exclusive license agreement with Pfizer for our motilin agonist program, including KOS-2187 and related compounds. Pfizer is responsible for all development, regulatory and commercial activities related to the motilin agonist program. Pfizer is conducting Phase 1 testing of KOS-2187 as a potential treatment for gastroesophageal reflux disease (“GERD”).

13

We have next-generation Hsp90 inhibitor, next-generation epothilone and nuclear export inhibitor programs for cancer that are undergoing preclinical evaluation.

We have incurred significant losses since inception and as of March 31, 2008, our accumulated deficit was approximately $197.5 million. We expect to incur additional operating losses over the next several years as we continue to advance our product candidates into and through clinical trials.

We believe that our existing cash and investment securities as of March 31, 2008 will be sufficient to support our current operating plan for the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we expect that substantial additional financing will be required in order to fund our operations.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our condensed financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. The preparation of these condensed financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities as of the date of the financial statements. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the financial statements in the period they are determined. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates. The basis of our current estimates or assumptions has not significantly changed since we filed our Annual Report on Form 10-K for the year ended December 31, 2007 with the Securities and Exchange Commission on March 17, 2008.

Results of Operations

Revenues

Revenues were approximately $4.6 million and $12.9 million for the three months ended March 31, 2008 and 2007, respectively. Revenues in 2008 consisted of contract revenues recognized under our agreement with Roche. Revenues in 2007 consisted of contract revenue under our agreements with Roche and Pfizer.

	Three Months Ended March 31,
(In thousands, except for percentages)	2008		2007		% Change
Contract revenue	$	4,649	$	12,918	-64	%

Total revenues decreased by approximately 64%, or $8.3 million, for the three months ended March 31, 2008 compared to the same period in 2007. The decrease was primarily due to decreased contract revenue from Pfizer as a result of the amortization of the remaining $10.7 million up-front fee in 2007, partially offset by increased contract revenue from Roche due to the acceleration of our up-front fee in connection with the termination of our agreement with Roche in late February 2008. Roche’s future

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funding commitments are limited to the reimbursement of certain costs of completing the KOS-1584 Phase 1 clinical trials. We expect that our contract revenues will significantly decrease over the next several quarters as a result of the termination of our agreement with Roche.

Research and Development Expenses

Our research and development expenses were approximately $10.8 million and $9.0 million for the three months ended March 31, 2008 and 2007, respectively. Our research and development activities consisted primarily of salaries and other personnel-related expenses, including associated stock-based compensation, facility-related expenses, licensing-related expenses, depreciation of facilities and equipment, lab consumables and services performed by clinical research organizations and research institutions, contract manufacturers and other outside service providers. We group these activities into two major categories: “clinical development” and “research and preclinical.” We are unable to estimate the nature, timing or costs to complete our major research and development projects, or when material net cash inflows to us could be expected to commence, if ever, due to the numerous risks and uncertainties associated with developing pharmaceutical products. These risks and uncertainties include those discussed in this report under Part II, Item 1A “Risk Factors.”

	Three Months Ended March 31,						Inception - March 31,
(In thousands, except for percentages)	2008		2007		% Change		2008
Clinical development
Epothilones	$	1,963	$	1,767	11	%	$	67,434
Hsp90 inhibitors		5,359		4,236	27	%		63,807
Total clinical development		7,322		6,003	22	%		131,241
Research and preclinical (1)		3,477		2,987	16	%		166,895
Total research and development	$	10,799	$	8,990	20	%	$	298,136

(1) “Research and preclinical” constitutes research and development costs for our early stage programs in cancer. Expenses for the three months ended March 31, 2008 and 2007 include allocated personnel-related expenses of approximately $1.8 million and $1.4 million, allocated facility-related expenses of approximately $0.8 million and $0.9 million and allocated lab consumables of approximately $0.1 million and $0.1 million, respectively. Expenses for the period from inception through March 31, 2008 include allocated personnel-related expenses of approximately $81.2 million, allocated facility-related expenses of approximately $41.4 million and allocated lab consumables of approximately $11.0 million.

The increase of 20%, or approximately $1.8 million, in research and development expenses for the three months ended March 31, 2008 compared to the same period in 2007 was the result of the following:

• approximately $1.3 million in increased clinical development costs, primarily due to the increased clinical development activities in the Hsp90 inhibitor and epothilone programs, including costs associated with TIME-1, a Phase 3 clinical trial in combination with Velcade in first-relapse patients with multiple myeloma, and a KOS-1584 Phase 2 clinical trial in non-small cell lung cancer; and

• approximately $0.5 million in increased preclinical and research costs, primarily related to our March 2008 corporate restructuring and investment in our next-generation epothilone and nuclear export inhibitor programs.

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In the first quarter of 2008, we initiated TIME-1, a Phase 3 pivotal clinical trial of tanespimycin in combination with Velcade in first-relapse patients with multiple myeloma, and plan to initiate a supporting clinical trial in multiple myeloma in early 2009. We also initiated our Phase 2 clinical program with KOS-1584 in non-small cell lung cancer. We also announced our plans to withdraw our Hsp90 inhibitor alvespimycin from development in order to commit resources to the development of our lead Hsp90 inhibitor, tanespimycin. We expect that the overall cost of our clinical trials will result in an increase in our clinical development expenses over the next several quarters. In March 2008, we announced a corporate restructuring and our plans to place most of our research programs on hold and, thus, we expect that our research and preclinical costs will decrease over the next several quarters.

General and Administrative Expenses

	Three Months Ended March 31,
(In thousands, except for percentages)	2008		2007		% Change
General and administrative	$	2,922	$	2,151	36	%

Our general and administrative expenses were approximately $2.9 million and $2.2 million for the three months ended March 31, 2008 and 2007, respectively. General and administrative expenses increased by 36%, or approximately $0.8 million compared to the same period in 2007, primarily due to one-time costs associated with our March 2008 corporate restructuring and the resignation of our former Chief Executive Officer in February 2008, all of which was recognized in the first quarter of 2008. We expect our general and administrative expenses to decrease in future quarters.

Other Income, Net

	Three Months Ended March 31,
(In thousands, except for percentages)	2008			2007			% Change
Interest income	$	645		$	1,026		-37	%
Interest expense		(117	)		(59	)	98	%
Other income, net	$	528		$	967		-45	%

Interest income decreased to approximately $0.6 million for the three months ended March 31, 2008, from approximately $1.0 million for the same period in 2007. The decrease resulted from lower average investment balances in the three months ended March 31, 2008 compared to same period in 2007, and lower returns in the current interest rate environment. Interest expense for the three months ended March 31, 2008 and 2007 approximated $0.1 million for both periods.

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Liquidity and Capital Resources

Since inception we have financed our operations primarily through sales of our equity securities, contract payments received under our collaboration and license agreements and government grant awards, interest income and equipment financing arrangements. As of March 31, 2008, we had received approximately $221.6 million from the sales of equity securities, approximately $133.4 million from contract payments received under our corporate collaboration and license agreements and government grant awards, approximately $23.3 million from interest income and approximately $14.9 million from equipment financing arrangements. As of March 31, 2008, we had approximately $59.0 million in cash, cash equivalents, restricted cash and investments, compared to approximately $71.0 million as of December 31, 2007. Our funds are currently invested in government sponsored enterprise and corporate obligations.

Cash used in operating activities was approximately $10.9 million for the three months ended March 31, 2008, compared to approximately $8.3 million for the same period in 2007. Net cash used in operating activities for the three months ended March 31, 2008 and 2007 primarily reflects the net (loss)/income for the period, net decreases in deferred revenue due to the amortization of our up-front fees from Pfizer and Roche and non-cash stock-based compensation, depreciation and amortization of investment premiums and discounts. We do not anticipate generating cash from operating activities at least for the next several years.

Cash used in investing activities, excluding changes in our investments, was approximately $0.9 million for the three months ended March 31, 2008, compared to approximately $45,000 for the same period in 2007, due to higher capital spending for the expansion of our facilities and network infrastructure during the three months ended March 31, 2008 as compared to the same period in 2007.

Cash used in financing activities was approximately $0.2 million for the three months ended March 31, 2008, compared to approximately $43.3 million provided by financing activities for the same period in 2007. Net cash used in financing activities for the three months ended March 31, 2008 was primarily used for payments on our debt arrangements, offset by cash proceeds from stock purchases made under our 2000 Employee Stock Purchase Plan. Net cash provided by financing activities for the three months ended March 31, 2007 was primarily generated from our February 2007 registered direct public offering, stock option exercises and stock purchases made under our 2000 Employee Stock Purchase Plan, offset by payments on our debt arrangements.

On July 19, 2006, we entered into a Committed Equity Financing Facility, or CEFF, with Kingsbridge, pursuant to which Kingsbridge committed to purchase up to $50.0 million of our common stock, subject to certain conditions including a minimum price for our common stock (which condition will not be met unless the volume weighted average market price of our common stock is at least $2.00). The CEFF allows us to raise capital as required, at the time and in the amounts deemed suitable to us, through September 25, 2009. We are not obligated to sell any of the $50.0 million of common stock available under the CEFF, and there are no minimum commitments or minimum use penalties. Under the terms of the CEFF, the maximum number of shares that we may sell to Kingsbridge is 6,879,868 shares (exclusive of the shares underlying a warrant), which may limit the amount of proceeds that we are able to obtain from the CEFF. In connection with the CEFF, we issued a warrant to Kingsbridge to purchase 285,000 shares of our common stock at an exercise price of $4.94 per share. The warrant is currently exercisable and expires in 2011. In October 2006, we received $3.0 million in gross proceeds for the sale of 770,351 shares of our common stock to Kingsbridge.

We believe that our existing cash and investments as of March 31, 2008 will be sufficient to support our current operating plan for the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we expect that significant additional financing will be required in order to fund our operations. Our future capital uses and requirements depend on numerous forward-looking factors, including those set forth in Part II, Item 1A “Risk Factors.”

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In addition, we review from time to time potential opportunities to expand our technologies or add to our portfolio of drug candidates. In the future, we may need further capital in order to acquire or invest in technologies, products or businesses.

We expect that significant additional financing will be required in order to fund our operations. We expect to finance future cash needs through public or private equity offerings, debt financings, additional partnering or licensing arrangements or any combination of the foregoing or other arrangements. In August 2007, we filed a shelf registration statement on Form S-3 with the SEC pursuant to which we may offer and sell up to $75.0 million of our common stock and/or warrants to purchase our common stock, either individually or in units. Pursuant to two prior shelf registration statements we filed on Form S-3, we may offer and sell approximately $26.0 million of our common stock (including $24.5 million of warrants to purchase our common stock and/or units consisting of common stock and warrants to purchase common stock). In total, we may offer and sell up to $101.0 million of our equity securities under our three shelf registration statements, plus an additional approximately $20.2 million that we could sell under immediately effective related registration statements, assuming that we continue to meet the SEC’s eligibility requirements for primary offerings on Form S-3. However, our current market capitalization may result in our being unable to conduct such offerings absent prior stockholder approval under the rules of NASDAQ Stock Market. We filed a resale registration statement covering the resale of 6,879,868 shares issuable pursuant to the committed equity financing facility, or CEFF, with Kingsbridge and 285,000 shares underlying the warrant at an exercise price of $4.94 issued to Kingsbridge in connection with our CEFF. We have the availability to sell under the CEFF up to $47.0 million of common stock in the future, subject to certain conditions, including a minimum price for our common stock (which condition will not be met unless the volume weighted average market price of our common stock is at least $2.00).

We have no current commitments to offer and sell any securities that may be offered or sold pursuant to the registration statements described above. To the extent that we raise additional capital by issuing equity securities, our stockholders may experience dilution. Debt financing, if available, may subject us to restrictive covenants and significant interest costs. To the extent that we raise additional funds through collaboration and licensing arrangements, we would be required to relinquish some rights to our technologies, product candidates or marketing territories. Additional financing or collaboration and licensing arrangements may not be available when needed or, if available, may not be on terms favorable to us or our stockholders. Insufficient funds may require us to delay, scale back or eliminate some or all of our research or development programs, to lose rights under existing licenses or to relinquish greater or all rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose. Insufficient funds may preclude us from meeting the conditions required for the extension of credit and may adversely affect our ability to operate as a going concern. In addition, see Part II, Item 1A “Risk Factors.”

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

During the three months ended March 31, 2008, there were no material changes to our market risk disclosures as set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the year ended December 31, 2007.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. Based on their evaluation as of March 31, 2008, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were effective.

Changes in Internal Controls over Financial Reporting. There were no changes in our internal controls over financial reporting during the quarter ended March 31, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls. Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met and, as set forth above, our chief executive officer and chief financial officer have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures were sufficiently effective to provide reasonable assurance that the objectives of our disclosure control system were met.

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PART II. OTHER INFORMATION

Item 1A: Risk Factors

You should carefully consider the risks described below, together with all of the other information included in this report, in considering our business and prospects. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. The occurrence of any of the following risks could harm our business, financial condition or results of operations.

We have marked with an asterisk (*) those risk factors below that reflect substantive changes from the risk factors included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 17, 2008.

We have a history of net losses and may never become profitable.*

We commenced operations in 1996 and are still developing our product candidates. We have not commercialized any products, and we have incurred net losses since our inception. As of March 31, 2008, we had an accumulated deficit of approximately $197.5 million. To date, our revenues have been primarily from partnering arrangements and government grant awards. Our expenses have consisted principally of costs incurred in research and development and from general and administrative costs associated with our operations. We expect our expenses to increase, perhaps substantially, and that we will continue to incur operating losses for at least the next several years as we continue our research and development efforts for our product candidates and pursue selected research programs. The amount of time necessary to successfully commercialize any of our product candidates is long and uncertain, and successful commercialization may not occur at all. As a result, we may never become profitable.

We expect that significant additional financing will be required in order to fund our operations, and an inability to obtain the capital necessary to fund our operations on acceptable terms or at all would threaten the continued operation of our business.*

We expect that significant additional financing will be required in order to fund our operations. We do not know whether additional financing will be available when needed, or that, if available, we will obtain financing on favorable terms. We have consumed substantial amounts of cash to date and expect to incur significant operating expenditures over the next several years as we continue to advance our product candidates into and through clinical trials and pursue selected research programs. We currently have no commitments from third parties for external funding of our product development efforts (other than limited clinical trial cost reimbursements from Roche) and absent any new partnering arrangements with third parties, we will be required to independently to fund any development and clinical trial activities that we may undertake.

If we are unable to raise sufficient funds when needed, we may be required to delay, scale back or eliminate some or all of our clinical trials and research or development programs; lose rights under existing licenses; or relinquish greater or all rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose. Insufficient funds may adversely affect our ability to operate as a going concern, and an inability to obtain the capital necessary to fund our operations on acceptable terms or at all would threaten the continued operation of our business. See Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Result of Operations.”

We believe that our existing cash and investments as of March 31, 2008 will be sufficient to support our current operating plan for the next 12 months. We have based this estimate on assumptions that may prove to be wrong. Our future capital uses and requirements depend on numerous forward-looking factors, including the following:

• our ability to establish new partnering arrangements, our rights and obligations under any new partnering arrangements and our ability to generate revenues under any new partnering arrangements;

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• the extent to which clinical and other development activities are funded or conducted by potential future partners, if any;

• the costs of any drugs used in combination with our product candidates in our clinical trials, including the costs of Velcade^® (bortezomib) for our Phase 3 clinical trial of tanespimycin for the treatment of multiple myeloma, which may be substantial;

• the progress, success and costs of preclinical testing and clinical trials of our product candidates;

• any acceleration or expansion of our clinical development plans;

• our ability to maintain or extend our existing licensing arrangement with Pfizer;

• the progress, number and costs of our research programs;

• the costs and timing of obtaining, enforcing and defending patent and other intellectual property rights;

• any need to obtain licenses to additional patents or other intellectual property in order to use, import, manufacture, market or sell our product candidates;

• any need to expand our manufacturing capabilities; and

• expenses associated with any possible future litigation.

We may raise additional financing through public or private equity offerings, debt financings, partnering or licensing arrangements, government grant awards or any combination of the foregoing or other arrangements. To the extent that we raise additional capital by issuing equity securities, our stockholders may experience dilution. Debt financing, if available, may subject us to restrictive covenants and significant interest costs. To the extent that we raise additional funds through collaboration and licensing arrangements, we would be required to relinquish some rights to our technologies, product candidates or marketing territories.

