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 June 30, 2005.
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from                                to
Commission file number:  0-27718
NEOSE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

Delaware	13-3549286
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
102 Witmer Road Horsham, Pennsylvania	19044
(Address of principal executive offices)	(Zip Code)
(215) 315-9000
(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 such filing requirements for the past 90 days.

Yes   x No   o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes   x No   o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  32,782,372 shares of common stock, $.01 par value, were outstanding as of July 25, 2005.

NEOSE TECHNOLOGIES, INC.

INDEX

			Page
PART I.		FINANCIAL INFORMATION:
	Item 1.	Financial Statements (unaudited)
		Balance Sheets as of June 30, 2005 and December 31, 2004	3
		Statements of Operations for the three and six months ended June 30, 2005 and 2004	4
		Statements of Cash Flows for the six months ended June 30, 2005 and 2004	5
		Notes to Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
	Item 4.	Controls and Procedures	30
PART II.		OTHER INFORMATION:
	Item 4.	Submission of Matters to a Vote of Security Holders	31
	Item 6.	Exhibits	32
SIGNATURES			33

2

PART I.     FINANCIAL INFORMATION

Item 1.          Financial Statements

Neose Technologies, Inc.

Balance Sheets
(unaudited)
(in thousands, except per share amounts)

	June 30, 2005			December 31, 2004
Assets
Current assets:
Cash and cash equivalents	$	44,208		$	45,048
Marketable securities		9,899			—
Accounts receivable and other current assets		1,889			2,768
Total current assets		55,996			47,816
Property and equipment, net		39,015			41,133
Intangible and other assets, net		1,257			1,782
Total assets	$	96,268		$	90,731
Liabilities and Stockholders’ Equity
Current liabilities:
Note payable	$	449		$	—
Current portion of long-term debt and capital lease obligations		4,393			4,586
Accounts payable		1,062			1,783
Accrued compensation		1,298			1,916
Accrued expenses		1,834			2,052
Deferred revenue		1,390			1,560
Total current liabilities		10,426			11,897
Long-term debt and capital lease obligations		11,714			13,759
Deferred revenue, net of current portion		3,526			3,688
Other liabilities		502			533
Total liabilities		26,168			29,877
Stockholders’ equity:
Preferred stock, par value $.01 per share, 5,000 shares authorized, none issued		—			—
Common stock, par value $.01 per share, 50,000 shares authorized; 32,782 and 24,717 shares issued and outstanding		328			247
Additional paid-in capital		278,721			248,027
Deferred compensation		(16	)		(39	)
Accumulated deficit		(208,933	)		(187,381	)
Total stockholders’ equity		70,100			60,854
Total liabilities and stockholders’ equity	$	96,268		$	90,731

The accompanying notes are an integral part of these financial statements.

3

Neose Technologies, Inc.

Statements of Operations
(unaudited)
(in thousands, except per share amounts)

	Three months ended June 30,						Six months ended June 30,
	2005			2004			2005			2004
Revenue from collaborative agreements	$	1,420		$	891		$	2,768		$	2,141
Operating expenses:
Research and development		8,987			7,788			18,612			15,666
General and administrative		2,806			3,324			5,784			6,186
Total operating expenses		11,793			11,112			24,396			21,852
Operating loss		(10,373	)		(10,221	)		(21,628	)		(19,711	)
Other income		—			—			22			—
Interest income		419			131			723			236
Interest expense		(331	)		(236	)		(669	)		(354	)
Net loss	$	(10,285	)	$	(10,326	)	$	(21,552	)	$	(19,829	)
Basic and diluted net loss per share	$	(0.31	)	$	(0.47	)	$	(0.71	)	$	(0.94	)
Weighted-average shares outstanding used in computing basic and diluted net loss per share		32,782			22,146			30,378			21,050

The accompanying notes are an integral part of these financial statements.

4

Neose Technologies, Inc.

Statements of Cash Flows
(unaudited)
(in thousands)

	Six months ended June 30,
	2005			2004
Cash flows from operating activities:
Net loss	$	(21,552	)	$	(19,829	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense		3,100			2,840
Non-cash compensation expense		324			83
Loss (gain) on disposition of property and equipment		(21	)		1
Changes in operating assets and liabilities:
Accounts receivable and other current assets		937			(736	)
Intangible and other assets		—			2
Accounts payable		(721	)		(611	)
Accrued compensation		(236	)		(908	)
Accrued expenses		(180	)		631
Deferred revenue		(332	)		845
Other liabilities		(31	)		(88	)
Net cash used in operating activities		(18,712	)		(17,770	)
Cash flows from investing activities:
Purchases of property and equipment		(656	)		(7,691	)
Proceeds from sale of property and equipment		70			—
Purchases of marketable securities		(9,845	)		—
Net cash used in investing activities		(10,431	)		(7,691	)
Cash flows from financing activities:
Proceeds from issuance of debt		701			11,441
Repayments of debt		(2,490	)		(5,051	)
Debt issuance costs		—			(122	)
Restricted cash related to debt		—			901
Proceeds from issuance of common stock, net		30,092			30,014
Proceeds from exercise of stock options and warrants		—			73
Net cash provided by financing activities		28,303			37,256
Net increase (decrease) in cash and cash equivalents		(840	)		11,795
Cash and cash equivalents, beginning of period		45,048			48,101
Cash and cash equivalents, end of period	$	44,208		$	59,896

The accompanying notes are an integral part of these financial statements.

5

NEOSE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share amounts)

1.  Organization and Business Activities

          Neose Technologies, Inc. is a biopharmaceutical company using its enzymatic technologies to develop proprietary drugs, focusing primarily on therapeutic proteins.

          Our revenue from collaborative agreements increased from $1,435 in 2003 to $5,070 in 2004. In April 2005, we entered into an agreement with BioGeneriX AG for the use of our GlycoAdvance® and GlycoPEGylation™ technologies to develop a long-acting version of a currently marketed therapeutic protein (see Note 12). We have now partnered five of our six proprietary drug programs that are in various stages of research and preclinical development. Under our collaborative agreements, we have begun to receive significant revenues from our planned principal operation of developing proprietary drugs. As a result of the revenue growth in 2004 compared to 2003 and entering into new collaborative agreements, we are no longer considered a development-stage company as we have been since our inception in January 1989, and all cumulative information reported in prior years is no longer reported.

2.  Interim Financial Information

          The accompanying unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles for presentation of interim financial statements. Accordingly, the unaudited financial statements do not include all the information and footnotes necessary for a comprehensive presentation of the financial position, results of operations, and cash flows for the periods presented. In our opinion, however, the unaudited financial statements include all the normal recurring adjustments that are necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. You should not base your estimate of our results of operations for 2005 solely on our results of operations for the six months ended June 30, 2005. You should read these unaudited financial statements in combination with the other Notes in this section; “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing in Item 2; and the Financial Statements, including the Notes to the Financial Statements, included in our Annual Report on Form 10-K for the year ended December 31, 2004.

3.  Summary of Significant Accounting Policies

     Use of Estimates

          The preparation of financial statements, in conformity with U.S. generally accepted accounting principles, requires us to make estimates and assumptions. Those estimates and assumptions affect the reported amounts of assets and liabilities as of the date of the financial statements, the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

6

NEOSE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share amounts)

     Stock-based Compensation

          We apply the intrinsic value method of accounting for all stock-based employee compensation in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. We record deferred compensation for option grants to employees for the amount, if any, by which the market price per share exceeds the exercise price per share. In addition, we apply fair value accounting for option grants to non-employees in accordance with Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123), and Emerging Issues Task Force Issue 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.