If we fail to enter into new partnering or licensing arrangements in the future, our business and operations would be negatively impacted.*

Our strategy depends upon the formation and sustainability of multiple partnering arrangements and license agreements with third parties, particularly with respect to our Hsp90 inhibitor and epothilone programs. We expect to rely on these potential future arrangements for not only financial resources, but also for expertise that we expect to need in the future relating to clinical trials, manufacturing, sales and marketing, and for license and technology rights. Although we have in the past established partnering arrangements and various license agreements, we do not know if we will be able to establish additional arrangements on favorable terms, or whether any such partnering arrangements will ultimately be successful. For example, our collaboration arrangement with Roche for our epothilone program was terminated by Roche, effective in late February 2008, and our cooperative research and development agreements with the NCI with respect to the clinical development of tanespimycin and alvespimycin have also expired. There have been, and may continue to be, a significant number of business combinations among pharmaceutical companies that have resulted, and may continue to result, in a reduced number of potential future partners, which may limit our ability to find partners who will work with us in developing and commercializing our product candidates. If we do not enter into new partnering arrangements, in particular, partnering arrangements for the further development of our Hsp90 inhibitor and epothilone programs, we will be required to undertake Hsp90 inhibitor and epothilone development and commercialization at our own expense, which would likely limit the scope of clinical trials that we conduct, the number of product candidates that we will be able to develop and commercialize and

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significantly increase our capital requirements and may reduce the likelihood of successful product introduction. We may also be required to further curtail, suspend, delay or terminate research and development programs, including planned clinical trials for our product candidates, and therefore our ability to generate revenues from our epothilone, Hsp90 inhibitor or other programs will be adversely affected. Our ability to partner our Hsp90 inhibitor program may be difficult because the composition of matter of patent for 17-AAG is in the public domain and our novel formulation patent applications combined with method of treatment patent applications may not be sufficient to attract partners. Our ability to start new research and development programs may also be materially harmed if we are unable to establish new partnering arrangements with third parties.

If our current licensing arrangements or potential future partnering or licensing arrangements are unsuccessful or are terminated, or if conflicts develop with our current licensees or licensors, or our potential future partners, licensees or licensors, our research and development efforts could be delayed, curtailed or terminated, our revenues could significantly decrease and our operations may be adversely affected.

We have obtained licenses to technology and compounds from several research groups, including Sloan-Kettering and the Oregon State University in the field of epothilones, the NCI in the field of geldanamycin analogs and Stanford University in the field of polyketide technology. These agreements permit our licensors to terminate the agreements under certain circumstances. We also have a license agreement with Pfizer pursuant to which Pfizer is responsible for development, regulatory and commercial activities related to our motilin agonist program, which may be terminated by Pfizer at any time for its convenience. If we do not maintain, extend or replace our license agreement with Pfizer, we may be required to seek new third parties to undertake motilin agonist development and commercialization or to undertake such efforts at our own expense, the research and development efforts for our motilin agonist program could be delayed, our revenues could significantly decrease and our operations would be adversely affected. Furthermore, if our in-license agreements are terminated, or disputes arise that we are not able to resolve in our favor concerning our rights to particular compounds or technologies, our research and development efforts could be delayed, curtailed or terminated, or we could lose our rights to use the licensed compounds or technologies.

We control neither the amount nor timing of resources that Pfizer devotes to our motilin agonist program, nor the scope, content and timing of the preclinical studies, clinical trials and other development efforts that Pfizer conducts or permits, including for KOS-2187. Even if we are successful in establishing new partnering arrangements with respect to our epothilone program, our Hsp90 inhibitor program or our other programs, we may not be able to control the amount nor timing of resources that potential future partners devote to our programs. As a result, we do not know if Pfizer or any potential future partners will dedicate sufficient resources, or if the development or commercialization efforts by Pfizer or any potential future partners will be successful. We also do not know if the development or commercialization efforts by Pfizer or any potential future partners will be the same as those we would choose to devote if we solely controlled the development and commercialization of our programs and product candidates. In addition, we do not know whether Pfizer or potential future partners, if any, might pursue alternative technologies or develop alternative products either on their own or in collaboration with others, including our competitors, as a means for developing treatments for the diseases targeted by the partnering or licensing arrangements with us. In addition, business combinations or significant changes in a partner’s business strategy may adversely affect its willingness or ability to continue the partnering or licensing arrangement with us. If Pfizer or any potential future partners fail to conduct research, development or commercialization activities with respect to compounds or products for which they have rights from us successfully and in a timely manner, or if they or our licensors breach or terminate their agreements with us, the development or commercialization of the affected product candidates, technology or research program could be delayed or terminated. For example, if Pfizer does not successfully develop and commercialize a product from our motilin agonist program, we may not receive any future milestone payments and will not receive any royalties under our license agreement with Pfizer.

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Our committed equity financing facility with Kingsbridge may not be available to us if we elect to make a draw down, may require us to make additional “blackout” or other payments to Kingsbridge and may result in dilution to our stockholders.*

In July 2006, we entered into a CEFF with Kingsbridge. The CEFF entitles us to sell and obligates Kingsbridge to purchase, from time to time through September 25, 2009, shares of our common stock for cash consideration up to an aggregate of $47.0 million as of December 31, 2007, subject to certain conditions and restrictions. Kingsbridge will not be obligated to purchase shares under the CEFF unless certain conditions are met, which include a minimum price for our common stock during a draw down period (which condition, for example, would not have been met as of April 30, 2008 and will not be met unless the volume weighted average market price of our common stock during a draw down period is at least $2.00), the accuracy of representations and warranties made to Kingsbridge; compliance with laws; and the effectiveness of a registration statement registering for resale the shares of common stock to be issued in connection with the CEFF. In addition, among other termination rights, Kingsbridge is permitted to terminate the CEFF by providing written notice to us within 10 trading days after it obtains actual knowledge that an event has occurred resulting in a material and adverse effect on our business, operations, properties or financial condition. If we are unable to access funds through the CEFF, or if Kingsbridge terminates the CEFF, we may be unable to access capital on favorable terms, or at all.

We are entitled, in certain circumstances, to deliver a blackout notice to Kingsbridge to suspend the use of the resale registration statement and prohibit Kingsbridge from selling shares under the resale registration statement for a certain period of time. If we deliver a blackout notice in certain circumstances, or if the resale registration statement is not effective in circumstances not permitted by the agreement, then we must make a payment to Kingsbridge, or issue Kingsbridge additional shares in lieu of this payment, calculated on the basis of the number of shares purchased by Kingsbridge in the most recent draw down and held by Kingsbridge immediately prior to the blackout period and the change in the market price of our common stock during the period in which the use of the registration statement is suspended. If the trading price of our common stock declines during a suspension of the resale registration statement, the blackout or other payment could be significant.

Should we sell shares to Kingsbridge under the CEFF, or issue shares in lieu of a blackout payment, it will have a dilutive effect on the holdings of our current stockholders and may result in downward pressure on the price of our common stock. If we draw down under the CEFF, we will issue shares to Kingsbridge at a discount of up to 10% from the volume weighted average price of our common stock. If we draw down amounts under the CEFF when our share price is decreasing, we will need to issue more shares to raise the same amount than if our stock price was higher. Issuances in the face of a declining share price will have an even greater dilutive effect than if our share price were stable or increasing and may further decrease our share price.

Our only product candidates currently in clinical development are tanespimycin, our first-generation Hsp90 inhibitor product candidate, and KOS-1584, our epothilone anticancer product candidate. Substantial additional effort and expense will be necessary for further clinical development of tanespimycin and KOS-1584 and there can be no assurance that our clinical trials will show that tanespimycin, KOS-1584 or our potential future product candidates are safe and effective treatments.*

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Our only product candidates currently in clinical development are tanespimycin and KOS-1584. Our motilin agonist program has been exclusively licensed to Pfizer, and our remaining potential product candidates are in preclinical development. We may not be able to develop product candidates, including tanespimycin and KOS-1584, that prove to be safe and effective, meet applicable regulatory standards, are capable of being manufactured at reasonable costs or can be marketed successfully. Tanespimycin, KOS-1584 and our potential future product candidates will require significant development and investment, including extensive clinical testing, before we can submit any application for regulatory approval. For example, we expect to incur significant expenses in connection with the tanespimycin in myeloma evaluation, or TIME program, for tanespimycin in combination with Velcade for the treatment of multiple myeloma. These expenses will be even higher to the extent we are required to pay for patients’ medical or other expenses, including, for example, the cost of Velcade or any other drugs used in combination with our product candidates for these studies. In addition, Velcade or any other drugs used in combination with our product candidates for these studies may not be available to us at an acceptable cost, or at all. For example, we are seeking to obtain large quantities of Velcade for our TIME program at prices below retail and have been negotiating with third parties for reduced prices in connection with bulk purchases of Velcade, but there can be no assurance that we will be successful in these efforts. If Velcade is not available to us at an acceptable cost, or at all, the continued clinical development of tanespimycin for the treatment of multiple myeloma could be limited, delayed or precluded.

Our product candidates must satisfy rigorous standards of safety and efficacy before they can be approved by the FDA and international regulatory authorities for commercial use. We will need to conduct significant additional research and clinical trials before we can determine if our product candidates are sufficiently safe and effective to file with the FDA and other regulatory agencies for product approval. Clinical trials are expensive and time-consuming, and therefore, significant amounts of money will need to be spent testing our product candidates. Further, we may incur significant development costs for one or more of our product candidates and subsequently discontinue the development of any of these product candidates as a result of clinical trial failures or other factors. For example, we recently ceased the development of alvespimycin, our former second-generation Hsp90 inhibitor product candidate, as a result of a reprioritization of our development portfolio and we do not expect to receive any return on our investment in that product candidate.

In addition, significant time and investment will be required to try to develop manufacturing processes for our products so that they are economical to manufacture on a commercial scale and satisfactory to the FDA and other governmental authorities.

The progress and results of our preclinical and clinical testing are highly uncertain.*

We must provide the FDA and foreign regulatory authorities with clinical data that demonstrate the safety and efficacy of our product candidates before they can be approved for commercial sale. As a result, commercialization of our product candidates depends upon successful completion of preclinical and clinical trials. Preclinical testing and clinical development are long, expensive and uncertain processes. It may take us a number of years to complete our testing, and failure can occur at any stage of testing. We could experience failures in current or future clinical testing of our product candidates or determine to discontinue the development of any of our product candidates as a result of clinical trial failures or other factors.

Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and interim results of trials do not necessarily predict final results. A number of companies in the pharmaceutical and biotechnology industry, including Kosan, have suffered significant setbacks in advanced clinical trials, even after reporting promising results in earlier trials. Also, preclinical and clinical data can be interpreted in different ways, which could delay, limit or prevent further testing or regulatory approval.

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We do not know whether clinical trials of our product candidates will begin on time or whether any of our clinical trials will be completed on schedule, or at all. We may plan and initiate clinical trials before final data from earlier studies have been collected and analyzed because it takes a significant amount of time and effort to plan and initiate clinical trials and because of the length of time it takes to successfully develop a product candidate. Consequently, we may need to modify, suspend, cancel or terminate clinical trials based on results from earlier studies. We also do not know whether clinical trials will indicate that an earlier-stage compound or formulation will be more appropriate for clinical and commercial development than a compound or formulation that is at a later stage of clinical development, and therefore result in extended timelines as well as increased development costs. For example, Roche and we decided in February 2007 to cease development of KOS-862 in favor of further development of our second-generation epothilone product candidate, KOS-1584, and in May 2007, we decided to change the formulation for tanespimycin to our injectable suspension formulation, which delayed the commencement of clinical trials. Negative or inconclusive results or adverse medical events during a clinical trial could cause a clinical trial to be suspended, terminated or repeated. Certain of the clinical trials of our product candidates are or may in the future be designed to include two stages, with the decision whether to proceed to the second stage dependent on results obtained in the first stage. Failure to achieve predetermined response rates as defined in the protocol may result in the decision not to proceed into the second stage of the clinical trial.

We have initiated a broad, multinational registration program for the treatment of multiple myeloma. The TIME program includes a Phase 3 clinical trial that we initiated in the first quarter of 2008 and an additional supportive clinical trial that we plan to commence in 2009. Multiple myeloma is a high risk cancer indication because many organs can be affected by the disease, the symptoms and signs of the disease vary, and there is currently no cure for the disease. The clinical trial endpoints in the TIME program may be difficult to achieve. Moreover, the TIME program was based on the results of a Phase 1/2 trial that included a limited number of patients and a change in our product candidate’s formulation which may decrease the likelihood of a successful clinical trial outcome. In addition, anticancer drugs frequently have a narrow therapeutic window between efficacy and toxicity. If unacceptable toxicity is observed in a clinical trial, the trial may be terminated at an early stage. We cannot predict whether any clinical trials of our product candidates, including KOS-1584 which is also in human clinical trials for the treatment of cancer, will demonstrate toxicity issues or adverse events resulting in significant patient withdrawals. For example, we may select a dose for use in our clinical trials that may prove to be ineffective in treating cancer. If our clinical trials of tanespimycin and KOS-1584 result in unacceptable toxicity or lack of efficacy, we may have to terminate our clinical trials. Even if we are able to find a proper dose that balances the toxicity and efficacy of one or more of our product candidates, we may be required to conduct extensive additional clinical trials or provide additional data to the FDA or other health authorities before we are able to market them. If clinical trials of tanespimycin and KOS-1584 are halted, or if they do not show that these product candidates are safe and effective in the indications for which we are seeking regulatory approval, our future growth would be limited and we may not have any other product candidates to develop.

Completion of clinical trials may take several years or more. The length of time generally varies substantially according to the type, complexity, novelty and intended use of the product candidate. Our clinical trials may be suspended at any time if we, the FDA, or other regulatory authorities believe the patients participating in our studies are exposed to unacceptable health risks or that study protocols or patient informed consents should be amended to reflect additional health risks, additional testing procedures or other changes.

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Our ability to commence or timely complete clinical trials may be adversely affected by many factors, including:

• ineffectiveness of the study compound, or perceptions by physicians that the compound is not effective for a particular indication;

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

• a failure to obtain approval from the FDA, other regulatory authorities or an investigational site’s institutional review board to conduct a clinical trial;

• inability to reach agreement with a sufficient number of investigational sites to conduct a study;

• inability to obtain product liability insurance, including clinical trial insurance, that meets the requirements of a location outside the U.S.;

• the number of patients required, slower than expected rate of patient recruitment or inability to recruit a sufficient number of patients;

• the occurrence of adverse medical events, including death, during a clinical trial, even if caused by the advanced status of patients’ disease or medical problems that are not related to our product candidates;

• inconclusive or negative results from a clinical trial;

• competing clinical trials in the same or similar indication;

• third-party clinical investigators failing to perform our clinical trials on our anticipated schedule or consistent with a clinical trial protocol, and other third-party organizations not performing data collection and analysis in a timely or accurate manner; and

• a decision by the FDA or other governmental authorities to require suspension or modification of a clinical trial.

Our product development costs will increase if we have delays in testing or approvals, if we need to perform more or larger clinical trials than planned, if our clinical trials include more expensive testing or other procedures than planned, or if we are unable to obtain supplies of Velcade or any other drugs used in combination with our product candidates at acceptable costs. If the delays are significant, our financial results and the commercial prospects for our products will be harmed, and our ability to become profitable will be adversely affected. If any clinical trials of our product candidates are not successful, our business, financial condition and results of operations will be harmed.

If we are not able to obtain required regulatory approvals, we will not be able to commercialize our product candidates, and our ability to generate revenue will be materially impaired.

Our product candidates and the activities associated with their development, manufacture and commercialization are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States, and by comparable authorities in other countries. Our products may not be commercialized unless and until we or our partners, if any, obtain regulatory approval from the FDA or foreign governmental authorities to do so. The process of obtaining regulatory approvals is expensive, often takes many years, if approval is obtained at all, and can vary substantially based upon the type, complexity, novelty, safety and efficacy of the product candidates involved. We have not received regulatory approval to market any of our product candidates in any jurisdiction and, although our personnel have experience from working at other companies, we as a company have no experience in preparing and filing the applications necessary to gain regulatory approvals to commercialize our products. This lack of experience may impede our ability to obtain FDA or other foreign regulatory approvals to commercialize our products in a timely manner, if at all.

Changes in the regulatory approval policy during the development period, changes in or the enactment of additional regulations or statutes, or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application for regulatory approval. For example, new federal legislation known as the FDA Amendments Act of 2007 was recently enacted. This legislation

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grants the FDA extensive new authority to impose post-approval clinical study and clinical trial requirements, require safety-related changes to product labeling, review advertising aimed at consumers, and require the adoption of risk management plans. Other proposals have been made to impose additional requirements on drug approvals, further expand post-approval requirements and restrict sales and promotional activities. The new legislation, and the additional proposals if enacted, may make it more difficult or burdensome for us to obtain approval of our product candidates, any approvals we receive may be more restrictive or be subject to onerous post-approval requirements, Pfizer’s or our potential future partners’ ability to commercialize approved products successfully may be hindered and our business may be harmed as a result. Furthermore, the approval procedure and the time required to obtain approval varies among countries and can involve additional testing beyond that required by the FDA. Approval by one regulatory authority does not ensure approval by regulatory authorities in other jurisdictions.

The FDA and other regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data is insufficient for approval and require additional preclinical, clinical or other studies or modifications to the manufacturing processes or facilities or quality control procedures for our product candidates. For example, we commenced the TIME program Phase 3 clinical trial of tanespimycin in combination with Velcade in first-relapse patients with multiple myeloma, and we plan to commence an additional supportive clinical trial in multiple myeloma in 2009. If the results are favorable, we believe that these clinical trials will support the filing of an NDA with the FDA for the treatment of multiple myeloma. However, the FDA or other regulatory authorities may require additional data prior to accepting or approving an application for marketing approval for tanespimycin or other product candidates, which would result in delays in potential FDA or other regulatory authority approval and additional costs, either of which may be too significant to continue development of tanespimycin or other product candidates. This risk is further compounded by any changes during development of a product candidate, such as changes in manufacturing processes, formulations (as is the case with respect to the TIME program) or dosing regimens.

Any clinical trial may fail to produce results satisfactory to the FDA or other regulatory authorities. For example, we currently conduct, and expect to conduct in the future, clinical trials for our product candidates in countries outside of the United States. The FDA or other regulatory authorities may reject data from clinical trials conducted in other countries if they are not conducted in accordance with applicable regulatory standards and procedures.

We do not know whether clinical trials for our product candidates will demonstrate safety and efficacy sufficient to obtain the requisite regulatory approvals or will result in marketable products. The failure to adequately demonstrate the safety and efficacy of our products under development will prevent receipt of FDA and foreign approvals and, ultimately, commercialization of our products.

We rely on third parties to conduct our clinical trials, and those third parties may not perform satisfactorily.*

We do not have the ability to independently conduct all clinical trials for our product candidates, and we rely on third parties such as Pfizer with respect to KOS-2187, contract research organizations, laboratory testing companies, medical institutions and clinical investigators to conduct, supervise or monitor our clinical trials. We have less control over the timing and other aspects of these clinical trials than if we conducted them entirely on our own.

We are supervising our Phase 3 clinical trial for tanespimycin but rely on contract research organizations and testing laboratories to assist in the conduct of the trial. To date, we have not successfully conducted a clinical trial intended to form the basis of an NDA (or foreign equivalent thereto) filing. Additionally, the TIME program includes a multinational clinical trial. We have not conducted large clinical trials outside

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of North America. Consequently, we may not have the necessary capabilities to successfully execute and complete our current and planned clinical trials in a manner that supports approval of our product candidates for their target indications in a timely manner, or at all. Failure to commence or complete, or delays in our planned or current clinical trials, would prevent us from commercializing products, and thus seriously harm our business.

We also rely on Pfizer to conduct all clinical trials for our motilin agonist program, including KOS-2187. We may rely on potential future partners, if any, to conduct clinical trials for our product candidates. If any of these third parties do not successfully carry out their obligations or meet expected deadlines, clinical trials may be extended, delayed, suspended or terminated, data generated from clinical trials may not be acceptable to the FDA or other regulatory authorities and our product candidates may not receive regulatory approval or be successfully commercialized.

We may not be able to obtain or maintain orphan drug exclusivity for our product candidates.

Some jurisdictions, including Europe and the United States, may designate drugs for relatively small patient populations as orphan drugs. The FDA and the European Medicines Agency have granted orphan drug status to tanespimycin for the treatment of multiple myeloma and chronic myelogenous leukemia. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process, but does make the product eligible for orphan drug exclusivity and, in the United States, specific tax credits. Generally, if a company receives the first marketing approval for a product with an orphan drug designation in the clinical indication for which it has such designation, the product is entitled to orphan drug exclusivity. Orphan drug exclusivity means that another application to market the same drug for the same indication may not be approved, except in limited circumstances, for a period of up to ten years in Europe (reviewable after six years), and for a period of seven years in the United States. This exclusivity, however, could block the approval of tanespimycin for the treatment of multiple myeloma or chronic myelogenous leukemia in the United States or Europe if a competitor obtains approval before us of a product containing tanespimycin for these specific indications. Even if we obtain orphan drug exclusivity for any of our product candidates, we may not be able to maintain it. For example, if a competitive product is shown to be clinically superior to our product, any orphan drug exclusivity we have obtained will not block the approval of such competitive product.

Even if any of our product candidates receives regulatory approval, we may still face significant development and regulatory difficulties.

Even if the FDA or other regulatory authorities approves a product candidate, the approval may impose significant restrictions on the indicated uses, conditions for use, labeling, advertising, promotion, marketing and/or production of such product, and may impose ongoing requirements for post-approval studies, including additional research and development and clinical trials. In addition, regulatory agencies subject a product, its manufacturer and the manufacturer’s facilities to continual review and periodic inspections. If a regulatory agency discovers previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product, our partners, if any, or us, including requiring withdrawal of the product from the market.

If we, Pfizer, potential future partners or any of our product candidates that become approved for marketing by a regulatory authority fail to comply with applicable regulatory requirements, a regulatory authority may take various actions, including:

• issuing warning letters;

• imposing civil or criminal penalties;

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• suspending regulatory approval;

• refusing to approve pending applications or supplements to approved applications filed by us or our partners, if any;

• imposing restrictions on operations, including costly new manufacturing requirements; or

• seizing or detaining products or requiring a product recall.

If we are unable to recruit and retain skilled employees and consultants, we may not be able to successfully operate our business.

Retaining our current management and other employees and recruiting qualified personnel to perform future research, manufacturing, development and other work will be critical to our success. None of our employees has employment commitments for any fixed period of time and could leave our employment at will. In the past, we have experienced turnover among our management, including the resignations in 2007 of our former General Counsel and former Chief Medical Officer, and the resignation of our former President and Chief Executive Officer in early 2008. We may have difficulty attracting and retaining required personnel as a result of our management turnover, our need for additional financing and the associated perceived risk of expense reductions, or for other reasons. Competition is intense among biotechnology, pharmaceutical and healthcare companies, universities and non-profit research institutions for experienced scientists and other personnel, and we may not be able to retain or recruit sufficient skilled personnel on acceptable terms to allow us to pursue potential partnering arrangements and develop our product candidates and research programs, which would likely have an adverse effect on our business.

Any inability to protect our proprietary technologies could significantly harm our business and ability to successfully commercialize product candidates.

Our commercial success will depend in part on our ability to obtain patents and maintain adequate protection of other intellectual property for our technologies and product candidates in the United States and other countries and prevent others from infringing our proprietary rights. If we are unable to adequately protect our intellectual property, competitors may be able to use our technologies and erode or negate any competitive advantage we may have. Intellectual property laws vary from country to country, and the laws of a particular country may afford less intellectual property protection than another country.

Any patents that we or our potential future partners own or license from third parties may not provide protection against competitors. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies and products are covered by valid and enforceable patents or are effectively maintained as trade secrets. However, our patent positions, as well as the patent positions of biotechnology companies and other third parties, involve complex legal and factual questions, and, therefore, we cannot predict with certainty whether our patent applications will be allowed or any resulting patents will be valid and enforceable. Further, our patents or patent applications or those of our licensors could be placed into interference, and we may lose our rights in such patents or applications. Patents may be challenged, held unenforceable, invalidated or circumvented. Certain of our current exclusive license agreements restrict, and any future exclusive license agreements may restrict, our rights under patents and patent applications to certain fields of use, and therefore, we may not have the ability to prevent competitors from developing and commercializing our product candidates or technologies in fields of use not covered by our exclusive license agreements.

The degree of future protection for our proprietary rights is uncertain, and we cannot ensure that:

• we or our licensors were the first to make the inventions covered by each of our patents or pending patent applications;

• we or our licensors were the first to file patent applications for these inventions;

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• others will not independently develop similar or alternative technologies or duplicate any of our technologies;

• any of our or our licensors’ pending patent applications will result in issued patents;

• any of our or our licensors’ patents will be valid or enforceable;

• any patents issued to us or our licensors or collaborators will provide a basis for commercially viable products, will provide us with any competitive advantages or will not be challenged by third parties;

• we will develop additional proprietary technologies that are patentable; or

• the patents of others will not have an adverse effect on our business.

We apply for patents covering our technologies, product candidates, formulations and uses thereof, as we deem appropriate. However, we may fail to apply for patents on important technologies or products in a timely fashion or at all. Our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from practicing our technologies or from developing competing products and technologies. For example, tanespimycin was originally disclosed in a now-expired third party patent. Consequently, others can develop products containing tanespimycin. We are aware of at least three other companies that have been developing product candidates containing or based on tanespimycin, and these companies have filed patent applications relating to their products in development. Other competitors may currently be developing, or may in the future develop, products containing or based on tanespimycin. In addition, we generally are unable to control the patent prosecution of technology that we license from others to the same degree as we would for our own technology. Further, some of our patents and patent applications for our motilide program have been assigned to Pfizer, and additional patents and patent applications may in the future be assigned to Pfizer or potential future partners. We generally are unable to control the filing, prosecution and maintenance of patent rights that we assign to partners to the same degree as we would if we maintained ownership of them.

In addition to patents, we rely on trade secrets and proprietary know-how. We have taken measures to protect our confidential information and trade secrets. However, these measures may not provide adequate protection. We seek to protect our confidential information and trade secrets by entering into confidentiality agreements with employees, collaborators, consultants and others. Nevertheless, parties may breach these agreements or competitors may otherwise obtain or independently develop our trade secrets.

Interference, opposition or similar proceedings relating to our patents and patent applications are costly, and an unfavorable outcome could prevent us from commercializing our product candidates.

We are aware of a significant number of patents and patent applications relating to aspects of our technologies and compounds filed by, and issued to, other parties. Others have filed patent applications or have been granted patents claiming inventions also claimed or licensed by us, and we may have to participate in an interference or other proceeding before a patent agency or court to determine priority of invention or which party was first to invent and, thus, has the right to a patent for these inventions.

We are the exclusive licensee to two patent rights claiming our epothilone product candidate KOS-1584. One is a granted patent and one is a patent application, owned by the Oregon State University and Sloan-Kettering, respectively. In June 2007, the US Patent and Trademark Office declared an interference between the patent and patent application. In October 2007, we entered into a settlement agreement with the Oregon State University and Sloan-Kettering setting forth the agreed upon procedure to conduct the interference. In addition, we entered into amendments to our agreements with the Oregon State University and Sloan-Kettering in connection with the settlement agreement. These amendments confirm, as well as make certain adjustments to, our financial obligations to each of the Oregon State University and Sloan-Kettering under our agreements with them, regardless of which party ultimately prevails in the interference.

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A proceeding or a lawsuit involving an interference or opposition could result in substantial cost to us even if the outcome is favorable, and if the outcome is unfavorable, we could be required to license the other party’s rights, on terms that may be unfavorable to us, or cease using the technology. We could incur additional cost because we are licensed under both party’s patent rights. An interference or opposition may also result in loss of claims based on patentability grounds raised in the interference or opposition. Although patent and intellectual property disputes in the biotechnology area are often settled through licensing or similar arrangements, costs associated with these arrangements may be substantial and could include ongoing royalties. Furthermore, we cannot be certain that a license would be available to us on satisfactory terms, if at all. Companies and others developing products that could compete with our product candidates, such as Novartis AG in the area of potential epothilone products, may be particularly unwilling to grant us a license at any price. If we are not able to obtain necessary licenses, we may not be able to manufacture or commercialize our product candidates, which would materially harm our business, financial condition and results of operations.

Claims by third parties of intellectual property infringement would require us to spend time and money and could deprive us of valuable rights needed to develop or commercialize our products.

Our commercial success depends significantly on not infringing the patents and proprietary rights of other parties and not breaching any licenses that we have entered into with regard to our technologies and products. Other parties may currently or in the future possess intellectual property rights covering product candidates that we, Pfizer or potential future partners are developing or desire to develop; methods of treatment or administration involving our product candidates; formulations of our product candidates; and genes, gene fragments, cell lines, compounds and other technologies we use or may wish to use. Any infringement of patent rights or violation of other proprietary rights may require us to obtain a license from another party, forego product development or commercialization or face lawsuits or other claims.

The biotechnology industry is characterized by extensive litigation regarding patents and other intellectual property rights. We are aware of patents and published patent applications that, if valid, and if we are unsuccessful in circumventing or acquiring the rights to these patents, may block our ability to commercialize products based on the product candidates that we are developing or pursue our polyketide gene manipulation and production technologies. We cannot be sure that other parties have not filed for or obtained relevant patents that could affect our ability to obtain patents or operate our business. Others, including Pfizer or potential future partners, may challenge our patent or other intellectual property rights or sue us for patent infringement, misappropriation of their intellectual property rights or breach of license agreements. We may be required to commence legal proceedings to resolve our patent or other intellectual property rights. An adverse determination in any litigation or administrative proceeding to which we may become a party could subject us to significant liabilities, result in our patents being deemed invalid, unenforceable or revoked, require us to license disputed rights from others or to cease using the disputed technology. In addition, our involvement in any of these proceedings may cause us to incur substantial costs and result in diversion of management and technical personnel.

Other parties may obtain patents in the future and claim that our products or the use of our technologies infringes these patents or that we are employing their proprietary technology without authorization. We could incur substantial costs and diversion of management and technical personnel in defending ourselves against any claims that the use of our technologies infringes any patents, defending ourselves against any claim that we are employing any proprietary technology without authorization or enforcing our patents against others. Furthermore, parties making claims against us may be able to obtain injunctive or other equitable relief that could effectively block our ability to develop, commercialize and sell products, and could result in the award of substantial damages against us. In the event of a successful claim of infringement against us, we may be required to:

• pay substantial damages;

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• stop producing certain products and using certain methods;

• develop non-infringing products and methods; and

• obtain one or more licenses from other parties.

We may not be able to obtain licenses from other parties at a reasonable cost, or at all. If we are not able to obtain necessary licenses at a reasonable cost or at all, we could encounter substantial delays in product introductions while we attempt to develop alternative methods and products, which we may not be able to accomplish. Litigation or the failure to obtain licenses could prevent us from manufacturing or commercializing products and could materially harm our business, financial condition and results of operation.

Manufacturing and supply difficulties could delay or preclude commercialization of our products and substantially increase our expenses.*

We currently use contract manufacturers to make and supply us with the tanespimycin active pharmaceutical ingredient. We currently formulate the final drug product for tanespimycin injectable suspension formulation at our facilities and use a contract manufacturer to fill the final drug product vials. In the future, we expect to use a contract manufacturer to conduct the entire tanespimycin injectable suspension formulation and filling process. We maintain a limited inventory of tanespimycin drug product at our facilities in Hayward, California, and we also maintain a limited inventory at the facilities of an outside contractor. In our epothilone program, we rely on contract manufacturers for the active pharmaceutical ingredient for KOS-1584. Drug product for KOS-1584 is formulated by an outside contractor. We maintain limited inventories of formulated drug product for KOS-1584 at our facilities in Hayward, California and at the facilities of outside contractors. For all of our projects, drug product is distributed to clinical sites primarily through outside contractors. Our manufacturing process for our product candidates is complex and contains numerous sequential steps; a failure at any point in the manufacturing process may delay the supply of the drug product. Moreover, it takes multiple parties and a significant amount of time to manufacture sufficient quantities of tanespimycin and KOS-1584 drug product for use in our clinical trials, which may limit our ability to commence or complete clinical trials in a timely manner, or at all.

If any of our or our contract manufacturers’ manufacturing or inventory facilities encounter delays, are destroyed or otherwise become unavailable to us, then the clinical development of our product candidates or submissions for their regulatory approval, and therefore commercialization, could be delayed or precluded. In addition, in our clinical trials for tanespimycin, tanespimycin is being evaluated in combination with another pharmaceutical drug. If any of the manufacturers of the drug products used in these combination therapy clinical trials are unable to continue to manufacture these drug products, or those manufacturers’ manufacturing or inventory facilities encounter delays, are destroyed or otherwise become unavailable, then the clinical development of tanespimycin, or submissions for its regulatory approval, and therefore commercialization, could be delayed or precluded. Adverse effects would be particularly acute if problems arise with our sole sourcing or inventory relationships. Alternative qualified production capacity may not be available on a timely basis or at all because manufacturing processes for our product candidates are complex and may be subject to a lengthy regulatory approval process.

A number of factors could cause prolonged interruptions in the manufacturing and supply of our product candidates, including:

• the failure of a supplier to provide raw materials or intermediates used for manufacture of our product candidates;

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• equipment malfunctions or failures;

• the failure to manufacture in accordance with current good manufacturing practices, FDA or other regulatory requirements;

• the delay of product shipments due to U.S. custom regulations or third-party carriers used to transport our product candidates, and damage to our product candidates while they are in transit;

• changes in FDA or other regulatory authority requirements or standards that require modifications to the manufacturing processes or facilities used in the production of our product candidates;

• action by the FDA or other regulatory authorities to suspend production of one or more of our product candidates; or

• difficulties in scaling-up production of our product candidates for large clinical trials or commercial supply.

While our manufacturing personnel have extensive experience from working at other companies, we as a company have no experience manufacturing products for commercial sale. We may encounter difficulties in scaling-up our manufacturing processes and equipment. We may not be able to achieve such scale-up in a timely manner or at a commercially reasonable cost, if at all. In addition, our facilities in Hayward, California are located within the San Francisco Bay Area, an area where earthquakes periodically occur. They are also located in a designated flood zone. Our access to any raw materials, intermediates, active pharmaceutical ingredients or formulated drug product for our product candidates sourced or inventoried through our facilities in Hayward, California may be subject to interruption, damage or loss in the event of an earthquake or flood.