          We have elected to adopt only the disclosure provisions of SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment of FASB Statement No. 123. The following table illustrates the effect on our net loss and basic and diluted net loss per share if we had recorded compensation expense for the estimated fair value of our stock-based employee compensation, consistent with SFAS No. 123:

	Three months ended June 30,						Six months ended June 30,
	2005			2004			2005			2004
Net loss – as reported	$	(10,285	)	$	(10,326	)	$	(21,552	)	$	(19,829	)
Add: Stock-based employee compensation expense included in reported net loss		521			67			822			78
Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards		(1,804	)		(2,818	)		(2,945	)		(5,098	)
Net loss – pro forma	$	(11,568	)	$	(13,077	)	$	(23,675	)	$	(24,849	)
Basic and diluted net loss per share – as reported	$	(0.31	)	$	(0.47	)	$	(0.71	)	$	(0.94	)
Basic and diluted net loss per share – pro forma	$	(0.35	)	$	(0.59	)	$	(0.78	)	$	(1.18	)

     Net Loss Per Share

          Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding for the period. Diluted net loss per share is computed by dividing net loss by the sum of weighted-average number of common shares outstanding for the period and the number of additional shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares are excluded from the calculation of diluted net loss per share if the effect on net loss per share is antidilutive. Our diluted net loss per share is equal to basic net loss per share for all reporting periods presented because giving effect in the computation of diluted net loss per share to the exercise of outstanding options or granting of restricted stock units would have been antidilutive.

7

NEOSE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share amounts)

     Comprehensive Loss

          Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes changes to equity that are not included in net income (loss). Our comprehensive loss for the three and six months ended June 30, 2005 was comprised only of our net loss, and was $10,285 and $21,552, respectively. Our comprehensive loss for the three and six months ended June 30, 2004 was comprised only of our net loss, and was $10,326 and $19,829, respectively.

     Fair Value of Financial Instruments

          The fair value of financial instruments is the amount for which instruments could be exchanged in a current transaction between willing parties. As of June 30, 2005, the carrying values of cash and cash equivalents, marketable securities, accounts receivable and other current assets, accounts payable, accrued expenses, and accrued compensation equaled or approximated their respective fair values because of the short duration of these instruments. The fair value of our debt and capital lease obligations was estimated by discounting the future cash flows of each instrument at rates recently offered to us for similar debt instruments offered by our lenders. As of June 30, 2005, the fair and carrying values of our debt and capital lease obligations were $15,328 and $16,556, respectively.

     Recent Accounting Pronouncements

          In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections – a replacement of APB Opinion No. 20 and FASB Statement No. 3 (SFAS No. 154), which replaces APB Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS No. 154 applies to all voluntary changes in accounting principle, and also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. SFAS No. 154 will be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. SFAS No. 154 does not change the transition provisions of any existing accounting pronouncements, including those that are in a transition phase as of the effective date of SFAS No. 154. We do not believe the adoption of SFAS No. 154 will have a material impact on our financial statements.

          In March 2005, the FASB issued FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations – an interpretation of FASB Statement No. 143 (FIN 47), which will require companies to recognize a liability for the fair value of a legal obligation to perform asset retirement activities that are conditional on a future event if the amount can be reasonably estimated. FIN 47 must be adopted no later than the end of the fiscal year ending after December 15, 2005. We have not completed an assessment of the impact that adoption of FIN 47 will have on our financial statements.

8

NEOSE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share amounts)

          In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment (SFAS No. 123R), which requires companies to expense the fair value of stock options and other equity-based compensation to employees. It also provides guidance for determining whether an award is a liability-classified award or an equity-classified award, and determining fair value. SFAS No. 123R applies to all unvested stock-based payment awards outstanding as of the adoption date. Pursuant to a rule announced by the Securities and Exchange Commission in April 2005, SFAS No. 123R must be adopted no later than the beginning of the first fiscal year that begins after June 15, 2005. We have not completed an assessment of the impact on our financial statements resulting from potential modifications to our equity-based compensation structure or the use of an alternative fair value model in anticipation of adopting SFAS No. 123R.

          In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets – an amendment of APB Opinion No. 29 (SFAS No. 153). APB Opinion No. 29 requires a nonmonetary exchange of assets be accounted for at fair value, recognizing any gain or loss, if the exchange meets a commercial substance criterion and fair value is determinable. The commercial substance criterion is assessed by comparing the entity’s expected cash flows immediately before and after the exchange. SFAS No. 153 eliminates the “similar productive assets exception,” which accounts for the exchange of assets at book value with no recognition of gain or loss. SFAS No. 153 will be effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. We do not believe the adoption of SFAS No. 153 will have a material impact on our financial statements.

     Reclassification

          Certain prior year amounts have been reclassified to conform to current year presentation.

9

NEOSE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share amounts)

4.  Supplemental Disclosure of Cash Flow Information

          The following table contains additional cash flow information for the periods reported.

	Six months ended June 30,
	2005			2004
Supplemental disclosure of cash flow information:
Gross cash paid for interest	$	660		$	480
Less capitalized interest		—			(130	)
Cash paid for interest, net of amounts capitalized	$	660		$	350
Non-cash investing activities:
Decrease in accrued property and equipment	$	(38	)	$	(594	)
Assets acquired under capital leases	$	—		$	184
Non-cash financing activity:
Conversion of accrued compensation from liability to equity classified award upon grant of restricted stock units (see Note 11)	$	382		$	—

5.  Marketable Securities

          As of June 30, 2005, we held a marketable security that was an obligation of a U.S. government agency. The security, which was classified as held-to-maturity, had an original maturity of six months. As of June 30, 2005, the amortized cost of the security was $9,899, which included $54 of accrued interest, and the fair value was $9,898. We held no marketable securities that matured during the six months ended June 30, 2005 and 2004. As of December 31, 2004, we held no marketable securities.

6.  Accounts Receivable and Other Current Assets

          Accounts receivable and other current assets consisted of the following:

	June 30, 2005		December 31, 2004
Accounts receivable	$	824	$	2,150
Prepaid insurance (see Note 9)		479		102
Other prepaid expenses		471		406
Deposits		86		30
Receivable from related party		29		31
Assets held for sale (see Note 7)		—		49
	$	1,889	$	2,768

10

NEOSE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share amounts)

7.  Property and Equipment

          Property and equipment consisted of the following:

	June 30, 2005			December 31, 2004
Building and facility improvements	$	38,423		$	38,270
Laboratory, manufacturing, and office equipment		19,986			19,364
Land		700			700
Construction-in-progress		—			157
		59,109			58,491
Less accumulated depreciation and amortization		(20,094	)		(17,358	)
	$	39,015		$	41,133

          Laboratory, manufacturing, and office equipment as of June 30, 2005 and December 31, 2004 included $1,021 of assets acquired under capital leases. Accumulated depreciation and amortization as of June 30, 2005 and December 31, 2004 included $584 and $429, respectively, related to assets acquired under capital leases. Depreciation expense, which includes amortization of assets acquired under capital leases, was $2,736 and $2,340 for the six months ended June 30, 2005 and 2004, respectively. Research and development expenses on our statements of operations include a gain of $21 during the three and six months ended June 30, 2005 from the sale of assets that were held for sale as of December 31, 2004 (see Note 6) and a loss of $1 during the six months ended June 30, 2004 from the disposition of property and equipment. During the six months ended June 30, 2005 and 2004, we had no disposals of fully depreciated assets.

8.  Intangible and Other Assets

          Intangible and other assets consisted of the following:

	June 30, 2005		December 31, 2004
Acquired intellectual property, net of accumulated amortization of $3,537 and $3,238 as of June 30, 2005 and December 31, 2004, respectively	$	1,013	$	1,312
Non-competition agreement, net of accumulated amortization of $882 and $772 as of June 30, 2005 and December 31, 2004, respectively		—		110
Deferred financing costs, net of accumulated amortization of $27 and $18 as of June 30, 2005 and December 31, 2004, respectively		154		163
Receivable from related party		29		57
Deposits		61		140
	$	1,257	$	1,782

11

NEOSE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share amounts)

9.  Debt and Capital Lease Obligations

          Debt and capital lease obligations consisted of the following:

	June 30, 2005			December 31, 2004
Term loan from bank	$	7,556		$	8,000
Industrial development authority bonds		1,000			1,000
Term loan from landlord (unsecured), annual interest at 13.00%, due June 2008		1,167			1,327
Notes payable to equipment lender, secured by equipment and facility improvements, interest rates from 8.00% to 9.01%, due 2006 to 2009		5,964			7,463
Note payable, secured by insurance policies, annual interest at 3.91%, due January 2006		449			—
Subtotal		16,136			17,790
Capital lease obligations		420			555
Total debt		16,556			18,345
Less note payable		(449	)		—
Less current portion of long-term debt		(4,393	)		(4,586	)
Total long-term debt, net of current portion	$	11,714		$	13,759

          In July 2005, we borrowed $783 secured by laboratory equipment and facility improvements. The terms of the financing require us to pay monthly principal and interest payments over 48 months at an interest rate of 9.44%.

          In March 2005, we borrowed $701 to finance insurance policy premiums due on certain insurance policies. The insurance policy premiums, net of amortization, are included in accounts receivable and other current assets on our balance sheet at June 30, 2005 (see Note 6). We are required to pay $65 of principal and interest during each of the 11 months beginning on March 15, 2005 and ending on January 15, 2006. The interest is calculated based on an annual percentage rate of 3.91%. To secure payment of the amounts financed, we granted the lender a security interest in all of our right, title and interest to the insurance policies. Upon a default by us, the lender can demand, and will have the right to receive, immediate payment of the total unpaid balance of the loan. In the event of default and the demand for immediate payment by the lender, interest will accrue on any unpaid amounts at the highest rate allowed by applicable law.

12

NEOSE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share amounts)

10.  Accrued Expenses

          Accrued expenses consisted of the following:

	June 30, 2005		December 31, 2004
Professional fees	$	855	$	610
Sponsored research and contract laboratory services		271		557
Preclinical studies		238		126
Employee relocation		148		186
Interest expense		43		43
Property and equipment		25		63
Other expenses		254		467
	$	1,834	$	2,052

11.  Stockholders’ Equity

     Common Stock

          In February 2005, we sold 8,050 shares of our common stock at a public offering price of $4.00 per share, generating net proceeds of $30,006.

          In January 2005, participating employees purchased 15 shares of common stock pursuant to our employee stock purchase plan, resulting in net proceeds of $86. Effective January 31, 2005, we terminated the employee stock purchase plan due, in part, to the potential financial statement impact resulting from the expected adoption of SFAS No. 123R in January 2006. During the six months ended June 30, 2005, there were no exercises of options to purchase shares of common stock.

     Restricted Stock Units

          In May 2005, we granted restricted stock units (RSUs) to members of our board of directors in lieu of cash payment for services. Because these RSUs vested immediately, we charged the fair value of $107 relating to these RSUs to operating expenses on the date of grant.

          In March 2005, in order to align the interests of management and stockholders, and as part of a broader program to conserve cash, we modified our bonus program for 2004 for officers, adjusted salaries for officers to reduce cash payments, and granted RSUs to officers. We also decided to pay 2005 bonuses for officers by the award of RSUs instead of cash. During the six months ended June 30, 2005, we recorded $695 of expense related to these awards, of which $207 was recorded for equity-classified awards.

13

NEOSE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share amounts)

     Modification of 2004 Bonus Awards for Officers

          In March 2005, the Compensation Committee of our Board of Directors (Compensation Committee) decided that the 2004 bonus award to our Chief Executive Officer would be paid solely in RSUs instead of cash, and that 2004 bonus awards to other officers would be payable 50% in cash and 50% in RSUs. The liability associated with the cash portion of the 2004 bonus was $441 and was included in accrued compensation at December 31, 2004 on our balance sheet. The number of RSUs granted was determined by dividing the dollar amount of the 2004 bonus to be paid in the form of RSUs by the fair market value of our common stock on the date of grant. Except for two officers that retired, these RSUs will not vest until the first anniversary of the grant, and will not be distributed until 18 months from grant, subject to the occurrence of certain events. The amount of the RSU portion of the 2004 bonus for the retired officers was $67, which we charged to general and administrative expenses on our statement of operations in 2004 because the RSUs were immediately vested. The amount of the RSU portion of the 2004 bonus for other officers was $588, which we are charging to operating expenses on our statements of operations on a straight-line basis over the 26-month period from January 2004 to the vesting date of the RSUs (March 2006). As a result, at December 31, 2004, our accrued compensation included $339 related to these RSUs. The liability classification of these RSUs continued until the grant date, at which time the liability of $382 for the award became equity-classified.

     Modification of 2005 Bonus Awards for Officers

          Payment of 2005 bonuses, if any, for officers will be made in full by the award of RSUs instead of cash in amounts determined by our Compensation Committee. For 2005 only, each officer’s bonus target has been increased by 25% to compensate for the change from cash to RSUs. The number of RSUs granted to each officer will be determined by dividing his or her 2005 bonus, as determined by our Compensation Committee, by the average of our closing stock price on March 3, 2005 and our closing stock price on the grant date, which we anticipate will occur during the first quarter of 2006. Because the RSUs will vest in equal amounts over the four quarters following the date of grant, each RSU will be segregated into four tranches, and the value of each tranche will be amortized to operating expenses on our statements of operations individually as though each is a separate award.

          For each quarter of 2005, we will calculate an estimated award value using the fair value of our stock as of the most recent balance sheet date. The award value will be accrued over the period from January 2005 until one year following the date of grant. The accrued award value as of each balance sheet date will be classified as a liability until the grant date, at which time the award will become equity-classified and the liability balance will be reclassified to additional paid-in-capital. The accrued award value as of June 30, 2005 of $446 is included in accrued compensation on our balance sheet.

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NEOSE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share amounts)

          Adjustment of Officer Base Salaries

          In March 2005, the Compensation Committee reduced the base salary levels of all of the Company’s officers for the period from March 1, 2005 through February 28, 2006. The salary for each officer is 10% lower than his or her base salary on February 28, 2005. In connection with these reductions, each officer was granted a one-time award of RSUs. The number of RSUs granted for this purpose was determined with reference to the 10% reduction and forgone merit increases, and the closing price of our common stock on the date of grant. The grant date value of these RSUs, which vest in equal amounts over four quarters following the date of grant, of $363 is being charged to operating expenses on a straight-line basis over the 12-month period from March 2005 through February 2006.

12.  Collaborative Agreements and Significant Customer Concentration

     BioGeneriX Agreements

          On January 28, 2005, we entered into a Supply and Option Agreement (Option Agreement) with BioGeneriX AG (BioGeneriX), a company of the ratiopharm Group, that provided for BioGeneriX to pay us a non-refundable payment and to supply to us an undisclosed protein for research purposes. The Option Agreement also granted BioGeneriX an exclusive option to enter into a pre-negotiated Research, License and Option agreement (License Agreement) for the use of our enzymatic technologies to develop a long-acting version of a currently marketed therapeutic protein.

          On April 28, 2005, we and BioGeneriX entered into the License Agreement following the exercise by BioGeneriX of the option we granted to it under the Option Agreement. We received a non-refundable payment in connection with the exercise of the option and execution of the License Agreement.

          Under the License Agreement, we are entitled to receive research payments for 12 months, and potentially milestone payments of up to $61,500 as well as royalties on product sales. The License Agreement provides that we will conduct research on behalf of BioGeneriX for approximately 12 months and grants to BioGeneriX the right to obtain an exclusive, worldwide license, upon specified terms, to use our enzymatic technologies to develop and commercialize a long-acting version of the undisclosed therapeutic protein that is the target of the research. If BioGeneriX exercises its right to obtain this license, BioGeneriX will be responsible for the further development and commercialization of the target protein. In addition, if requested by BioGeneriX, we will provide, and be fully reimbursed for, any required technical assistance. We will also be entitled, at our request, to supplies of some process reagents from BioGeneriX.