As discussed above, we rely upon outside contractors to manufacture and supply to us raw materials, intermediates, active pharmaceutical ingredients and formulated drug product for our product candidates. Our dependence upon others for the manufacture of our product candidates and their components may adversely affect our ability to continue clinical development of our product candidates in a timely manner and may adversely affect any future profit margins and our ability to commercialize any products that we may develop on a timely and competitive basis. Dependence on contract manufacturers involves a number of additional risks, many of which are outside of our control, including:

• failure of a contract manufacturer to manufacture products to our specifications or to deliver products in the quantities, timeframe or manner that we require;

• a decision by the FDA or other regulatory authorities not to approve our use of a particular contract manufacturer to supply our products;

• intellectual property rights to any improvements in a manufacturing process or new manufacturing processes being owned by or shared with a contract manufacturer;

• termination of an agreement with a contract manufacturer or increased prices charged by a contract manufacturer; or

• a contract manufacturer declaring bankruptcy or otherwise going out of business.

Any of these factors could cause us to delay or suspend clinical trials, regulatory submissions or commercialization of our products and could result in significantly increased costs.

In addition, our future contract manufacturers may not be in the United States, and we currently utilize contract manufacturers located outside the United States. Consequently, we may face additional manufacturing difficulties due to a number of potential factors, including importation and customs issues, political uncertainties and a potentially limited ability to enforce our contractual rights against parties not located within the United States.

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We face intense competition from pharmaceutical companies, biotechnology companies and academic groups.*

We face, and will continue to face, intense competition from organizations such as biotechnology and pharmaceutical companies, as well as academic and research institutions and government agencies, that are pursuing competing technologies and products. These organizations may develop or currently possess technologies or products that are superior alternatives to ours. For example, companies with competing Hsp90 inhibitors include Biogen Idec Inc., which has initiated Phase 1 and 2 clinical trials in solid tumors with its oral synthetic Hsp90 inhibitor; Infinity Pharmaceuticals, which has initiated a Phase 1 clinical trial of its intravenous Hsp90 inhibitor in gastrointestinal stromal tumors, a Phase 2 trial in non-small cell lung cancer, a Phase 2 trial in hormone refractory prostate cancer, a Phase Ib trial in solid tumors, and has an oral formulation in preclinical development in collaboration with MedImmune, Inc. (now a part of the AstraZeneca group of companies); Abraxis BioScience, Inc., which has an albumin-bound particle suspension formulation of 17-AAG in preclinical development; Vernalis plc, which has announced that it has selected an intravenous and an oral Hsp90 inhibitor preclinical development candidate in collaboration with Novartis AG and initiated a Phase 1 clinical trial in late 2007; Serenex, Inc., which has initiated Phase 1 clinical trials for its oral Hsp90 inhibitor in solid and hematological tumors and has agreed to be acquired by Pfizer; and Synta Pharmaceuticals Corp., which initiated Phase 1 clinical trials for its Hsp90 inhibitor in melanoma, as well as other companies reported to be pursuing Hsp90 inhibitors. Competing epothilones in clinical development include those being developed by Novartis AG, which is reported to be in Phase 3 clinical trials; and Bayer Schering Pharma AG, which is reported to be in Phase 2 clinical trials. In addition, IXEMPRA(TM) (ixabepilone), an epothilone developed by Bristol-Myers Squibb Company, was approved by the FDA in October 2007 for use in breast cancer and Bristol-Myers Squibb Company is reported to be in numerous post-marketing clinical trials of ixabepilone. Bristol-Myers Squibb also has an epothilone-folate conjugate in Phase 1. Gastrointestinal motility competitors include Chugai Pharmaceuticals, whose motilide agonist is reported to be in Phase 2 clinical trials. Thus, it is possible that, even if we are successful in developing any of our product candidates, one or more compounds of our competitors will be approved and marketed before our own. This could place us and our current or potential future partners at a significant disadvantage and could prevent us from realizing significant commercial benefit from such compounds. Further, our competitors in the polyketide gene-engineering field may be more effective at implementing their technologies to develop commercial products or may hold or develop patents or other proprietary rights that may prevent us from practicing our technologies and pursuing our programs.

We also face and will continue to face intense competition from other companies for partnering arrangements with pharmaceutical and biotechnology companies, for establishing relationships with academic and research institutions and for licenses to additional technologies. These competitors, either alone or with their collaborative partners, may succeed in developing technologies or products that are superior to ours.

Any products that we develop through our technologies will compete in multiple, highly competitive markets. Development of pharmaceutical products requires significant investment and resources. Many of the organizations competing with us in the markets for such products have greater capital resources, research and development and marketing staffs, facilities and capabilities, and greater experience in discovery and developing drugs, obtaining regulatory approvals and product manufacturing and marketing. Accordingly, our competitors may succeed in more rapidly developing and marketing technologies and products that are more effective than our technologies and products or that would render our products or technologies obsolete or noncompetitive.

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We believe that our ability to successfully compete will depend on, among other things:

• our ability to develop novel product candidates with attractive pharmaceutical properties and to secure and protect intellectual property rights based on our innovations;

• the efficacy and safety of our product candidates;

• the speed at which we, Pfizer and potential future partners develop our product candidates;

• our, Pfizer’s and potential future partners’ ability to design and successfully execute appropriate clinical trials;

• our, Pfizer’s and potential future partners’ ability to obtain regulatory approvals to market our product candidates and the timing and scope of any regulatory approvals;

• our, Pfizer’s and potential future partners’ ability to manufacture commercial quantities and sell any product candidates that are approved for marketing;

• acceptance of future products by physicians and other healthcare providers; and

• the development of effective pricing and reimbursement strategies.

If we face product liability claims, these claims will divert our management’s time and we will incur litigation costs, and if we are held liable, our business, financial condition and results of operation may be materially harmed.

We face an inherent business risk of liability claims in the event that the use of our potential products in clinical trials or otherwise, or any other products manufactured in our facility, results in personal injury or death. Even though we have obtained product liability insurance, it may not be sufficient to cover claims that may be made against us. Product liability insurance is expensive, difficult to obtain and may not be available on acceptable terms, if at all. Any claims against us, regardless of their merit, could materially and adversely affect our business, financial condition and results of operation, because litigation related to these claims would strain our financial resources in addition to consuming the time and attention of our management. If we are sued for any injuries caused by our products or products manufactured at our facility, our liability could exceed our total assets.

We use hazardous chemicals and radioactive and biological materials in our business. Any claims relating to improper handling, storage or disposal of these materials could be time consuming and costly.

Our research and development processes involve the controlled use of hazardous materials, including hazardous chemicals and radioactive and biological materials. Some of these materials may be novel, including bacteria with novel properties and bacteria that produce biologically active compounds. Our operations also produce hazardous waste products. We cannot eliminate the risk of accidental contamination or discharge and any resultant injury from these materials. Federal, state and local laws and regulations govern the use, manufacture, storage, handling, shipment and disposal of these materials. We could be subject to civil damages in the event of an improper or unauthorized release of, or exposure of individuals to, hazardous materials. In addition, we could be sued for injury or contamination that results from our use or the use by third parties or our current or potential future partners of these materials, and our liability may exceed our insurance coverage and total assets. Compliance with environmental laws and regulations may be expensive, and current or future environmental regulations may impair our research, development or commercialization efforts. In the event we do not comply with any of these laws or regulations, we may incur significant fines, our governmental licenses or permits may be revoked or we may face additional penalties, any of which could harm our business.

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We have a stockholders rights plan and anti-takeover provisions in our corporate charter documents that may result in outcomes with which you do not agree.

Our board of directors has the authority to issue up to 10,000,000 shares of preferred stock and to determine the rights, preferences, privileges and restrictions of those shares without further vote or action by our stockholders. The rights of the holders of any preferred stock that may be issued in the future may adversely affect the rights of the holders of common stock. The issuance of preferred stock could make it more difficult for third parties to acquire a majority of our outstanding voting stock.

Our certificate of incorporation provides for staggered terms for the members of the board of directors and prevents our stockholders from acting by written consent. These provisions and other provisions of our bylaws and of Delaware law applicable to us could delay or make more difficult a merger, tender offer or proxy contest involving us. This could reduce the price that investors might be willing to pay for shares of our common stock and result in the market price being lower than it would be without these provisions. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. This is because our board of directors is responsible for appointing the members of our management team.

We have adopted a rights agreement under which all stockholders have the right to purchase shares of a new series of preferred stock at an exercise price of $70.00 per one one-hundredth of a share (subject to adjustment), if a person acquires more than 20% of our common stock. The rights plan could make it more difficult for a person to acquire a majority of our outstanding voting stock. The rights plan could also reduce the price that investors might be willing to pay for shares of our common stock and result in the market price being lower than it would be without the rights plan. In addition, the existence of the rights plan itself may deter a potential acquirer from acquiring us. As a result, either by operation of the rights plan or by its potential deterrent effect, mergers and acquisitions of us that our stockholders may consider in their best interests may not occur.

Our stock price has been, and may continue to be, extremely volatile.*

The trading price of our common stock has been, and is likely to continue to be, highly volatile. During the period from April 1, 2007 through March 31, 2008, our common stock traded between $1.28 and $6.58 on the NASDAQ Global Market. The trading price of our common stock could be subject to wide fluctuations in price in response to various factors, many of which are beyond our control, including:

• delay or failure in initiating, conducting, completing or analyzing clinical trials or unsatisfactory design of or data from these trials;

• our ability to enter into new partnering arrangements on favorable terms, or at all;

• announcements of data from clinical trials or other developments that do not meet the expectations of analysts, investors or other third parties;

• developments in clinical trials for potentially competitive product candidates;

• changes in the United States or foreign health care systems or regulations;

• regulatory approvals for competitive product candidates or delays or failures in obtaining regulatory approvals for our product candidates;

• new products or services introduced or announced by us or our competitors;

• announcements of technological developments in research by us or our competitors;

• published reports by securities analysts;

• announcements of expirations, terminations or amendments of our current license agreements, or announcements that we have entered into new partnering, licensing or similar arrangements;

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• departures of key personnel;

• developments or disputes as to patent or other proprietary rights;

• litigation or an unfavorable outcome in litigation;

• sales of our common stock;

• announcements of, and actual or anticipated fluctuations in, our financial results; and

• economic and other external factors, disasters or crises.

In addition, the stock market in general, and the NASDAQ Global Market and the market for biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been instituted against that company. If this type of litigation were instituted against us, we would be faced with substantial costs and management’s attention and resources would be diverted, which could in turn seriously harm our business, financial condition and results of operations.

We expect that our quarterly and annual results of operations will fluctuate, and this fluctuation could cause our stock price to decline, creating investor losses.

Our quarterly and annual operating results have fluctuated in the past and are likely to do so in the future. These fluctuations could cause our stock price to fluctuate significantly or decline. Some of the factors that could cause our operating results to fluctuate include:

• expiration or termination of licensing arrangements, which may not be renewed or replaced;

• the success rate of our, Pfizer’s or potential future partners’ efforts leading to milestone payments and royalties under our licensing arrangements with Pfizer, or any future partnering arrangements that we may establish;

• the progress of our product candidates in clinical trials, and therefore, the timing of expenses for those clinical trials;

• the timing and willingness of Pfizer and potential future partners to develop and commercialize our products;

• general and industry specific economic conditions, which may affect Pfizer’s and potential future partners’ research and development expenditures; and

• costs and expenses related to any litigation or administrative proceedings in which we may be involved.

If our revenues decline or do not grow due to the failure to enter into new partnering arrangements or as a result of the expiration, termination or amendment of our current licensing agreements or other factors, we may not be able to reduce our operating expenses correspondingly. In addition, we expect operating expenses to continue to increase since, absent any new partnering arrangements with third parties, we will be required to independently to fund any development and clinical trial activities that we may undertake. Failure to achieve anticipated levels of revenues could therefore significantly harm our operating results for a particular fiscal period.

Due to the possibility of fluctuations in our revenues and expenses, we believe that quarter-to-quarter or year-to-year comparisons of our operating results are not a good indication of our future performance. Our operating results in some quarters or years may not meet the expectations of stock market analysts and investors. In that case, our stock price may decline.

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If we are unable to favorably assess the effectiveness of our internal control over financial reporting, or if our independent auditors are unable to provide an unqualified attestation report on our internal control over financial reporting, our stock price could be adversely affected.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and the rules and regulations of the SEC, on an annual basis, our management is required to report on, and our independent auditors to attest to, the effectiveness of our internal control over financial reporting. The rules governing the standards that must be met for management to make its annual assessment are complex and require significant documentation and testing. While our internal controls over financial reporting were deemed effective by both our management and our independent auditors as of December 31, 2007, there may be changes in our systems, processes or operations that will affect the effectiveness of internal controls in the future. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Our future assessments of internal control over financial reporting may continue to result in increased expenses and the devotion of significant management resources. If we cannot favorably assess the effectiveness of our internal controls over financial reporting in the future, or if our independent auditors are unable to provide an unqualified attestation report on our internal control over financial reporting, investor confidence and our stock price could be adversely affected.

Item 5. Other Information

On August 8, 2007, we exercised our option to extend, for a term of five years, the term of that certain lease agreement, dated December 1, 1997 (the “Lease”), with Northern California Industrial Portfolio, Inc. (“Landlord”) for the lease of premises containing approximately 69,512 square feet of office space located at 3825 Bay Center Place, Hayward, California (the “Premises”), which Premises consist of approximately 43,239 rentable square feet (the “Improved Premises”) and approximately 26,273 rentable square feet (the Unimproved Premises”). In connection with the exercise of our option to extend the Lease, we entered into a First Amendment to the Lease (the “Lease Amendment”), effective February 8, 2008, with Landlord. Under the terms of the Lease Amendment, the term of the Lease was extended for a period of 60 months expiring on February 28, 2013, unless sooner terminated in accordance with the terms of the Lease (such term, the “Extended Term”). The monthly base rent for the Improved Premises during the Extended Term under the Lease Amendment is as follows:

Period	Monthly Base Rent
3/1/08-2/28/09	$	69,182.40
3/1/09-2/28/10	$	71,956.90
3/1/10-2/28/11	$	74,839.50
3/1/11-2/29/12	$	77,830.20
3/1/12-2/28/13	$	80,929.00

The monthly base rent for the Unimproved Premises during the Extended Term under the Lease Amendment is as follows:

Period	Monthly Base Rent
3/1/08-2/28/09	$	13,136.50
3/1/09-2/28/10	$	13,661.96
3/1/10-2/28/11	$	14,209.31
3/1/11-2/29/12	$	14,778.56
3/1/12-2/28/13	$	15,369.71

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Under the terms of the Lease and Lease Amendment, we are also responsible for our proportionate share of certain operating expenses, including taxes, insurance, common area management and management fees. We are also responsible for maintaining certain insurance policies during the Extended Term. In the event of a default of certain of our obligations under the Lease, the Landlord would have right to terminate the Lease. The foregoing is only a brief description of the material terms of the Lease Amendment, does not purport to be a complete statement of the rights and obligations of the parties under the Lease Amendment or the Lease, and is qualified in its entirety by reference to the Lease Amendment that is filed as Exhibit 10.53 to this quarterly report on Form 10-Q and the Lease that was filed as Exhibit 10.42 to our quarterly report on Form 10-Q for the quarterly period ended June 30, 2002.

Item 6. Exhibits

Exhibit Number	Description of Document
3.1	Amended and Restated Certificate of Incorporation of Registrant. (1)
3.2	Amended and Restated Bylaws of Registrant. (2)
4.1	Specimen Registrant’s Common Stock Certificate. (3)
4.2	Third Amended and Restated Registration Rights Agreement, dated March 30, 2000, between Registrant and certain stockholders. (3)
4.3	Registrant’s Certificate of Designation of Series A Junior Preferred Stock. (4)
4.4	Warrant for the purchase of shares of common stock, dated July 19, 2006, issued by the Registrant to Kingsbridge Capital Limited. (5)
4.5	Registration Rights Agreement, dated July 19, 2006, by and between the Registrant and Kingsbridge Capital Limited. (5)
10.43	2008 Compensation Information for Executive Officers. (6)
10.44	Summary of 2008 Executive Officer Cash Bonus Plan. (7)
10.47†	Form of Executive Employee Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement under the 2006 Equity Incentive Plan. (6)
10.48	Form of Non-Executive Employee Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement under the 2006 Equity Incentive Plan. (6)
10.50	Non-Employee Director Compensation Arrangements, effective as of January 1, 2008. (6)
10.52	Resignation and Consulting Agreement, dated as of March 18, 2008, between Registrant and Robert G. Johnson, Jr., M.D., Ph.D.
10.53	First Amendment to Lease, effective as of February 8, 2008, between Registrant and Northern California Industrial Portfolio, Inc.
31.1	Certification required by Rule 13a-14(a) or Rule 15d-14(a).
31.2	Certification required by Rule 13a-14(a) or Rule 15d-14(a).
32.1	Certification by the Chief Executive Officer and the Chief Financial Officer of Kosan Biosciences Incorporated, as required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United Stated Code (18 U.S.C. 1350). (8)

(1) Incorporated herein by reference to an exhibit of our quarterly report on Form 10-Q (File No. 000-31633) for the period ended June 30, 2001.