          We also are collaborating with BioGeneriX on the development and commercialization of a long-acting granulocyte colony stimulating factor, under a separate agreement, which was described in the Notes to Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2004.

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NEOSE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share amounts)

     Amendment to Novo Nordisk Agreement

          On February 16, 2005, we entered into an amendment (Amendment) to one of our two Research, Development and License Agreements with Novo Nordisk A/S (Novo Nordisk) dated as of November 17, 2003, as previously amended (Novo Agreement). The Novo Agreement was described in the Notes to Financial Statements, included in our Annual Report on Form 10-K for the year ended December 31, 2004.

          Under the Novo Agreement, we are conducting work on next-generation versions of two proteins. The Amendment provided for a change in the timing of one milestone payment, and a restructuring of payment of certain project-related costs for one of the two proteins that is the subject of the Novo Agreement.

     Significant Customer Concentration

          During the three and six months ended June 30, 2005, one customer accounted for 38% and 46%, respectively, of total revenues. During the three and six months ended June 30, 2004 that customer accounted for 99% of total revenues. During the three and six months ended June 30, 2005, a second customer accounted for 62% and 54%, respectively, of total revenues. During the three and six months ended June 30, 2004, that second customer accounted for 1% of total revenues.

13.  Subsequent Event

          In August 2005, we announced that we had implemented a restructuring of operations to enable an enhanced focus on next-generation proteins, to allow for the anticipated transfer of production of proteins and reagents to our collaborative partners and contract manufacturers now that our programs are more mature, and to reduce cash burn. These actions are supplementary to previously announced actions to reduce executive cash-based compensation for 2005 and capital spending. Upon completion of the restructuring, we will have reduced the size of our workforce by approximately 25% since the end of the first quarter. We estimate we will incur cash restructuring costs of approximately $1,800, most of which will be reflected in our operating results during the third quarter of 2005.

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NEOSE TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share amounts)

          In addition, as part of the restructuring, we will centralize research activities in Horsham, Pennsylvania by ending operations in our leased San Diego facility. Following the manufacture of Phase II clinical material of NE-180, expected to be completed during the third quarter of 2005, our requirements for internally manufactured products will be substantially lower than the capacity of our 24,000 square-foot pilot manufacturing facility. Therefore, we will evaluate alternatives relative to our current headquarters and pilot manufacturing facility, which we own subject to a mortgage, including the potential disposition of the facility and further consolidation of our research, development and administrative operations into a currently leased facility that is also located in Horsham. As a result of the restructuring, we expect to record, during the second half of 2005, non-cash property and equipment impairment charges, which we are unable to estimate at this time.

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

CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION ACT OF 1995:

          This report and the documents incorporated by reference herein contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act). When used in this report and the documents incorporated herein by reference, the words “anticipate,” “believe,” “estimate,” “may,” “expect,” “intend,” and similar expressions are generally intended to identify forward-looking statements. These forward-looking statements include, among others, the statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations about our:

• estimate of the length of time that our existing cash and cash equivalents, marketable securities, expected revenue, and interest income will be adequate to finance our operating and capital requirements;

• expectations as to the costs and benefits of our August 2005 restructuring of operations;

• expected losses;

• expectations for future capital requirements;

• expectations for increases in operating expenses;

• expectations for increases in research and development, and general and administrative expenses in order to develop products, manufacture commercial quantities of reagents and products, and commercialize our technology;

• expectations for the development of, the timing of regulatory filings related to, and the ability to commence clinical trials for, our proprietary drug candidates;

• expectations for generating revenue;

• expectations regarding the timing and structure of new or expanded collaborations; and

• expectations regarding the success of existing collaborations for the development and commercialization of products using our technologies.

          Our actual results could differ materially from the results expressed in, or implied by, these forward-looking statements. Potential risks and uncertainties that could affect our actual results include the following:

• our ability to obtain the funds necessary for our operations;

• our ability to meet forecasted project timelines;

• our ability to satisfy the FDA’s request for additional information and obtain clearance from the FDA to commence the Phase I clinical trial for NE-180;

• our ability to develop commercial-scale manufacturing processes for our products and reagents, either independently or in collaboration with others;

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• the risk that we will incur unexpected charges or will have unexpected expenditures related to the restructuring upon the completion of further analysis with respect to the restructuring generally and our assets specifically;

• our ability to enter into and maintain collaborative arrangements;

• our ability to obtain adequate sources of proteins and reagents;

• our ability to expand and protect our intellectual property and to operate without infringing the rights of others;

• our ability to develop and commercialize therapeutic proteins and to commercialize our technologies;

• our ability to attract and retain key personnel;

• our ability to compete successfully in an intensely competitive field;

• our ability to renovate our facilities as required for our operations; and

• general economic conditions.

          These and other risks and uncertainties that could affect our actual results are discussed in this report and in our other filings with the Securities and Exchange Commission (SEC), particularly the section entitled “Factors Affecting The Company’s Prospects” of our Annual Report on Form 10-K for the year ended December 31, 2004. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, events, levels of activity, performance, or achievements. We do not assume responsibility for the accuracy and completeness of the forward-looking statements other than as required by applicable law.

          We do not undertake any duty to update after the date of this report any of the forward-looking statements in this report to conform them to actual results.

          You should read this section in combination with the section entitled Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2004, included in our Annual Report on Form 10-K for the year ended December 31, 2004 and in our 2004 Annual Report to Stockholders.

Overview

          We are a biopharmaceutical company using our enzymatic technologies to develop proprietary drugs, focusing primarily on therapeutic proteins. We believe that our core enzymatic technologies, GlycoAdvance and GlycoPEGylation, improve the drug properties of therapeutic proteins by building out, and attaching polyethylene glycol (PEG) to, carbohydrate structures on the proteins. We are using our technologies to develop proprietary versions of protein drugs with proven safety and efficacy and to improve the therapeutic profiles of proteins being developed by our partners. We expect these modified proteins to offer significant advantages, including less frequent dosing and possibly improved efficacy, over the original versions of the drugs now on the market, as well as to meet or exceed the pharmacokinetic profile of next-generation versions of the drugs now on the market. We believe this strategy of targeting drugs with proven safety and efficacy allows us to lower the risk profile of our proprietary development portfolio as compared to de novo protein drug development.

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          We have incurred operating losses each year since our inception. As of June 30, 2005, we had an accumulated deficit of $208,933,000. We expect additional losses in 2005 and over the next several years as we continue product research and development efforts, implement manufacturing scale-up activities and expand our intellectual property portfolio. We have financed our operations through private and public offerings of equity securities, proceeds from debt financings, and revenues from our collaborative agreements.

          We believe that our existing cash and cash equivalents, marketable securities, expected revenue from collaborations and license arrangements, and interest income should be sufficient to meet our operating and capital requirements at least through mid-2006, although changes in our collaborative relationships or our business, whether or not initiated by us, may cause us to deplete our cash, cash equivalents, and marketable securities sooner than the above estimate. Under agreements we entered into with a bank during the first quarter of 2004, we have agreed to limit our total outstanding debt to $22,000,000. As of June 30, 2005, our total outstanding debt was $16,556,000. In July 2005, we borrowed $783,000 secured by laboratory equipment and facility improvements. At any time after January 30, 2008, or if we fail to maintain a minimum required cash and short-term investments balance of at least $22,000,000, the bank has the option to require additional collateral from us in the form of a security interest in certain cash and short-term investments, or in the form of a letter of credit, which may have the effect of requiring us to repay the outstanding loan balance to the bank. See “Financing Activities – Debt Financing Activities – Term Loan from Bank and Industrial Development Authority Bonds” in the Liquidity and Capital Resources section of this Form 10-Q for a description of the material features of this borrowing.