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(2) Incorporated herein by reference to an exhibit of our quarterly report on Form 10-Q (File No. 000-31633) for the period ended June 30, 2003.

(3) Incorporated herein by reference to an exhibit of our Registration Statement on Form S-1 and amendments thereto (File No. 333-33732).

(4) Incorporated herein by reference to an exhibit of our current report on Form 8-K (File No. 000-31633) filed on October 15, 2001.

(5) Incorporated herein by reference to an exhibit of our current report on Form 8-K (File No. 000-31633) filed on July 25, 2006.

(6) Incorporated herein by reference to an exhibit of our annual report on Form 10-K (File No. 000-31633) for the period ended December 31, 2007.

(7) Incorporated herein by reference to an exhibit of our current report on Form 8-K (File No. 000-31633) filed on January 29, 2008.

(8) This certification “accompanies” the Quarterly Report on Form 10-Q to which it relates, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Kosan Biosciences Incorporated under the Securities Act or the Exchange Act (whether made before or after the date of the Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing.

† Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.

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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.

	Kosan Biosciences Incorporated
May 9, 2008	By:	/s/ Helen S. Kim
		Helen S. Kim
		President and Chief Executive Officer and Duly Authorized Officer

May 9, 2008	By:	/s/ Gary S. Titus
		Gary S. Titus
		Senior Vice President and Chief Financial Officer and Duly Authorized Officer

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EXHIBIT INDEX

Exhibit Number	Description of Document
3.1	Amended and Restated Certificate of Incorporation of Registrant. (1)
3.2	Amended and Restated Bylaws of Registrant. (2)
4.1	Specimen Registrant’s Common Stock Certificate. (3)
4.2	Third Amended and Restated Registration Rights Agreement, dated March 30, 2000, between Registrant and certain stockholders. (3)
4.3	Registrant’s Certificate of Designation of Series A Junior Preferred Stock. (4)
4.4	Warrant for the purchase of shares of common stock, dated July 19, 2006, issued by the Registrant to Kingsbridge Capital Limited. (5)
4.5	Registration Rights Agreement, dated July 19, 2006, by and between the Registrant and Kingsbridge Capital Limited. (5)
10.43	2008 Compensation Information for Executive Officers. (6)
10.44	Summary of 2008 Executive Officer Cash Bonus Plan. (7)
10.47†	Form of Executive Employee Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement under the 2006 Equity Incentive Plan. (6)
10.48	Form of Non-Executive Employee Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement under the 2006 Equity Incentive Plan. (6)
10.50	Non-Employee Director Compensation Arrangements, effective as of January 1, 2008. (6)
10.52	Resignation and Consulting Agreement, dated as of March 18, 2008, between Registrant and Robert G. Johnson, Jr., M.D., Ph.D.
10.53	First Amendment to Lease, effective as of February 8, 2008, between Registrant and Northern California Industrial Portfolio, Inc.
31.1	Certification required by Rule 13a-14(a) or Rule 15d-14(a).
31.2	Certification required by Rule 13a-14(a) or Rule 15d-14(a).
32.1	Certification by the Chief Executive Officer and the Chief Financial Officer of Kosan Biosciences Incorporated, as required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United Stated Code (18 U.S.C. 1350). (8)

(1) Incorporated herein by reference to an exhibit of our quarterly report on Form 10-Q (File No. 000-31633) for the period ended June 30, 2001.

(2) Incorporated herein by reference to an exhibit of our quarterly report on Form 10-Q (File No. 000-31633) for the period ended June 30, 2003.

(3) Incorporated herein by reference to an exhibit of our Registration Statement on Form S-1 and amendments thereto (File No. 333-33732).

(4) Incorporated herein by reference to an exhibit of our current report on Form 8-K (File No. 000-31633) filed on October 15, 2001.

(5) Incorporated herein by reference to an exhibit of our current report on Form 8-K (File No. 000-31633) filed on July 25, 2006.

(6) Incorporated herein by reference to an exhibit of our annual report on Form 10-K (File No. 000-31633) for the period ended December 31, 2007.

(7) Incorporated herein by reference to an exhibit of our current report on Form 8-K (File No. 000-31633) filed on January 29, 2008.

(8) This certification “accompanies” the Quarterly Report on Form 10-Q to which it relates, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Kosan Biosciences Incorporated under the Securities Act or the Exchange Act (whether made before or after the date of the Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing.

† Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.

EX-10.52

Exhibit 10.52

Kosan Biosciences Incorporated

3832 Bay Center Place

Hayward, CA 94545

March 18, 2008

Robert G. Johnson, Jr., M.D., Ph.D.

Kosan Biosciences Incorporated

3832 Bay Center Place

Hayward, CA 94545

Re: Resignation and Consulting Agreement

Dear Robert:

This letter sets forth the terms of the resignation and consulting agreement (the “Agreement”) between you and Kosan Biosciences Incorporated (the “Company”).

1. Resignation of Employment and Board Positions. Pursuant to the signed resignation letter dated as of February 27, 2008 (the “Resignation Date”), you resigned from your position of Chief Executive Officer (“CEO”) of the Company, and from any other employment or officer positions with the Company (which includes the position of President) and all of its affiliated entities (the “Affiliates”), and as a member of the Company’s Board of Directors (the “Board”). A copy of your signed resignation letter is attached as Exhibit A.

2. Final Pay. The Company paid you all accrued salary and all accrued and unused vacation (if any) earned by you through and including the Resignation Date, less applicable withholdings and deductions. You received this payment regardless of whether you enter into this Agreement.

3. Severance Benefits. Although the Company is not otherwise obligated to do so, if you timely sign, date and return this Agreement to the Company, and you do not revoke it, you will be provided the severance benefits set forth in this Agreement (the “Severance Benefits”). The Severance Benefits in this Agreement shall be the sole severance benefits that you will receive, and will be in lieu of (and not in addition to) any other severance benefits, including but not limited to severance benefits under the Company’s Severance Benefit Plan or severance benefits specified in your letter employment agreement with the Company dated September 9, 2000 (the “Employment Agreement”). The Severance Benefits are as follows:

(a) Severance Payments. The Company will make severance payments to you in the form of continuation of your base salary in effect as of the Resignation Date for eighteen (18) months (the “Severance Payments”). The Severance Payments will be subject to applicable withholdings and deductions, and will be paid on the Company’s normal payroll dates, beginning with the first payroll date after the Effective Date of this Agreement (as defined in Section 16(d) (ADEA Waiver)). Notwithstanding the foregoing, if you materially breach this Agreement or the Proprietary Information Agreement (defined in Section 8) (any

such material breach to be referred to herein as a “Forfeiture Action”), then you will immediately forfeit any right to the Severance Payments, and the Company’s obligation to continue to provide the Severance Payments will cease in full effective as of the date of your Forfeiture Action. Notwithstanding the foregoing, whether you have engaged in any Forfeiture Action will be determined by an arbitrator pursuant to the dispute resolution process provided in Section 22 hereof and, to the extent such a determination is made by the arbitrator, you will be required to promptly repay to the Company any Severance Payments received by you after the date of your Forfeiture Action. In the event that you die during the time that the Company is continuing to pay the Severance Payments, the Company will pay to your estate any remaining Severance Payments (and Benefits Payments, discussed in Section 3(b), if the Company’s obligation to pay the Benefits Payments has not ceased prior to the date of your death) that would have been paid to you, with such payments to be made on the same schedule that such payments otherwise would have been paid to you in the absence of your death.

(b) Benefits Payments. Your group health insurance coverage will terminate on the Resignation Date. To the extent provided by the federal COBRA law or applicable state insurance laws (collectively, “COBRA”), and by the Company’s current group health insurance policies, you then will be eligible to continue your group health insurance benefits at your own expense. Later, you may be able to convert to an individual policy through the provider of the Company’s health insurance, if you wish. You will be provided with a separate notice more specifically describing your rights and obligations to continuing health insurance coverage under applicable state and/or federal insurance laws and the terms of the applicable health insurance plans, on or after the Resignation Date. If you timely elect continued health insurance coverage, the Company agrees, through the earlier of August 31, 2009 or the date on which you become eligible for group insurance coverage with another employer, to pay your health insurance premiums sufficient to continue your coverage at the same level in effect as of the Resignation Date (including dependent coverage, if any) (the “Benefits Payments”) to the extent you remain eligible for COBRA coverage. You agree to notify the Company in writing immediately upon commencing other employment that provides group health insurance benefits. Notwithstanding the foregoing, if you engage in any Forfeiture Action (as determined by an arbitrator, as provided in Section 3(a)), then you will immediately forfeit any right to continued Benefits Payments, and the Company’s obligation to continue to provide the Benefits Payments will cease in full effective as of the date of your Forfeiture Action, and you will be required to promptly repay to the Company any Benefits Payments received by you after the date of your Forfeiture Action.

(c) Deferred Compensation. In the event that the Company determines that any payments hereunder (including, but not limited to, payments pursuant to Section 3(a) (Severance Payments) and continued insurance coverage or Benefits Payments provided under Section 3(b) (Benefits Payments)) fail to satisfy the distribution requirement of Section 409A(a)(2)(A) of the Internal Revenue Code (the “Code”) as a result of Section 409A(a)(2)(B)(i) of the Code, then the payment of such benefits shall not be made pursuant to the payment schedules provided herein and instead the payment of such benefits shall be delayed or otherwise restructured to the minimum extent necessary so that such benefits are not subject to the provisions of Section 409A(a)(1) of the Code; provided, however, that before the imposition of any such delay, it is intended that (i) each installment payment pursuant to Section 3(a) shall be regarded as a separate “payment” for purposes of Treasury Regulations Section 1.409A-2(b)(2(i), (ii) all such installment payments shall satisfy, to the greatest extent permissible, the exemptions

from the application of Section 409A of the Code provided under Treasury Regulations Sections 1.409A-1(b)(4) and 1.409A-1(b)(9)(iii), and (iii) the Company’s payment of COBRA premiums shall satisfy, to the greatest extent permissible, the exemption from the application of Section 409A of the Code provided under Treasury Regulations Section 1.409A-1(b)(9)(v).

(d) Change in Control. In the event the Company is subject to a Change in Control (as defined below) during such time that the Severance Benefits are being paid, the obligation to continue to pay the Severance Benefits will continue as a contractual obligation and, to the extent that the Company does not continue as a surviving entity subsequent to the Change in Control, from and after any such Change in Control this contractual obligation will be assumed by the acquiring entity, or other appropriate arrangements will be made for satisfaction of this obligation. “Change in Control” means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:

(i) any person (as defined under the Securities Exchange Act of 1934, as amended) (an “Exchange Act Person”) becomes the owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities other than by virtue of a merger, consolidation or similar transaction. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur (A) on account of the acquisition of securities of the Company by an investor, any affiliate thereof or any other Exchange Act Person from the Company in a transaction or series of related transactions the primary purpose of which is to obtain financing for the Company through the issuance of equity securities, or (B) solely because the level of ownership held by any Exchange Act Person exceeds the designated percentage threshold of the outstanding voting securities as a result of a repurchase or other acquisition of voting securities by the Company reducing the number of shares outstanding, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition, the Exchange Act Person becomes the owner of any additional voting securities that, assuming the repurchase or other acquisition had not occurred, increases the percentage of the then outstanding voting securities owned by the Exchange Act Person over the designated percentage threshold, then a Change in Control shall be deemed to occur;

(ii) there is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company and, immediately after the consummation of such merger, consolidation or similar transaction, the stockholders of the Company immediately prior thereto do not own, directly or indirectly, either (A) outstanding voting securities representing more than fifty percent (50%) of the combined outstanding voting power of the surviving entity in such merger, consolidation or similar transaction or (B) more than fifty percent (50%) of the combined outstanding voting power of the parent of the surviving entity in such merger, consolidation or similar transaction, in each case in substantially the same proportions as their ownership of the outstanding voting securities of the Company immediately prior to such transaction;

(iii) the stockholders of the Company approve or the Board approves a plan of complete dissolution or liquidation of the Company, or a complete dissolution or liquidation of the Company shall otherwise occur; or

(iv) there is consummated a sale, lease, exclusive license or other disposition of all or substantially all of the consolidated assets of the Company and its subsidiaries, other than a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its subsidiaries to an entity, more than fifty percent (50%) of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the outstanding voting securities of the Company immediately prior to such sale, lease, license or other disposition.

The term Change in Control shall not include a sale of assets, merger or other transaction effected exclusively for the purpose of changing the domicile of the Company.

4. Final Expense Reimbursements. No later than sixty (60) days after the Resignation Date, you must submit your final documented expense reimbursement statement reflecting all business expenses you incurred through the Resignation Date for which you seek reimbursement. The Company will reimburse you for such expenses pursuant to its regular business practice.

5. Return of Company Property. By the close of business on March 14, 2008, you shall return to the Company all documents (and all copies thereof) and other property belonging to the Company that you have in your possession or control, with the exception of the cellular phone discussed below. The documents and property to be returned by you include, but are not limited to, all files, correspondence, email, memoranda, notes, notebooks, drawings, records, plans, forecasts, reports, studies, analyses, compilations of data, proposals, agreements, financial information, research and development information, clinical trial data, sales and marketing information, operational and personnel information, specifications, code, software, databases, computer-recorded information, tangible property and equipment (including, but not limited to, computers, facsimile machines, personal data assistant, mobile telephones, and servers), credit cards, entry cards, identification badges and keys; and any materials of any kind which contain or embody any proprietary or confidential information of the Company or any of its Affiliates (and all reproductions thereof in whole or in part). You agree to make a diligent search to locate any such documents, property and information within the above-referenced timeframe. In addition, if you have used any personally owned computer, server, or e-mail system to receive, store, review, prepare or transmit any Company confidential or proprietary data, materials or information, then you agree to provide the Company, no later than March 14, 2008, a computer-useable copy of all such information and then permanently delete and expunge such Company confidential or proprietary information from those systems without retaining any reproductions (in whole or in part); and you agree to provide the Company access to your personal system as requested to verify that the necessary copying and/or deletion is done. Your timely compliance with this Section 5 is a precondition to your receipt of any of the Severance Benefits. Notwithstanding the foregoing, the Company will permit you to retain the Company’s cellular phone provided to you, and the Company will transfer to you its ownership interests in the phone effective as of the Effective Date. The cellular phone is being provided in its “as is” condition.

In addition, the Company will arrange for the transfer to you of the telephone number for that cellular phone, and you will be solely responsible for the billing and costs associated with the phone effective as of the first day following the Resignation Date. In addition, the Company will permit you to retain an electronic copy of approved contact information from the Outlook contact list of the Company computer assigned to you, provided that you first submit to the Company, for its approval, a list of the specific contacts of which you want to retain a copy.

6. Consulting Relationship. If you timely sign this Agreement, return it to the Company, and allow it to become effective, then the Company will engage you as a consultant under the terms and conditions specified below (the “Consulting Relationship”).

(a) Consulting Period. The Company will engage you as a consultant for the period (the “Consulting Period”) commencing on the day immediately following the Resignation Date and continuing until the earlier of: (i) August 27, 2008; (ii) the date your consulting relationship is terminated by the Company due to your Forfeiture Action (as determined by an arbitrator, as provided in Section 3(a)), such termination to be effective as of the date of your Forfeiture Action; (iii) the date that you and the Company mutually agree to terminate the consulting relationship; or (iv) the date that you revoke this Agreement pursuant to Section 16(d) hereof.

(b) Consulting Duties. During the Consulting Period, you agree to provide a maximum of eight (8) hours per month of consulting services (the “Services”), to and at the request of the President or any Company officer, or the Board, in any area within your expertise. You shall exercise the highest degree of professionalism and utilize your expertise and creative talents in performing the Services. The Company shall not require you to perform the Services in a manner that would unreasonably interfere with your performance of your other professional duties.