Liquidity and Capital Resources

     Overview

          We had $54,107,000 in cash, cash equivalents, and marketable securities as of June 30, 2005, compared to $45,048,000 in cash and cash equivalents as of December 31, 2004. The increase during the first half of 2005 was attributable to the net proceeds from our public offering in February 2005, offset by the use of cash during the six months ended June 30, 2005 to fund our operating activities, capital expenditures, and debt repayments.

          In February 2005, we offered and sold 8,050,000 shares of our common stock at a public offering price of $4.00 per share, generating net proceeds of $30,006,000. In March 2005, we implemented measures to reduce the rate of our cash utilization. Previously, we had estimated that our average quarterly net cash utilization for 2005 would be approximately $11,000,000, based on estimates of revenues from collaborations and operating expenses. These actions included modifying the bonus program for officers, reducing officers’ base salaries for one year, reducing planned operating expenses and capital expenditures, and effectively limiting headcount during 2005.

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          In August 2005, we announced that we had implemented a restructuring of operations to enable an enhanced focus on next-generation proteins, to allow for the anticipated transfer of production of proteins and reagents to our collaborative partners and contract manufacturers now that our programs are more mature, and to reduce cash burn. These actions supplement the abovementioned measures that we implemented in March 2005. Upon completion of the restructuring, we will have reduced the size of our workforce by approximately 25% since the end of the first quarter. After achieving the full benefits of the restructuring during the fourth quarter of 2005, we expect to realize annualized savings of between $6,000,000 and $8,000,000. Net cash utilization for the second half of 2005 is expected to average approximately $9,000,000 per quarter, which includes the cash effect of restructuring costs and does not take into account any new partnering activities, compared to an average net cash utilization during the first half of 2005 of approximately $10,500,000 per quarter, excluding the effect of proceeds from equity issuances and purchases of marketable securities. We estimate we will incur cash restructuring costs of approximately $1,800,000, most of which will be reflected in our operating results during the third quarter of 2005.

          As part of the restructuring, we will centralize research activities in Horsham, Pennsylvania by ending operations in our leased San Diego facility. Following the manufacture of Phase II clinical material of NE-180, expected to be completed during the third quarter of 2005, our requirements for internally manufactured products will be substantially lower than the capacity of our 24,000 square-foot pilot manufacturing facility. Therefore, we will evaluate alternatives relative to our current headquarters and pilot manufacturing facility, which we own subject to a mortgage, including the potential disposition of the facility and further consolidation of our research, development and administrative operations into a currently leased facility that is also located in Horsham. As a result of the restructuring, we expect to record, during the second half of 2005, non-cash property and equipment impairment charges, which we are unable to estimate at this time.

          The development of next-generation proprietary protein therapeutics, which we are pursuing both independently and in collaboration with selected partners, will require substantial expenditures by us and our collaborators. We plan to continue financing our operations through private and public offerings of equity securities, proceeds from debt financings, and revenues from existing and future collaborative agreements. Because our 2005 revenues could be substantially affected by entering into new collaborations and on the financial terms of any new collaborations, we cannot estimate our 2005 revenues. Other than revenues from our collaborations with Novo Nordisk and BioGeneriX, and any future collaborations with others, we do not expect to generate significant revenues until such time as products using our technologies are commercialized, which is not expected during the next several years. We expect an additional several years to elapse before we can expect to generate sufficient cash flow from operations to fund our operating and investing requirements. We believe that our existing cash and cash equivalents, marketable securities, expected revenue from collaborations and license arrangements, and interest income should be sufficient to meet our operating and capital requirements at least through mid-2006. Accordingly, we will need to raise substantial additional funds to continue our business activities and fund our operations until we are generating sufficient cash flow from operations.

     Operating Activities

          Net cash used in operating activities was $18,712,000 and $17,770,000 for the six months ending June 30, 2005 and 2004, respectively. The increase in net cash used in operating activities during the 2005 period compared to the 2004 period was due primarily to a $1,723,000 increase in our net loss during the 2005 period compared to the 2004 period.  This was partially offset by a decrease of $302,000 in the amount of cash required to fund changes in operating assets and liabilities.

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     Investing Activities

          During the six months ended June 30, 2005 and 2004, we invested $656,000 and $7,691,000, respectively, in property, equipment, and building improvements. Of the 2004 amount, $4,935,000 was invested in leasehold improvements that are described in the next paragraph. During the six months ended June 30, 2005, we received proceeds of $70,000 upon the sale of equipment that we included in assets held for sale in accounts receivable and other current assets on our balance sheet as of December 31, 2004. The carrying value of the equipment was $49,000 and, therefore, we recognized a gain on the sale of the equipment of $21,000. During the six months ended June 30, 2004, we entered into capital lease obligations for equipment with an aggregate book value of $184,000. We did not enter into any capital lease obligations during the six months ended June 30, 2005. We had accrued property and equipment of $25,000 and $261,000 as of June 30, 2005 and 2004, respectively.

          We entered into a lease agreement in 2002 for a 40,000 square foot building. We converted 25,000 square feet into laboratory and office space. In April 2004, we occupied that finished portion of the facility, and began amortizing the cost of those improvements. We expended $10,175,000 for this project, of which $5,085,000 was expended during the six months ended June 30, 2004. During the first quarter of 2004, we entered into agreements with a bank for the purpose of funding these improvements. See “Financing Activities – Debt Financing Activities – Term Loan from Bank and Industrial Development Authority Bonds” in the Liquidity and Capital Resources section of this Form 10-Q for a description of the material features of this borrowing. In addition, pursuant to the lease, we received $250,000 from the landlord in September 2004 as a partial reimbursement for improvements we made to the facility. This landlord incentive, which is included in other liabilities on our balance sheet, is being amortized ratably as a reduction to rental expense over the lease term.

          We anticipate additional capital expenditures during the remainder of 2005 of approximately $600,000. We may finance some or all of these capital expenditures through capital leases or the issuance of new debt or equity. We would prefer to finance capital expenditures through the issuance of new debt, to the extent that we are allowed to do so under our existing bank covenants. The terms of new debt could require us to maintain a minimum cash and investments balance, or to transfer cash into an escrow account to collateralize some portion of the debt, or both.

     Financing Activities

          Equity Financing Activities

          In February 2005, we offered and sold 8,050,000 shares of our common stock at a public offering price of $4.00 per share, generating net proceeds of $30,006,000.

          During the six months ended June 30, 2005 and 2004, participating employees purchased 15,201 and 8,456 shares, respectively, of common stock pursuant to our employee stock purchase plan, resulting in net proceeds of $86,000 and $86,000, respectively. Effective January 31, 2005,

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we terminated the employee stock purchase plan due, in part, to the potential financial statement impact resulting from the expected adoption of SFAS No. 123R in January 2006. During the six months ended June 30, 2004, we received proceeds of $72,500 upon the exercise of options to purchase 24,766 shares of common stock. There were no exercises of options during the six months ended June 30, 2005.

          Debt Financing Activities

          Our total debt decreased by $1,789,000 to $16,556,000 at June 30, 2005, compared to $18,345,000 at December 31, 2004. This decrease primarily resulted from debt principal repayments of $2,490,000, partially offset by $701,000 in proceeds from the issuance of debt. In July 2005, we borrowed $783,000 secured by laboratory equipment and facility improvements.

          Note Payable Secured by Insurance Policies

          In March 2005, we borrowed $701,000 to finance the insurance policy premiums due on certain insurance policies. As of June 30, 2005, the outstanding principal balance under this agreement was $449,000. We are required to pay $65,000 of principal and interest during each of the 11 months beginning on March 15, 2005 and ending on January 15, 2006. The interest is calculated based on an annual percentage rate of 3.91%. To secure payment of the amounts financed, we granted the lender a security interest in all of our right, title and interest to the insurance policies. Upon a default by us, the lender can demand, and will have the right to receive, immediate payment of the total unpaid balance of the loan. In the event of default and the demand for immediate payment by the lender, interest will accrue on any unpaid amounts at the highest rate allowed by applicable law.

          Term Loan from Bank and Industrial Development Authority Bonds

          During the first quarter of 2004, we and a bank entered into agreements under which the bank acquired and reissued the $1,000,000 outstanding of our tax-exempt Industrial Development Authority bonds. In addition, we borrowed $8,000,000 from the bank, of which $1,800,000 was combined with $1,100,000 of our restricted cash for the purpose of paying in full the $2,900,000 outstanding of our taxable Industrial Development Authority bonds. The remaining $6,200,000 borrowed funded improvements to our leased facility, which we occupied in April 2004, in Horsham, PA.

          During the twelve months ended June 30, 2006, we will be required to make principal payments totaling $889,000 under these agreements. The interest rate on the bond and bank debt will vary quarterly, depending on 90-day LIBOR rates. At June 30, 2005, the 90-day LIBOR was 3.52%. We have the option each quarter to incur interest on the outstanding principal at the LIBOR-based variable interest rate or a fixed rate offered by our bank.

          For the $8,000,000 term loan, interest will accrue at an interest rate equal to the 90-day LIBOR plus 3.0%. We made quarterly, interest-only payments prior to March 31, 2005. Commencing on March 31, 2005, we began to make quarterly principal payments of $222,000 plus interest. We are required to make these payments over the remaining nine years of the ten-year loan period.

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          For the $1,000,000 Industrial Development Authority bond, we will make quarterly, interest-only payments for ten years at an interest rate equal to the 90-day LIBOR plus 1.5%, followed by a single repayment of principal at the end of the ten-year loan period. If the 90-day LIBOR at the beginning of any calendar quarter is between 4.0% and 6.0%, the bond will bear interest at the 90-day LIBOR plus 1.25%. If the 90-day LIBOR at the beginning of any calendar quarter exceeds 6.0%, the bond will bear interest at the 90-day LIBOR plus 1.0%.

          To provide security for these borrowings, we granted a first mortgage to our bank on the land and building where our present headquarters are located, as well as a security interest of first priority on certain improvements, certain equipment, and other tangible personal property. Under our agreements with the bank, if the bank determines a material adverse change has occurred in our business, financial condition, results of operations, or business prospects, the bank in its sole discretion may declare at any time an event of default, of which one potential outcome could be the accelerated repayment of the loan balance, which was $8,556,000 as of June 30, 2005. Under our agreements with the bank, we agreed to limit our total outstanding debt to $22,000,000. As of June 30, 2005, our total outstanding debt was $16,556,000. At any time after January 30, 2008, or if we fail to maintain a minimum required cash and short-term investments balance of at least $22,000,000, our bank has the option to require additional collateral from us in the form of a security interest in certain cash and short-term investments, or in the form of a letter of credit, which may have the effect of requiring us to repay the outstanding loan balance to the bank. The agreements with our bank also contain covenants that, among other things, require us to obtain consent from the bank prior to paying dividends, making certain investments, changing the nature of our business, assuming or guaranteeing the indebtedness of another entity or individual, selling or otherwise disposing of a substantial portion of our assets, and merging or consolidating with another entity.

          Term Loan from Landlord

          In May 2004, we borrowed $1,500,000 from the landlord of our leased facilities in Horsham, Pennsylvania. As of June 30, 2005, the outstanding principal balance under this agreement was $1,167,000. The terms of the financing require us to pay monthly principal and interest payments over 48 months at an interest rate of 13%. During the twelve months ending June 30, 2006, we will be required to make principal and interest payments totaling $483,000 under this agreement.

          Equipment Loans

          As of June 30, 2005, we owe $5,964,000 to an equipment lender that financed the purchase of certain equipment and facility improvements, which collateralize the amounts borrowed. The terms of the financings require us to make monthly principal and interest payments through January 2009 at interest rates ranging from 8.00% to 9.01%. During the twelve months ending June 30, 2006, we will make principal and interest payments totaling $3,290,000 under these agreements.

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          In July 2005, we borrowed from the equipment lender an additional $783,000 secured by laboratory equipment and facility improvements. The terms of the new financing require us to pay monthly principal and interest payments over 48 months at an interest rate of 9.44%. During the twelve months ending June 30, 2006, we will make principal and interest payments totaling $242,000 under this agreement.

          Capital Lease Obligations

          The terms of our capital leases require us to make monthly payments through February 2009. Under these agreements, we will be required to make principal and interest payments totaling $283,000 during the twelve months ending June 30, 2006.

     Operating Leases

          We lease laboratory, office, warehouse facilities, and equipment under operating lease agreements. In April 2001, we entered into a lease agreement for approximately 10,000 square feet of laboratory and office space in San Diego, California. The initial term of the lease ends in March 2006, at which time we have an option to extend the lease for an additional five years under certain circumstances. As part of the restructuring announced in August 2005 and described in the Liquidity and Capital Resources section of this Form 10-Q, we will centralize research activities in Horsham, Pennsylvania by ending operations in our leased San Diego facility. Accordingly, we will not exercise our option to extend the lease.

          We lease approximately 5,000 square feet of office and warehouse space in Pennsylvania under a lease agreement that expires April 2007. In February 2002, we entered into a lease agreement for approximately 40,000 square feet of laboratory and office space in Pennsylvania. The initial term of the lease ends in July 2022, at which time we have an option to extend the lease for an additional five years, followed by another option to extend the lease for an additional four and one-half years. Pursuant to the lease, we received $250,000 from the landlord in September 2004 as a partial reimbursement for improvements we made to the facility. This landlord incentive, which is included in other liabilities on our accompanying balance sheets, is being amortized ratably as a reduction to rental expense over the lease term. Our laboratory, office, and warehouse facility leases contain escalation clauses, under which the base rent increases annually by 2% to 4%.

Summary of Contractual Obligations

          A summary of our obligations to make future payments under contracts existing as of December 31, 2004 is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2004. The Liquidity and Capital Resources section of this Form 10-Q describes obligations from material contracts entered into during the six months ended June 30, 2005.

Off-Balance Sheet Arrangements

          We are not involved in any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect that is material to investors on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

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Critical Accounting Policies and Estimates

          A discussion of our critical accounting policies and estimates is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2004. There have not been any changes or additions to our critical accounting policies during the six months ended June 30, 2005.

Results of Operations

          We recorded a net loss of $10,285,000 and $21,552,000 for the three and six months ended June 30, 2005, respectively. For the three and six months ended June 30, 2004, we recorded a net loss of $10,326,000 and $19,829,000, respectively. The following section explains the changes between the reporting periods in each component of net loss.

     Revenue from Collaborative Agreements

          Revenue from collaborative agreements for the three and six months ended June 30, 2005 were $1,420,000 and $2,768,000, respectively, compared to $891,000 and $2,141,000 for the corresponding periods in 2004. Our revenue from collaborative agreements has historically been derived from a few major collaborators. Our collaborative agreements have had some or all of the following elements: upfront fees, research and development funding, milestone revenues, and royalties on product sales.

          During the three and six months ended June 30, 2005, one customer accounted for 38% and 46%, respectively, of total revenues. During the three and six months ended June 30, 2004 that customer accounted for 99% of total revenues. During the three and six months ended June 30, 2005, a second customer accounted for 62% and 54%, respectively, of total revenues. During the three and six months ended June 30, 2004 that second customer accounted for 1% of total revenues.