(c) Option Vesting. Vesting of your outstanding stock options will continue during the Consulting Period in accordance with the terms of your option agreements and the Company’s applicable equity incentive plans, and will cease effective as of the termination of the Consulting Period (the “Consulting Termination Date”). Provided that the Consulting Period is not terminated pursuant to Sections 6(a)(ii) or 6(a)(iv), then the following shall apply (the “Option Acceleration and Extension”): (i) vesting of your unvested stock options shall be accelerated such that your options will become vested and exercisable, effective as of the Consulting Termination Date, with respect to the number of shares subject to your options that would have vested if the Consulting Period had continued for twelve (12) months after such date (without giving effect to any other acceleration provision); and (ii) the agreements governing your stock options are amended to permit your exercise of each of your vested options through the earlier of the following: (A) thirty (30) months from the Consulting Termination Date; or (B) the term of each option. In addition, in the event that, during the Consulting Period, the Company is subject to a change in control (as such term is defined in the Company’s equity incentive plans applicable to your stock options), you and the Company agree that your then unvested stock options will be subject to the Option Acceleration and Extension, effective on the date immediately preceding the effective date of such change in control, provided, however, that the number of shares to be accelerated will be increased only by the number of shares that would have vested between the effective date of the change in control and August 27, 2009 (but in no case beyond the term of each option). Except as expressly modified herein, your stock

options, including your rights to exercise any vested options, continue to be governed by the terms of your operative agreements with the Company and the applicable equity plan(s). You will not be eligible for any additional compensation (such as consulting fees) for the Services or the consulting relationship.

(d) Protection of Information. You agree that, during the Consulting Period and thereafter, you will not use or disclose any confidential or proprietary information or materials of the Company that you obtain or develop in the course of performing the Services, except with permission of a duly-authorized Company officer. Any and all work product you create in the course of performing the Services will be the sole and exclusive property of the Company. You hereby assign to the Company all right, title, and interest in all inventions, techniques, processes, materials, and other intellectual property developed in the course of performing the Services.

(e) Expenses. The Company will reimburse you for reasonable, documented business expenses incurred in performing the Services pursuant to its regular business practice, provided that these expenses have been pre-approved by the Company in writing.

(f) Other Work Activities. During the Consulting Period, you will not carry on any business or activity (whether directly or indirectly, as a partner, stockholder, principal, agent, director, affiliate, employee or consultant) that is competitive in any manner with the business of the Company nor engage in other activities that conflict with your obligations to the Company. Notwithstanding these restrictions, you shall not be prohibited from being a passive shareholder of up to 1% of the public stock of an entity that competes with the Company. During the Consulting Period, you may engage in any form of employment, consulting, research, teaching, business activity or combination of any of the same which is not prohibited by this paragraph, provided that it shall not unreasonably interfere with your ability to perform the Services for the Company.

7. Other Compensation or Benefits. You acknowledge that, except as expressly provided in this Agreement, you have not earned and will not receive from the Company any additional compensation (including base salary, bonus, incentive compensation, or equity), severance, or benefits on or after the Resignation Date, with the exception of any vested right you may have under the express terms of a written ERISA-qualified benefit plan (e.g., 401(k) account) or a vested equity award. By way of example, but not limitation, you acknowledge and agree that you have not earned and are not owed any unpaid bonus or incentive compensation, including but not limited to any bonus for 2007 or 2008. In addition, you hereby acknowledge and agree that the restricted stock unit award granted to you on January 2, 2008, and the change in control and severance benefit agreement between you and the Company, terminated on the Resignation Date.

8. Proprietary Information Obligations. Prior to or contemporaneously with your signing of this Agreement, you agree to sign the Employee Proprietary Information and Invention Assignment Agreement attached hereto as Exhibit B (the “Proprietary Information Agreement”), and you shall return a signed copy of the Proprietary Information Agreement to the Company along with a signed copy of this Agreement.

9. Disclosure. You hereby acknowledge and agree that this Agreement and a description of the terms set forth herein will be filed by the Company with the Securities and Exchange Commission pursuant to its obligations as a reporting company under the Securities Exchange Act of 1934, as amended and the rules and regulations promulgated thereunder, and consequently shall be publicly available.

10. Nondisparagement. You agree not to disparage the Company and its officers, directors, employees, stockholders and agents, in any manner likely to be harmful to them or their business, business reputation or personal reputation; and the Company (through its executive officers and directors) agrees not to disparage you in any manner likely to be harmful to you or your business, business reputation or personal reputation. Notwithstanding anything else in this paragraph, both the Company and you may respond accurately and fully to any inquiry or request for information if required by legal process.

11. Nonsolicitation. You agree that, through one year following the Resignation Date, you will not, directly or indirectly, solicit, induce or encourage, or attempt to solicit, induce or encourage, any employee, consultant, or independent contractor of the Company to terminate his or her relationship with the Company in order to become an employee, consultant, or independent contractor to or for any other person or entity.

12. No Admissions. The promises and payments in consideration of this Agreement shall not be construed to be an admission of any liability or obligation by either party to the other party, and neither party makes any such admission.

13. No Voluntary Adverse Action. You agree that you will not voluntarily assist any person in preparing, bringing, or pursuing any litigation, arbitration, administrative claim or other formal proceeding against the Company, its parents, subsidiaries, Affiliates, distributors, officers, directors, employees or agents, unless pursuant to subpoena or other compulsion of law.

14. Cooperation. You agree to cooperate fully with the Company in connection with its actual or contemplated defense, prosecution, or investigation of any claims, demands, audits, government or regulatory inquiries, or other matters arising from events, acts, or failures to act that occurred during the time period in which you were employed by the Company. Such cooperation includes, without limitation, making yourself available upon reasonable notice, without subpoena, to provide accurate and complete information to the Company and making yourself available for truthful and accurate interviews, depositions, and trial testimony. The Company will reimburse you for reasonable out-of-pocket expenses you incur in connection with any such cooperation (excluding foregone wages, salary, or other compensation), and will make reasonable efforts to accommodate your scheduling needs.

15. Acts Necessary To Effect This Agreement. You and the Company agree to timely execute any instruments or perform any other acts that are or may be necessary or appropriate to effect and carry out the transactions contemplated by this Agreement.

16. Johnson’s Releases of Claims.

(a) General Release. In exchange for the consideration under this Agreement to which you would not otherwise be entitled, you hereby generally and completely release, acquit and forever discharge the Company, and its parent, subsidiary, and

affiliated entities, along with its and their predecessors and successors and their respective directors, officers, employees, shareholders, stockholders, partners, agents, attorneys, insurers, affiliates and assigns (collectively, the “Released Parties”), of and from any and all claims, liabilities and obligations, both known and unknown, that arise from or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date that you sign this Agreement (collectively, the “Released Claims”).

(b) Scope of Release. The Released Claims include, but are not limited to: (i) all claims arising out of or in any way related to your employment with the Company, or the termination of that employment; (ii) all claims related to your compensation or benefits from the Company, including salary, bonuses, commissions, other incentive compensation, vacation pay and the redemption thereof, expense reimbursements, severance payments, fringe benefits, stock, stock options, or any other ownership or equity interests in the Company; (iii) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing (including, but not limited to, claims based on or arising from the Employment Agreement); (iv) all tort claims, including but not limited to claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (v) all federal, state, and local statutory claims, including but not limited to claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990 (as amended), the federal Age Discrimination in Employment Act of 1967 (as amended) (the “ADEA”), and the California Fair Employment and Housing Act (as amended).

(c) Excluded Claims. Notwithstanding the foregoing, the following are not included in the Released Claims (the “Excluded Claims”): (i) any rights or claims for indemnification you may have pursuant to your fully executed Indemnification Agreement with the Company (a copy of which is attached as Exhibit C), the charter, or bylaws of the Company, or under applicable law; (ii) any rights which are not waivable as a matter of law; or (iii) any claims arising from the breach of this Agreement. In addition, nothing in this Agreement prevents you from filing, cooperating with, or participating in any investigation or proceeding before the Equal Employment Opportunity Commission, the Department of Labor, the California Department of Fair Employment and Housing, or any other government agency, except that you hereby waive your right to any monetary benefits in connection with any such claim, charge, investigation or proceeding. You hereby represent and warrant that, other than the Excluded Claims, you are not aware of any claims you have or might have against any of the Released Parties that are not included in the Released Claims.

(d) ADEA Waiver. You acknowledge that you are knowingly and voluntarily waiving and releasing any rights you may have under the ADEA, and that the consideration given for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which you are already entitled. You further acknowledge that you have been advised, as required by the ADEA, that: (i) your waiver and release do not apply to any rights or claims that may arise after the date that you sign this Agreement; (ii) you should consult with an attorney prior to signing this Agreement (although you may choose voluntarily not to do so); (iii) you have twenty-one (21) days from February 27, 2008 in which to consider this Agreement (although you may choose voluntarily to sign it earlier); (iv) you have seven (7) days following the date you sign this Agreement

to revoke the Agreement by providing written notice of your revocation to the Board; and (v) this Agreement will not be effective until the date upon which the revocation period has expired, which will be the eighth day after the date that this Agreement is signed by you (the “Effective Date”). You acknowledge and agree that any changes made to the Company’s original severance offer dated February 27, 2008 were at your request and to your benefit. Accordingly, you hereby waive a new twenty-one (21) day consideration period to which you would otherwise be entitled, and expressly agree that you will have until the close of business on March 19, 2008 (which is more than twenty-one (21) days from the date that you received the Company’s original severance offer) to consider this Agreement before the offer herein expires.

17. Company’s Release Of Claims. The Company hereby generally and completely releases, acquits and forever discharges you and your agents, successors, assigns, attorneys and affiliates, of and from any and all claims, liabilities and obligations, both known and unknown, that arise from or are in any way related to events, acts, conduct, or omissions arising from the authorized course and scope of your employment occurring at any time prior to and including the date that the Company signs this Agreement. Notwithstanding the foregoing, the Company is not releasing you hereby from any claims, liabilities and obligations arising under or based on: (a) criminal or fraudulent acts, conduct or omissions; or (b) your obligations to protect the Company’s proprietary information, including without limitation any claims arising from the Proprietary Information Agreement or under the California Uniform Trade Secrets Act. The Company represents that it is not aware of any claims that it has or might have against you or any other person or entity subject to the release granted in this paragraph.

18. Section 1542 Waiver. In giving the releases set forth in this Agreement, which include claims which may be unknown to the parties at present, each party acknowledges that it has read and understands Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.” The parties hereby expressly waive and relinquish all rights and benefits under that section and any law or legal principle of similar effect in any jurisdiction with respect to the releases granted herein, including but not limited to the releases of unknown and unsuspected claims granted in this Agreement.

19. Representations. You hereby represent that you have been paid all compensation owed and for all hours worked, have received all the leave and leave benefits and protections for which you are eligible pursuant to the Family and Medical Leave Act, the California Family Rights Act, or otherwise, and have not suffered any on-the-job injury for which you have not already filed a workers’ compensation claim.

20. Job Reference Inquiries. The Company agrees to refer requests for job references concerning you from prospective employers to the Chairman of the Company’s Board of Directors who will provide references consistent with the press release in Exhibit D (discussed below).

21. Press Release. The parties agree that the Company will issue a press release concerning your resignation which describes your resignation consistent with the content of the attached Exhibit D.

22. Dispute Resolution. To ensure rapid and economical resolution of any disputes regarding this Agreement, the parties hereby agree that any and all claims, disputes or controversies of any nature whatsoever (including but not limited to any statutory claims) arising out of, or relating to, this Agreement, or its interpretation, enforcement, breach, performance or execution, your employment with the Company, or the termination of such employment, shall be resolved, to the fullest extent permitted by law, by final, binding and confidential arbitration in San Francisco, California conducted before a single arbitrator by JAMS, Inc. (“JAMS”) or its successor, under the then applicable JAMS arbitration rules. The parties each acknowledge that by agreeing to this arbitration procedure, they waive the right to resolve any such dispute, claim or demand through a trial by jury or judge or by administrative proceeding. You will have the right to be represented by legal counsel at any arbitration proceeding. The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be available under applicable law in a court proceeding; and (b) issue a written statement signed by the arbitrator regarding the disposition of each claim and the relief, if any, awarded as to each claim, the reasons for the award, and the arbitrator’s essential findings and conclusions on which the award is based. The arbitrator, and not a court, shall also be authorized to determine whether the provisions of this paragraph apply to a dispute, controversy, or claim sought to be resolved in accordance with these arbitration procedures. Nothing in this Agreement is intended to prevent either you or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any arbitration. The Company will pay the arbitration fees and costs. The party prevailing in any such arbitration shall be entitled to recover its reasonable attorneys’ fees and costs from the other party, except in all events the Company will pay the arbitration fees and costs.

23. Miscellaneous. This Agreement, including Exhibits A, B, C, and D, constitutes the complete, final and exclusive embodiment of the entire agreement between you and the Company with regard to the subject matter hereof. It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other agreements, promises, warranties or representations concerning its subject matter, including without limitation the severance benefit provisions contained in the Employment Agreement. This Agreement may not be modified or amended except in a writing signed by both you and a duly authorized officer of the Company. This Agreement will bind the heirs, personal representatives, successors and assigns of both you and the Company, and inure to the benefit of both you and the Company, their heirs, successors and assigns. If any provision of this Agreement is determined to be invalid or unenforceable, in whole or in part, this determination shall not affect any other provision of this Agreement and the provision in question shall be modified so as to be rendered enforceable in a manner consistent with the intent of the parties insofar as possible under applicable law. This Agreement shall be construed and enforced in accordance with the laws of the State of California without regard to conflicts of law principles. Any ambiguity in this Agreement shall not be construed against either party as the drafter. Any waiver of a breach of this Agreement, or rights hereunder, shall be in writing and shall not be deemed to be a waiver of any successive breach or rights hereunder. This Agreement may be executed in counterparts which shall be deemed to be part of one original, and facsimile signatures shall be equivalent to original signatures.

If this Agreement is acceptable to you, please sign below on or before the close of business on March 19, 2008, and promptly return the fully signed original to me. If I do not receive the fully executed Agreement from you within this timeframe, the Company’s offer contained herein will expire.

We wish you the best in your future endeavors.

Sincerely,

KOSAN BIOSCIENCES INCORPORATED
By:	/s/ Peter Davis
	Peter Davis
	Chairman of the Board of Directors,
	on behalf of the Board of Directors

Exhibit A – Signed Resignation Letter

Exhibit B – Employee Proprietary Information and Invention Assignment Agreement

Exhibit C –Indemnification Agreement

Exhibit D – Press Release Content

UNDERSTOOD AND AGREED:
/s/ Robert G. Johnson, Jr.	19 March 2008
Robert G. Johnson, Jr., M.D., Ph.D.	Date

EXHIBIT A

SIGNED RESIGNATION LETTER

February 27, 2008

Board of Directors

Kosan Biosciences, Inc.

3832 Bay Center Place

Hayward, CA 94545

Re: Resignation

To the Board of Directors of Kosan Biosciences, Inc.:

Effective immediately, I hereby submit my resignation as Chief Executive Officer of Kosan Biosciences, Inc. (the “Company”), and I hereby resign from any other employment or officer positions with the Company and all of its affiliated entities and as a member of the Company’s Board of Directors, in all cases effective immediately. I reserve any rights to severance benefits that I may have under my employment offer letter, dated as of September 5, 2000.

I wish the best for the continued success of the Company.

Sincerely,

/s/ Robert G. Johnson, Jr.

Robert G. Johnson, Jr., M.D., Ph.D.

EXHIBIT B

KOSAN BIOSCIENCES INCORPORATED

EMPLOYEE PROPRIETARY INFORMATION AND

INVENTION ASSIGNMENT AGREEMENT

I acknowledge that during the course of my employment by Kosan Biosciences Incorporated, a Delaware corporation, together with its subsidiaries, affiliates, successors or assigns (hereinafter collectively called the “Company”), I had access to, obtained and developed proprietary information and trade secrets of the Company. As previously agreed by me, and in consideration of the severance benefits that I will receive from the Company, I hereby enter into this Employee Proprietary Information and Invention Assignment Agreement (“Agreement”), which I agree is effective retroactive to my first day of employment with the Company and which I agree applies during my entire employment with the Company, and as set forth below:

1. Maintaining Confidential Information

a. Company Information. I agree at all times during the term of my employment and thereafter to hold in strictest confidence, and not to use, except for the benefit of the Company, or to disclose to any person, firm or corporation without written authorization of the Company, any trade secrets, confidential knowledge, data or other proprietary information of the Company, including but not limited to information relating to products, processes, know-how, designs, formulas, developmental or experimental work, computer programs, data bases, other original works of authorship, customer lists, business plans, financial information, personnel information, or other subject matter pertaining to any business of the Company or any of its clients, consultants, or licensees.

b. Former Employer Information. I agree that I will not, during my employment with the Company, improperly use or disclose any proprietary information or trade secrets of my former or concurrent employers or companies, or any other person, and that I will not bring onto the premises of the Company any unpublished document or any property belonging to my former or concurrent employers or companies, or any other person, unless consented to in writing by said employers, companies, or other person.

c. Third-Party Information. I recognize that the Company has received and in the future will receive from third parties their confidential or proprietary information subject to a duty on the Company’s part to maintain the confidentiality of such information and to use it only for certain limited purposes. I agree that I owe the Company and such third parties, during the

term of my employment and thereafter, a duty to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation (except as necessary in carrying out my work for the Company consistent with the Company’s agreement with such third party) or to use it for the benefit of anyone other than for the Company or such third party (consistent with the Company’s agreement with such third party) without the express written authorization of the Company.