          Because our remaining 2005 revenues could be substantially affected by entering into new collaborations and by the financial terms of any new collaborations, we cannot estimate our remaining 2005 revenues. Material cash inflows from proprietary drug development projects are highly uncertain, and we cannot reasonably estimate the period in which we will begin to receive material net cash inflows from our major research and development projects. Cash inflows from products in development are dependent on several factors, including entering into collaborative agreements, the achievement of certain milestones, and regulatory approvals. We may not receive milestone payments from any existing or future collaborations if a product in development fails to meet technical or performance targets or fails to obtain the required regulatory approvals. Further, our revenues from collaborations will be affected by the levels of effort committed and made by our collaborative partners. Even if we achieve technical success in developing drug candidates, our collaborative partners may discontinue development, may not devote the resources necessary to complete development and commence marketing of these products, or they may not successfully market potential products.

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     Research and Development Expense

          Our proprietary drug development portfolio consists of two therapeutic protein candidates: GlycoPEG-EPO (NE-180) and GlycoPEG-GCSF. Erythropoietin (EPO) is prescribed to stimulate production of red blood cells, and is approved for sale in major markets around the world for the treatment of chemotherapy-induced anemia and anemia associated with chronic renal failure. Based on early preclinical studies, we believe it is feasible to develop a long-acting EPO through GlycoPEGylation. We submitted an investigational new drug application (IND) for NE-180 to the FDA during the second quarter of 2005. In July 2005, the FDA orally advised us that it requires additional manufacturing and preclinical information in order to complete its review of the IND and that our proposed Phase I clinical trial of NE-180 has been placed on hold.  We cannot estimate when the FDA will release the hold, but we expect that this will delay the commencement of clinical trials for NE-180 until at least the fourth quarter of 2005. 

          Granulocyte colony stimulating factor (G-CSF) is prescribed to stimulate production of neutrophils (a type of white blood cell), and is approved for sale in major markets around the world for treatment of neutropenia associated with myelosuppressive chemotherapy. Based on proof-of-concept data and preclinical development activities conducted during 2004, we believe it is feasible to develop a long-acting G-CSF through GlycoPEGylation. We and BioGeneriX plan to continue preclinical development activities for GlycoPEG-GCSF through the end of 2005.  Such activities include, requesting scientific advice from regulatory authorities in Europe.  We currently expect that an Investigational Medicinal Product Dossier will be submitted to a European country during the first quarter of 2006.

          We conduct exploratory research, both independently and with collaborators, on therapeutic candidates, primarily proteins, for development using our enzymatic technologies. Successful candidates may be advanced for development through our own proprietary drug program or through our partnering and licensing program, or a combination of the two. Although our primary focus is the development of long-acting proteins, we are also conducting research to assess opportunities to use our enzymatic technologies in other areas, such as glycopeptides and glycolipids. We expect to continue this research during the remainder of 2005.

          Our current research and development projects are divided between two categories: (i) GlycoAdvance and GlycoPEGylation and (ii) Other Glycotechnology Programs, which includes projects investigating other applications of our intellectual property. The following chart sets forth our projects in each of these categories and the stage to which each has been developed:

	Development Stage	Status
GlycoAdvance and GlycoPEGylation
NE-180	Preclinical	Active
GlycoPEG-GCSF	Preclinical	Active
Other protein projects	Research	Active
Other Glycotechnology Programs
Non-protein therapeutic applications	Research	Active

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          The process of bringing drugs from the preclinical research and development stage through Phase I, Phase II, and Phase III clinical trials to FDA approval is time consuming and expensive. Because our announced product candidates are currently in the preclinical stage and there are a variety of potential intermediate clinical and non-clinical outcomes that are inherent in drug development, we cannot reasonably estimate either the timing or costs we will incur to complete these research and development projects. In addition, the timing and costs to complete our research and development projects will be affected by the timing and structure of any collaboration agreements we may enter into with a third party, neither of which we can currently estimate.

          For each of our research and development projects, we incur both direct and indirect expenses. Direct expenses include salaries and other costs of personnel, raw materials, and supplies for each project. We may also incur third-party costs related to these projects, such as contract research, consulting and preclinical development costs. Indirect expenses include depreciation expense and the costs of operating and maintaining our facilities, property, and equipment, to the extent used for our research and development projects, as well as the costs of general management of our research and development projects.

          Our research and development expenses for the three and six months ended June 30, 2005 were $8,987,000 and $18,612,000, respectively, compared to $7,788,000 and $15,666,000 for the corresponding periods in 2004. We expect our research and development expenses to be greater in 2005 than 2004, as a result of the development, preclinical and clinical activities we plan to conduct during the year. In addition, as a result of the restructuring announced in August 2005 and described in the Liquidity and Capital Resources section of this Form 10-Q, we expect to incur cash restructuring costs of approximately $1,800,000, most of which will be reflected in our operating results during the third quarter of 2005, and record, during the second half of 2005, non-cash property and equipment impairment charges, which we are unable to estimate at this time. We expect the cash restructuring costs and the impairment charges to be allocated between research and development expense and general and administrative expense on our statements of operations. The following table illustrates research and development expenses incurred during the three and six months ended June 30, 2005 and 2004 for our significant groups of research and development projects (in thousands):

	Three months ended June 30,				Six months ended June 30,
	2005		2004		2005		2004
GlycoAdvance and GlycoPEGylation	$	5,000	$	3,326	$	10,149	$	6,868
Other Glycotechnology Programs		397		56		529		122
Indirect expenses		3,590		4,406		7,934		8,676
	$	8,987	$	7,788	$	18,612	$	15,666

28

          GlycoAdvance and GlycoPEGylation

          Our GlycoAdvance and GlycoPEGylation expenses result primarily from the development and preclinical activities, including process development and pilot plant activities, associated with our proprietary drug development programs. These expenses increased during the 2005 periods, compared to the 2004 periods, primarily due to the conduct of preclinical studies on NE-180, hiring of additional employees, and increased external costs associated with the development of reagents for GlycoPEG-GCSF.

          Other Glycotechnology Programs

          Research and development expenses related to our Other Glycotechnology Programs increased during the 2005 periods, compared to the 2004 period, as we conducted more research on glycolipids during the 2005 periods.

          Indirect expenses

          Our indirect research and development expenses decreased during the 2005 periods, compared to the 2004 periods, primarily due to a decrease in consulting and outside research expenses as well as a decrease in indirect labor efforts, as more labor was focused on the GlycoPEGylation and Glycotechnology programs.  These decreases were partially offset by higher depreciation of capital expenditures and the operating expenses associated with our Horsham, PA laboratory facility, which was occupied in April 2004.

          General and Administrative Expense

          General and administrative expenses for the three and six months ended June 30, 2005 were $2,806,000 and $5,784,000, respectively, compared to $3,324,000 and $6,186,000 for the corresponding periods in 2004. The decrease for the 2005 periods was primarily due to lower legal patent and consulting expenses. During 2005, we expect our general and administrative expenses to increase by less than 10% over 2004, excluding the effect of the restructuring announced in August 2005 and described in the Liquidity and Capital Resources section of this Form 10-Q. As a result of the restructuring, we expect to incur cash restructuring costs of approximately $1,800,000, most of which will be reflected in our operating results during the third quarter of 2005, and record, during the second half of 2005, non-cash property and equipment impairment charges, which we are unable to estimate at this time. We expect the cash restructuring costs and the impairment charges to be allocated between research and development expense and general and administrative expense on our statements of operations.

          Other Income and Expense

          Other income for the six months ended June 30, 2005 was $22,000, and related to payments received during the first quarter of 2005 in excess of the carrying value of accounts receivable due to currency fluctuations. We do not expect any such other income during the remainder of 2005. We had no other income during the three months ended June 30, 2005 or the three and six months ended June 30, 2004.

          Interest income for the three and six months ended June 30, 2005 was $419,000 and $723,000, respectively, compared to $131,000 and $236,000 for the corresponding periods in 2004. The increases were due to higher average balances of cash, cash equivalents, and marketable securities, as well as higher interest rates, during the 2005 periods. Our interest income during the remainder of 2005 is difficult to project, and will depend largely on prevailing interest rates and whether we receive cash from entering into any new collaborative agreements or by completing any additional equity or debt financings during the year.