2. Retaining and Assigning Inventions and Original Works

a. Inventions and Original Works Retained by Me. I have listed in Section 7 hereof descriptions of any and all inventions, original works of authorship, developments, improvements, and trade secrets belonging to me which were made by me prior to my employment with the Company, which relate to the Company’s proposed business and products, and which are not assigned to the Company (collectively, “Prior Inventions”).

b. Inventions and Original Works Assigned to the Company. I agree that I will promptly make full written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and will assign and hereby do assign to the Company all my right, title, and interest in and to any and all inventions, original works of authorship, developments, improvements or trade secrets which I previously (or in the future may), solely or jointly, conceived or developed or reduced to practice, or caused to be conceived or developed or reduced to practice, during the period of my employment with the Company (collectively, “Company Inventions”). I recognize, however, that the preceding sentence does not apply to any invention which qualifies fully for protection from assignment to the Company under Section 2870 of the California Labor Code, which reads as follows:

“(a) Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer’s equipment, supplies, facilities, or trade secret information except for those inventions that either:

(1) Relate at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer.

(2) Result from any work performed by the employee for the employer.

“(b) To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and unenforceable.”

I agree to grant and hereby do grant the Company or its designees a royalty free, irrevocable, worldwide license (with rights to sublicense through multiple tiers of distribution) to practice all applicable patent, copyright and other intellectual property rights relating to any Prior Inventions that I incorporate or incorporated, or permitted to be incorporated, in any Company Invention. Notwithstanding the foregoing, I agree that I will not incorporate, or permit to be incorporated, any Prior Invention in any Company Invention without the Company’s prior written consent.

I acknowledge that all original works of authorship which were made by me (solely or jointly with others) within the scope of my employment and which are protectable by copyright are “works made for hire,” as the term is defined in the United States Copyright Act (17 USCA, Section 101).

c. Maintenance of Records. I agree to keep and maintain, and did during my employment with the Company keep and maintain, adequate and current written records of all inventions and original works of authorship made by me (solely or jointly with others) during the term of my employment with the Company. The records are in the form of notes, sketches, drawings, and any other format as specified by the Company. The records will be available to and remain the sole property of the Company at all times.

d. Inventions Assigned to the United States. I agree to assign and hereby do assign to the United States government all my right, title, and interest in and to any and all inventions, original works of authorship, developments, improvements or trade secrets whenever such full title is required to be in the United States by a contract between the Company and the United States or any of its agencies.

e. Obtaining Letters Patent, Copyrights, and Mask Work Rights. I agree that my obligation to assist the Company to obtain United States or foreign letters patent, copyrights, or mask work rights covering inventions, works of authorship, and mask works, respectively, assigned hereunder to the Company shall continue beyond the termination of my employment, but the Company shall compensate me at a reasonable rate for time actually spent by me at the Company’s request on such assistance. If the Company is unable because of my mental or physical incapacity or for any other reason to secure my signature to apply for or to pursue any application for any United States or foreign letters patent, copyrights, or mask work rights covering inventions or other rights assigned to the Company as above, then I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney in fact, to act for and in my behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of letters patent, copyrights, and mask work rights with the same legal force and effect as if executed by me. I hereby waive and quitclaim to the Company any and all claims, of any nature whatsoever, which I now or may hereafter have, of infringement of any patents, copyrights, or mask work rights resulting from any such application assigned hereunder to the Company.

f. Exception to Assignments. I understand that the provisions of this Agreement requiring assignment to the Company do not apply to any invention which qualifies fully under the provisions of Section 2870 of the California Labor Code. I will advise the Company promptly in writing of any inventions, original works of authorship, developments, improvements or trade secrets that I believe are exempt from assignment to the Company based upon the application of Section 2870 of the California Labor

Code; and I will at that time provide to the Company in writing all evidence necessary to substantiate that belief. I understand that the Company will keep in confidence and will not disclose to third parties without my consent any confidential information disclosed in writing to the Company relating to inventions that qualify fully under the provisions of Section 2870 of the California Labor Code.

3. Conflicting Employment. I agree that, during the term of my employment with the Company, I will not engage in any other employment, occupation, consulting or other business activity directly related to the business in which the Company is now involved or becomes involved during the term of my employment, nor will I engage in any other activities that conflict with my obligations to the Company.

4. Company Documents and Property. I agree that, at the time of leaving the employ of the Company, or earlier if requested by the Company, I will deliver to the Company (and will not keep in my possession or deliver to anyone else) any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions (in whole or in part) of any aforementioned items belonging to the Company, its successors or assigns that I have in my possession or control. I further agree that any property situated on the Company’s premises and owned by the Company, including but not limited to desks, filing cabinets, or other storage or work areas, is subject to inspection by Company personnel at any time with or without further notice.

5. Representations. I agree to execute any proper oath or verify any proper document required to carry out the terms of this Agreement. I represent that my performance of all the terms of this Agreement will not breach any agreement to keep in confidence proprietary information acquired by me in confidence or in trust prior to my employment by the Company. I have not entered into, and I agree I will not enter into, any oral or written agreement in conflict herewith.

6. General Provisions

a. Governing Law and Venue. This Agreement will be governed by and construed in accordance with the laws of the State of California as such laws are applied to agreements entered into and to be performed entirely within California by California residents. I expressly consent to personal jurisdiction and venue in the state and federal courts for the county in which the Company’s principal place of business is located for any lawsuit filed there against me by the Company arising from or related to this Agreement.

b. Entire Agreement; Amendment; Application to Engagement as Contractor. This Agreement sets forth the entire agreement and understanding between the Company and me relating to the subject matter herein and merges all prior discussions between us. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing and signed by me and a duly authorized officer of the Company. Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement. In addition, if no other agreement governs nondisclosure and assignment of inventions during any period in which I was previously engaged or

am in the future engaged by the Company as an independent contractor or consultant, the obligations pursuant to Sections 1 and 2 (with the exception of the last sentence of Section 2(b)) of this Agreement shall apply.

c. Severability. If one or more of the provisions in this Agreement are deemed void by law, then the remaining provisions will continue in full force and effect.

d. Successors and Assigns. This Agreement will be binding upon my heirs, executors, administrators and other legal representatives and will be for the benefit of the Company, its successors, and its assigns.

e. Survival. The provisions of this Agreement shall survive the termination of my employment and the assignment of this Agreement by the Company to any successor in interest or other assignee. This Agreement is binding upon my heirs and legal representatives.

f. At-Will Employment. I agree and understand that nothing in this Agreement shall confer any right with respect to continuation of employment by the Company, nor shall it interfere in any way with my right or the Company’s right to terminate my employment at any time, with or without cause, and with or without advance notice.

g. No Solicitation. During the term of my employment with the Company and for a period of eighteen (18) months thereafter, I will not solicit, encourage, or cause others to solicit or encourage, or attempt any such actions, with respect to any employees of the Company to terminate their employment with the Company.

h. Injunctive Relief. I agree that a breach of any of the representations, warranties or covenants contained in this Agreement will result in irreparable and continuing damage to the Company for which there will be no adequate remedy at law, and that consequently the Company will be entitled to injunctive relief and/or a decree for specific performance and such other relief as may be proper (including monetary damages if appropriate). The rights and remedies provided to each party in this Agreement are cumulative and in addition to any other rights and remedies available to such party at law or in equity.

i. Waiver. The waiver by the Company of a breach of any provision of this Agreement by me will not operate or be construed as a waiver of any other or subsequent breach by me.

j. Export Control. I agree not to export, directly or indirectly, any U.S. technical data acquired from the Company or any products utilizing such data, to countries outside the United States, because such export could be in violation of the United States export laws or regulations.

k. Notification of New Employer. If I leave the employ of the Company, I consent to the notification of my new employer of my rights and obligations under this Agreement, by the Company providing a copy of this Agreement to my new employer or otherwise.

7. List of Inventions. Pursuant to Section 2(a) of this Agreement, set forth below is a complete list of my prior inventions and original works of authorship:

	Title	Date	Brief Description
1.
2.
3.
4.
5.
6.
7.

IF NO PRIOR INVENTIONS OR ORIGINAL WORKS OF AUTHORSHIP ARE LISTED IN THIS SECTION 7, I HEREBY AFFIRM THAT THERE ARE NO SUCH INVENTIONS OR ORIGINAL WORKS OF AUTHORSHIP.

KOSAN BIOSCIENCES INCORPORATED
By:	/s/ Paula A. Knutsen
	Paula Knutsen
	Director, Human Resources
Dated:	March 18, 2008
UNDERSTOOD AND AGREED:
/s/ Robert S. Johnson
Robert S. Johnson, M.D., Ph.D.
Dated: March 19, 2008

EXHIBIT C

INDEMNIFICATION AGREEMENT

KOSAN BIOSCIENCES INCORPORATED

INDEMNIFICATION AGREEMENT

This Indemnification Agreement (“Agreement”) is made by and between Kosan Biosciences Incorporated, a Delaware corporation (which, together with the California corporation which was its predecessor, is known herein as the “Company”), and Robert G. Johnson, Jr., M.D., Ph.D. (“Indemnitee”). This Agreement is effective as of the Indemnitee’s start date with the Company.

WHEREAS, the Company and Indemnitee recognize the increasing difficulty in obtaining directors’ and officers’ liability insurance, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance;

WHEREAS, the Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting officers and directors to expensive litigation risks at the same time as the coverage of liability insurance has been limited;

WHEREAS, Indemnitee does not regard the current protection available as adequate under the present circumstances, and Indemnitee and other officers and directors of the Company may not be willing to continue to serve as officers and directors without additional protection; and

WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve as officers and directors of the Company and to indemnify its officers and directors so as to provide them with the maximum protection permitted by law.

NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:

1. Indemnification.

(a) Third Party Proceedings. The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to

be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee’s conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that (i) Indemnitee did not act in good faith, (ii) Indemnitee did not act in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, or (iii) with respect to any criminal action or proceeding, Indemnitee had no reasonable cause to believe that Indemnitee’s conduct was unlawful.

(b) Proceedings By or in the Right of the Company. The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees) and, to the fullest extent permitted by law, amounts paid in settlement, in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and its stockholders, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Company in the performance of Indemnitee’s duty to the Company and its stockholders unless and only to the extent that the court in which such action or suit is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses and then only to the extent that the court shall determine.

2. Agreement to Serve. In consideration of the protection afforded by this Agreement, if Indemnitee is a director of the Company, he agrees to serve at least for the balance of the current term as a director and not to resign voluntarily during such period without the written consent of a majority of the Board of Directors. If Indemnitee is an officer of the Company not serving under an employment contract, he agrees to serve in such capacity at least for the balance of the current fiscal year of the Company and not to resign voluntarily during such period without the written consent of a majority of the Board of Directors. Following the applicable period set forth above, Indemnitee agrees to continue to serve in such capacity at the will of the Company (or under separate agreement, if such agreement exists) so long as he is duly appointed or elected and qualified in accordance with the applicable provisions of the Bylaws of the Company or any subsidiary of the Company or until such time as he tenders his resignation in writing. Nothing contained in this Agreement is intended to or shall create in Indemnitee any right to continued employment.

3. Expenses; Indemnification Procedure.

(a) Advancement of Expenses. The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action or proceeding referenced in Section 1(a) or (b) hereof (but not amounts actually paid in settlement of any such action or proceeding). Indemnitee hereby undertakes to repay such expenses advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. The advances to be made hereunder shall be paid by the Company to Indemnitee within twenty (20) days following delivery of a written request therefor by Indemnitee to the Company.

(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition precedent to his right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). Notice shall be deemed received three business days after the date postmarked if sent by domestic certified or registered mail, properly addressed; otherwise notice shall be deemed received when such notice shall actually be received by the Company. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee’s power.

(c) Procedure. Any indemnification provided for in Section 1 shall be made no later than forty-five (45) days after receipt of the written request of Indemnitee. If a claim under this Agreement, under any statute, or under any provision of the Company’s Certificate of Incorporation or Bylaws providing for indemnification, is not paid in full by the Company within forty-five (45) days after a written request for payment thereof has first been received by the Company, Indemnitee may, but need not, at any time thereafter submit his claim to arbitration as described in Section 14 to recover the unpaid amount of the claim and, subject to Section 15 of this Agreement, Indemnitee shall also be entitled to be paid for the expenses (including attorneys’ fees) of bringing such claim. It shall be a defense to any such action (other than a claim brought for expenses incurred in connection with any action or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Company, and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Subsection 3(a) unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists or an arbitration panel as described in Section 14. It is the parties’ intention that if the Company contests Indemnitee’s right to indemnification, the question of Indemnitee’s right to indemnification shall be for the court or arbitration panel to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct.

(d) Notice to Insurers. If, at the time of the receipt of a notice of a claim pursuant to Subsection 3(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.

(e) Selection of Counsel. In the event the Company shall be obligated under Subsection 3(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee, which approval shall not be unreasonably withheld, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel (other than the counsel retained by the Company) subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ his own counsel in any such proceeding at Indemnitee’s expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitee’s counsel shall be at the expense of the Company.

4. Additional Indemnification Rights; Nonexclusivity.

(a) Scope. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company’s Certificate of Incorporation, the Company’s Bylaws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify a member of its Board of Directors or an officer, such changes shall be, ipso facto, within the purview of Indemnitee’s rights and Company’s obligations under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its Board of Directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties’ rights and obligations hereunder.

(b) Nonexclusivity. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company’s Certificate of Incorporation, its Bylaws, any agreement, any vote of stockholders or disinterested directors, the General Corporation Law of the State of Delaware, or otherwise, both as to action

in Indemnitee’s official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he may have ceased to serve in such capacity at the time of any action or other covered proceeding.

5. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines, penalties or amounts paid in settlement actually or reasonably incurred by him in the investigation, defense, appeal or settlement of any civil or criminal action or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled.

6. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company’s right under public policy to indemnify Indemnitee.

7. Directors’ and Officers’ Liability Insurance. The Company shall, from time to time, make a good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the Company’s performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of directors’ and officers’ liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company’s directors, if Indemnitee is a director; or of the Company’s officers, if Indemnitee is not a director of the Company but is an officer; or of the Company’s key employees, if Indemnitee is not an officer or director but is a key employee. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a subsidiary or parent of the Company.

8. Severability. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company’s inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 8. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms.

9. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement:

(a) Excluded Acts. To indemnify Indemnitee for any acts or omissions or transactions from which a director may not be indemnified under the Delaware General Corporation Law; or

(b) Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 145 of the Delaware General Corporation Law, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors has approved the initiation or bringing of such claim; or

(c) Lack of Good Faith. To indemnify Indemnitee for any expenses incurred by the Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction or the arbitration panel determines that each of the material assertions made by the Indemnitee in such proceeding was not made in good faith or was frivolous; or

(d) Insured Claims. To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) which have been paid directly to Indemnitee by an insurance carrier under a policy of directors’ and officers’ liability insurance maintained by the Company; or

(e) Claims Under Section 16(b). To indemnify Indemnitee for expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute.

10. Effectiveness of Agreement. To the extent that the indemnification permitted under the terms of certain provisions of this Agreement exceeds the scope of the indemnification provided for in the Delaware General Corporation Law, such provisions shall not be effective unless and until the Company’s Certificate of Incorporation authorizes such additional rights of indemnification. In all other respects, the balance of this Agreement shall be effective as of the date set forth on the first page and may apply to acts or omissions of Indemnitee which occurred prior to such date if Indemnitee was an officer, director, employee or other agent of the Company or any subsidiary of the Company, or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, at the time such act or omission occurred.

11. Construction of Certain Phrases.

(a) For purposes of this Agreement, references to the “Company” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued.

(b) For purposes of this Agreement, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to “serving at the request of the Company” shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries.

12. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original.

13. Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns, and shall inure to the benefit of Indemnitee and Indemnitee’s estate, heirs, legal representatives and assigns.

14. Arbitration. It is understood and agreed that the Company and Indemnitee shall carry out this Agreement in the spirit of mutual cooperation and good faith and that any differences, disputes or controversies shall be resolved and settled amicably among the parties hereto. In the event that the dispute, controversy or difference is not so settled in the above manner within forty-five (45) days, then the matter shall be exclusively submitted to arbitration in Alameda County, California before three independent technically qualified arbitrators in accordance with the Commercial Arbitration Rules of the American Arbitration Association and under the laws of Delaware, without reference to conflict of laws principles. Subject to Sections 1(b) and 6, arbitration shall be the exclusive forum and the decision and award by the arbitrator(s) shall be final and binding upon the parties concerned and may be entered in any state court of California having jurisdiction.

15. Attorneys’ Fees. In the event that any action is instituted or claim is submitted to arbitration by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys’ fees, incurred by Indemnitee with respect to such action or arbitration, unless as a part of such action, a court of competent jurisdiction or the arbitrator(s) determines that each of the material assertions made by Indemnitee as a basis for such claim were not made in good faith or were frivolous. In the event of an action instituted or a claim submitted to arbitration by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be

entitled to be paid all court and arbitration costs and expenses, including attorneys’ fees, incurred by Indemnitee in defense of such action or claim (including with respect to Indemnitee’s counterclaims and cross-claims made in such action or arbitration), unless as a part of such action the court or the arbitrator(s) determines that each of Indemnitee’s material defenses to such action or claim were made in bad faith or were frivolous.

16. Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressee, on the date of such receipt, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice.

17. Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of California for all purposes in connection with any proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts of the State of California in Alameda County and that any arbitration proceeding which arises out of or relates to this Agreement shall be held in Alameda County, California.

18. Choice of Law. This Agreement shall be governed by and its provisions construed in accordance with the laws of the State of Delaware as applied to contracts between Delaware residents entered into and performed entirely within Delaware.

19. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.

20. Continuation of Indemnification. All agreements and obligations of the Company contained herein shall continue during the period that Indemnitee is a director, officer or agent of the Company and shall continue thereafter so long as Indemnitee shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal, arbitrational, administrative or investigative, by reason of the fact that Indemnitee was serving in the capacity referred to herein.

21. Amendment and Termination. Subject to Section 20, no amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both parties hereto.

22. Integration and Entire Agreement. This Agreement (a) sets forth the entire understanding between the parties relating to the subject matter hereof, (b) supersedes all previous written or oral negotiations, commitments, understandings and agreements relating to the subject matter hereof and (c) merges all prior and contemporaneous discussions between the parties relating to the subject matter hereof.

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

KOSAN BIOSCIENCES INCORPORATED
By:	/s/ Margaret A. Horn
	Margaret A. Horn
Title:	Senior Vice President
Address:	3832 Bay Center Place
	Hayward, CA 94545

AGREED TO AND ACCEPTED:

INDEMNITEE:

/s/ Robert G. Johnson, Jr.

Signature

Robert G. Johnson, Jr.

Name

3832 Bay Center Place

Hayward, CA 94545

Address

EXHIBIT D

PRESS RELEASE CONTENT

Kosan Biosciences Incorporated (Nasdaq: KOSN) today announced that Robert G. Johnson, Jr., M.D., Ph.D., has resigned as President and Chief Executive Officer and a member of Kosan’s Board of Directors.

“Under Robert’s leadership, Kosan made the successful transition from a research-oriented organization to a product development-focused company, and he has made many significant contributions to Kosan over the last eight years,” said Peter Davis, Chairman of Kosan’s Board of Directors. “Robert assumed the chief executive officer role during a period of transition and executed his responsibilities skillfully and energetically. He helped Kosan to manage a period of significant change to emerge as a better-positioned company and to recruit the senior management team that will help lead the company into its next phase. His commitment to Kosan has been intense, and his positive influence has been felt throughout the company. We express our sincerest thanks to Robert and wish him well in his new pursuits.”

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EX-10.53

Exhibit 10.53

FIRST AMENDMENT

THIS FIRST AMENDMENT (this “Amendment”) is made and entered into as of February 8, 2008, by and between NORTHERN CALIFORNIA INDUSTRIAL PORTFOLIO, INC., a Maryland corporation (“Landlord”), and KOSAN BIOSCIENCES INCORPORATED, a Delaware corporation (“Tenant”).

RECITALS

A. Landlord (as successor in interest to EOP-Industrial Portfolio, L.L.C., a Delaware limited liability company, as successor in interest to Spieker Properties, L.P., a California limited partnership) and Tenant (as successor in interest to Aventis Pharmaceuticals Inc., a Delaware corporation, formerly known as Rhone-Poulenc Rorer Pharmaceuticals, Inc., a Delaware corporation) are parties to that certain lease dated December 1, 1997 (the “Lease”). Pursuant to the Lease, Landlord has leased to Tenant space currently containing approximately 69,512 rentable square feet (the “Premises”) of the building commonly known as Bay Center Business Park III located at 3825 Bay Center Place, Hayward, California 94545 (the “Building”). The Premises consist of approximately 43,239 rentable square feet (the “Improved Premises”) and approximately 26,273 rentable square feet (the “Unimproved Premises”).

B. The Lease by its terms shall expire on February 29, 2008 (“Prior Termination Date”), and the parties desire to extend the Term of the Lease, all on the following terms and conditions.

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows:

1. Extension. The Term of the Lease is hereby extended for a period of sixty (60) months and shall expire on February 28, 2013 (“Extended Termination Date”), unless sooner terminated in accordance with the terms of the Lease. That portion of the Term commencing the day immediately following the Prior Termination Date (“Extension Date”) and ending on the Extended Termination Date shall be referred to herein as the “Extended Term”.

2. Base Rent.

2.1 Base Rent for Improved Premises. As of the Extension Date, the schedule of Base Rent payable with respect to the Improved Premises during the Extended Term is the following:

Period	Rentable Square Footage	Annual Rate Per Square Foot		Annual Base Rent		Monthly Base Rent
3/1/08 – 2/28/09	43,239	$	19.20	$	830,188.80	$	69,182.40
3/1/09 – 2/28/10	43,239	$	19.97	$	863,482.83	$	71,956.90
3/1/10 – 2/28/11	43,239	$	20.77	$	898,074.03	$	74,839.50
3/1/11 – 2/29/12	43,239	$	21.60	$	933,962.40	$	77,830.20
3/1/12 – 2/28/13	43,239	$	22.46	$	971,147.94	$	80,929.00

All such Base Rent shall be payable by Tenant in accordance with the terms of the Lease, as amended hereby.

2.2 Base Rent for Unimproved Premises. As of the Extension Date, the schedule of Base Rent payable with respect to the Unimproved Premises during the Extended Term is the following:

Period	Rentable Square Footage	Annual Rate Per Square Foot		Annual Base Rent		Monthly Base Rent
3/1/08 – 2/28/09	26,273	$	6.00	$	157,638.00	$	13,136.50
3/1/09 – 2/28/10	26,273	$	6.24	$	163,943.52	$	13,661.96
3/1/10 – 2/28/11	26,273	$	6.49	$	170,511.77	$	14,209.31
3/1/11 – 2/29/12	26,273	$	6.75	$	177,342.75	$	14,778.56
3/1/12 – 2/28/13	26,273	$	7.02	$	184,436.46	$	15,369.71

All such Base Rent shall be payable by Tenant in accordance with the terms of the Lease, as amended hereby.

3. Security Deposit. Tenant’s predecessor in interest, Aventis Pharmaceuticals, Inc. (“Aventis”) is currently holding a security deposit (the “Assignment Security Deposit”) from Tenant in the sum of Two Hundred Forty Thousand Dollars ($240,000.00) pursuant to the terms of that certain Assignment of Lease dated as of June 21, 2002 by and between Tenant and Aventis (the “Assignment”) and as further confirmed in that certain Landlord Consent to Assignment and Assumption of Lease dated June 20, 2002 by and between Landlord’s predecessor in interest, Tenant and Aventis (the “Landlord Consent”). Pursuant to the terms of the Assignment and the Landlord Consent, in the event that Tenant exercises its renewal option under Section 38.E. of the Lease, the Assignment Security Deposit is to be deposited with Landlord as a security deposit under the Lease. Tenant has properly exercised its renewal option and shall cause Aventis to deliver the Assignment Security Deposit to Landlord upon execution and delivery of this Amendment to be held as a security deposit in the sum of Two Hundred Forty Thousand Dollars ($240,000.00) under the Lease (the “Security Deposit”) pursuant to the terms of Section 4 of that certain Landlord Consent to Assignment and Assumption of Lease entered into between Landlord’s predecessor in interest, Tenant and Tenant’s predecessor in interest dated June 20, 2002.

4. Operating Expenses. For the period commencing on the Extension Date and ending on the Extended Termination Date, Tenant shall pay for Tenant’s Proportionate Share of Operating Expenses in accordance with the terms of the Lease.

5. Improvements to Premises.

5.1 Condition of Premises. Tenant is in possession of the Premises and accepts the same “as is” without any agreements, representations, understandings or obligations on the part of Landlord to perform any alterations, repairs or improvements.

5.2 Responsibility for Improvements to Premises. Any construction, alterations or improvements to the Premises shall be performed by Tenant at its sole cost and expense and shall be governed in all respects by the provisions of Article 12 of the Lease.

6. Other Pertinent Provisions. Landlord and Tenant agree that, effective as of the date of this Amendment, the Lease shall be amended in the following additional respects:

6.1 Indemnification. The definition of “Landlord’s Parties” set forth in Paragraph 8.B(6) of the Lease is hereby amended to mean and refer to “Landlord, Landlord’s investment manager, and the trustees, boards of directors, officers, general partners, beneficiaries, stockholders, employees and agents of each of them”. The provisions of this Section 6.1 shall survive the termination of the Lease, as amended hereby, with respect to any claims or liability accruing prior to such termination.

6.2 Landlord’s Notice Address. Landlord’s address for notices set forth in the Basic Lease Information of the Lease is hereby deleted in its entirety and replaced by the following:

“RREEF Management Company

3555 Arden Road

Hayward, CA 94545

Attn: Property Manager”

6.3 Rent Payment Address. The Rent Payment Address set forth in the Basic Lease Information of the Lease is hereby deleted in its entirety and replaced by the following:

“Northern California Industrial Portfolio, Inc., DBA Bay Center Business Park III

Dept. 2057

P.O. Box 39000

San Francisco, CA 94139”

6.4 Tenant’s Insurance. Paragraphs 8.B(1), (2), (3) and (5) of the Lease are hereby deleted in their entireties and replaced with the following:

“(1) Tenant shall keep in force throughout the Term: (a) a Commercial General Liability insurance policy or policies covering occurrences in or upon the Premises with a limit of not less than $2,000,000 per occurrence and not less than $3,000,000 in the annual aggregate covering bodily injury and property damage liability and $1,000,000 products/completed operations aggregate; (b) Business Auto Liability covering owned, non-owned and hired vehicles with a limit of not less than $1,000,000 per occurrence; (c) Worker’s Compensation Insurance with limits as required by statute; (d) Employers Liability with limits of $1,000,000 each accident, $1,000,000 disease policy limit, $1,000,000 disease—each employee; (e) Special Form coverage protecting Tenant against loss of or damage to Tenant’s alterations, additions, improvements, carpeting, floor coverings, panelings, decorations, fixtures, inventory and other business personal property situated in or about the Premises to the full replacement cost of the property so insured; and (f) Business Interruption Insurance with limit of liability representing loss of at least approximately six (6) months of income. Notwithstanding the foregoing, Landlord agrees to waive the Business Interruption insurance requirements of Tenant. In doing so, Tenant hereby agrees that Tenant waives all claims for recovery against Landlord for business interruption expenses that would

have been covered by the waived Business Interruption insurance. Tenant agrees that Tenant’s insurance carrier will not subrogate against Landlord’s insurance carrier for the same. If at any time during the Term or Extended Term the amount or coverage of insurance which Tenant is required to carry under this Paragraph 8.B. is, in Landlord’s reasonable judgment, materially less than the amount or type of insurance coverage typically carried by owners or tenants of properties located in the general area in which the Premises are located which are similar to and operated for similar purposes as the Premises or if Tenant’s use of the Premises should change with or without Landlord’s consent, Landlord shall have the right to require Tenant to increase the amount or change the type of insurance coverage required under this Paragraph 8.B.

(2) The aforesaid policies shall (a) be provided at Tenant’s expense; (b) name Landlord’s Parties as additional insureds (General Liability); (c) be issued by an insurance company with a minimum Best’s rating of “A-:VII” during the Term; and (d) provide that insurers will endeavor to provide ten (10) days prior written notice of cancellation to Landlord. A certificate of Liability insurance on ACORD Form 25 and a certificate of Property insurance on ACORD Form 28 shall be delivered to Landlord by Tenant at least five (5) days prior to each expiration date of said insurance. Liability insurance required by this Lease may be provided by any combination of direct and umbrella coverages.

(3) Whenever Tenant shall undertake any alterations, additions or improvements in, to or about the Premises (“Work”) the aforesaid insurance protection must extend to and include injuries to persons and damage to property arising in connection with such Work; and if any additional policies of insurance are required to provide such coverage, the policies of or certificates evidencing such insurance shall be delivered to Landlord prior to the commencement of any such Work.”

Tenant shall provide Landlord with a certificate of insurance evidencing Tenant’s insurance, including without limitation, the insurance set forth in this Section 6.6, within ten (10) business days of delivery of this Amendment, executed by Tenant, to Landlord, and thereafter as requested by Landlord.

7. Miscellaneous.

7.1 This Amendment sets forth the entire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or written representations or agreements. Under no circumstances shall Tenant be entitled to any additional rent abatement, improvement allowance, leasehold improvements, or any similar economic incentives that may have been provided Tenant in connection with entering into the Lease, unless specifically set forth in this Amendment.

7.2 Except as herein modified or amended, the provisions, conditions and terms of the Lease shall remain unchanged and in full force and effect.

7.3 In the case of any inconsistency between the provisions of the Lease and this Amendment, the provisions of this Amendment shall govern and control.

7.4 Submission of this Amendment by Landlord is not an offer to enter into this Amendment but rather is a solicitation for such an offer by Tenant. Neither party shall be bound by this Amendment until both parties have executed and delivered the same to the other.

7.5 The capitalized terms used in this Amendment shall have the same definitions as set forth in the Lease to the extent that such capitalized terms are defined therein and not redefined in this Amendment.

7.6 Tenant hereby represents to Landlord that Tenant has dealt with no broker in connection with this Amendment, other than Steve Levere of Jones Lang LaSalle. Tenant agrees to indemnify and hold Landlord, its members, principals, beneficiaries, partners, officers, directors, employees, mortgagee(s) and agents, and the respective principals and members of any such agents harmless from all claims of any brokers claiming to have represented Tenant in connection with this Amendment. Landlord hereby represents to Tenant that Landlord has dealt with no broker in connection with this Amendment other than Colliers International. Landlord agrees to indemnify and hold Tenant, its members, principals, beneficiaries, partners, officers, directors, employees and agents, and the respective principals and members of any such agents, harmless from all claims of any brokers claiming to have represented Landlord in connection with this Amendment.

7.7 Each party represents that the signatory of this Amendment signing on behalf of such party has the authority to execute and deliver the same on behalf of such party. Landlord and Tenant each hereby represents and warrants that such party is not (i) the target of any sanctions program that is established by Executive Order of the President or published by the Office of Foreign Assets Control, U.S. Department of the Treasury (“OFAC”); (ii) designated by the President or OFAC pursuant to the Trading with the Enemy Act, 50 U.S.C. App. § 5, the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701-06, the Patriot Act, Public Law 107-56, Executive Order 13224 (September 23, 2001) or any Executive Order of the President issued pursuant to such statutes; or (iii) named on the following list that is published by OFAC: “List of Specially Designated Nationals and Blocked Persons.”

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7.8 Redress for any claim against Landlord under the Lease and this Amendment shall be limited to and enforceable only against and to the extent of Landlord’s interest in the Building. The obligations of Landlord under the Lease are not intended to and shall not be personally binding on, nor shall any resort be had to the private properties of, any of its trustees or board of directors and officers, as the case may be, its investment manager, the general partners thereof, or any beneficiaries, stockholders, employees, or agents of Landlord or the investment manager.

IN WITNESS WHEREOF, Landlord and Tenant have entered into and executed this Amendment as of the date first written above.

LANDLORD:		TENANT:
NORTHERN CALIFORNIA INDUSTRIAL		KOSAN BIOSCIENCES INCORPORATED,
PORTFOLIO, INC.,		a Delaware corporation
a Maryland corporation
By:	RREEF Management Company, a Delaware corporation, its Authorized Agent
By:	/s/ John D. Baruh	By:	/s/ Robert G. Johnson, Jr.
Name:	John D. Baruh	Name:	Robert G. Johnson, Jr.
Title:	District Manager	Title:	President and CEO
Dated:	March 17, 2008	Dated:	February 19, 2008

EX-31.1

EXHIBIT 31.1

I, Helen S. Kim certify that:

1. I have reviewed this quarterly report on Form 10-Q of Kosan Biosciences Incorporated;

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

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

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

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

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

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

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

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

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

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

Date: May 9, 2008	/s/ Helen S. Kim
	Helen S. Kim
	President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

I, Gary S. Titus, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Kosan Biosciences Incorporated;

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

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

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

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

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

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

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

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

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

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

Date: May 9, 2008	/s/ Gary S. Titus
	Gary S. Titus
	Senior Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION¹

Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. § 1350), Helen S. Kim, President and Chief Executive Officer of Kosan Biosciences Incorporated (the “Company”), and Gary S. Titus, Senior Vice President and Chief Financial Officer of the Company, each hereby certifies that, to the best of his or her knowledge:

1. The Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2008, to which this Certification is attached as Exhibit 32.1 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act, and

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

In Witness Whereof, the undersigned have set their hands hereto as of May 9, 2008

/s/ Helen S. Kim

Helen S. Kim

President and Chief Executive Officer

/s/ Gary S. Titus

Gary S. Titus

Senior Vice President and Chief Financial Officer

¹ This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Kosan Biosciences Incorporated under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

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