29

          Interest expense for the three and six months ended June 30, 2005 was $331,000 and $669,000, respectively, compared to $236,000 and $354,000 for the corresponding periods in 2004. The increases were primarily due to new debt assumed since the 2004 period as well as higher interest rates on our variable rate debt. The increase during the 2005 periods was also due to the capitalization of $39,000 and $130,000 of interest incurred during the 2004 periods associated with leasehold improvements that we placed in service in April 2004. Our interest expense during the remainder of 2005 is difficult to project and will depend largely on prevailing interest rates and whether we enter into any new debt agreements. See “Financing Activities – Debt Financing Activities” in the Liquidity and Capital Resources section of this Form 10-Q for a description of the material features of our debt financings.

Item 4.     Controls and Procedures

          We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act, for financial reporting as of June 30, 2005. Based on that evaluation, our principal executive officer and principal financial officer concluded that these controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported as specified in SEC rules and forms.

          Our internal controls and procedures for financial reporting are designed to provide reasonable assurance, and management believes that they provide such reasonable assurance, that our transactions are properly authorized, our assets are safeguarded against unauthorized or improper use, and our transactions are properly recorded and reported, in order to permit the preparation of our financial statements in conformity with U.S. generally accepted accounting principles. There were no changes in these controls or procedures identified in connection with the evaluation of such controls or procedures that occurred during our last fiscal quarter, or in other factors that have materially affected, or are reasonably likely to materially affect, these controls or procedures.

          Our management group, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and internal controls and related procedures will prevent all error and all fraud. A control system, no matter how well designed and implemented, can provide only reasonable assurance that the objectives of the control system are met. In addition, the design and implementation of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered in relation to their costs. The design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events, which may prove to be incorrect. Due to the limitations of all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within an organization have been detected or prevented.

30

PART II.	OTHER INFORMATION
Item 4.	Submission of Matters to a Vote of Security Holders
A.	Our Annual Meeting of Stockholders was held on May 3, 2005.
B.	The motions before stockholders were:

                           1.   To elect nine Directors.

Name of Director	Votes For	Votes Against	Votes Withheld	Abstentions	Broker Nonvotes
C. Boyd Clarke	30,101,385	—	827,516	—	—
Brian H. Dovey	30,399,533	—	529,368	—	—
L. Patrick Gage, Ph.D.	29,759,457	—	1,169,444	—	—
William F. Hamilton, Ph.D.	30,098,033	—	830,868	—	—
Douglas J. MacMaster, Jr.	29,593,955	—	1,334,946	—	—
H. Stewart Parker	30,200,292	—	728,609	—	—
Mark H. Rachesky, M.D.	30,403,333	—	525,568	—	—
Lowell E. Sears	30,097,933	—	830,968	—	—
Elizabeth H. S. Wyatt	30,263,692	—	665,209	—	—

                           2.   To ratify the appointment of KPMG LLP as our independent registered public accounting firm for fiscal 2005.

Votes For	30,649,683
Votes Against	147,486
Votes Withheld	—
Abstentions	131,732
Broker Nonvotes	—

                           3.   To approve an amendment to our 2004 Equity Incentive Plan.

Votes For	10,964,945
Votes Against	5,661,905
Votes Withheld	—
Abstentions	135,309
Broker Nonvotes	—

31

Item 6.	Exhibits
	10.1#	Research, License and Option Agreement between BioGeneriX AG and Neose Technologies, Inc. dated April 28, 2005.
	31.1	Certification by Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification by Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	#	Portions of this Exhibit were omitted and filed separately with the Secretary of the SEC pursuant to a request for confidential treatment that has been filed with the SEC.

32

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.

	NEOSE TECHNOLOGIES, INC.
Date:   August 4, 2005	By:	/s/ A. BRIAN DAVIS
		A. Brian Davis
		Senior Vice President and Chief Financial Officer (Principal Financial Officer and Duly Authorized Signatory)

33

Exhibit Index

Exhibit	Description
10.1#	Research, License and Option Agreement between BioGeneriX AG and Neose Technologies, Inc. dated April 28, 2005.
31.1	Certification by Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification by Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
#	Portions of this Exhibit were omitted and filed separately with the Secretary of the SEC pursuant to a request for confidential treatment that has been filed with the SEC.

EX-10.1

Exhibit 10.1

Portions of this exhibit were omitted and filed separately with the Secretary of the Commission pursuant to an application for confidential treatment filed with the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934.  Such portions are marked by a series of asterisks.

RESEARCH, LICENSE AND OPTION
AGREEMENT

between

BIOGENERIX AG

and

NEOSE TECHNOLOGIES, INC.

April 27, 2005

****** - Material has been omitted and filed separately with the Commission.

Table of Contents

		Page
1.	Definitions	2
2.	Purpose, Scope and Conduct of the Research	6
3.	Management of the Research during the Research Term	7
4.	Option and Intellectual Property Grants	9
5.	Ownership of Intellectual Property	10
6.	Further Development of ****** and Commercialization of the Product	12
7.	Royalties and Milestone Payments	13
8.	Certain Regulatory Matters	15
9.	Trademarks and Labeling	16
10.	Intellectual Property Claims	16
11.	Payments	17
12.	Books, Records and Accounting	18
13.	Confidentiality	18
14.	Certain Representations, Warranties and Covenants	19
15.	No Inconsistent Agreements	20
16.	Disclaimer, Indemnification and Insurance	20
17.	Publications	22
18.	Standstill	23
19.	Dispute Resolution	23
20.	Term and Termination	24
21.	Rights and Obligations on Termination	25
22.	Certain Taxes	27
23.	Governmental Approval	27
24.	Miscellaneous	28

****** - Material has been omitted and filed separately with the Commission.

RESEARCH, LICENSE AND OPTION AGREEMENT

          This RESEARCH, LICENSE AND OPTION AGREEMENT, dated as of April 27, 2005 (“Agreement”), is made by and between BIOGENERIX AG, a corporation organized under the laws of the Federal Republic of Germany (“BioGeneriX”), and NEOSE TECHNOLOGIES, INC., a Delaware corporation (“Neose”).  BioGeneriX and Neose are sometimes referred to herein, individually, as a “party” and, collectively, as the “parties.”

BACKGROUND

                    A.  Each of BioGeneriX and Neose possesses certain intellectual property rights relating to the development of next generation ****** products.

                    B.  Each of BioGeneriX and Neose has a development program relating to one or more ******-based products.

                    C.  Neose and BioGeneriX believe that a research program that applies certain intellectual property of Neose to ****** product under development by BioGeneriX will be in their mutual and individual best interests.

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

          1.       Definitions. As used in this Agreement, the following capitalized terms shall have the meanings set forth below.

                    1.1    “Affiliate” means any individual or entity directly or indirectly controlling, controlled by or under common control with, a party to this Agreement.  Without limiting the foregoing, the direct or indirect ownership of over 50% of the outstanding voting securities of an entity, or the right to receive over 50% of the profits or earnings of an entity, shall be deemed to constitute control.

                    1.2    “BioGeneriX” means BioGeneriX.

                    1.3    “BioGeneriX Improvements” means any Research Technology constituting Improvements made, conceived or reduced to practice solely by BioGeneriX except, in each case, for any Neose Improvements.

                    1.4    “BioGeneriX Technology” means any existing or future (i) Patent Rights owned or controlled by BioGeneriX in the Territory relating to the development or manufacture of ******, (ii) know-how, trade secrets, technical information, formulae, processes and data owned or controlled by BioGeneriX that relate to the composition, design, remodeling, development, manufacture or use of ******, (iii) the rights of

****** - Material has been omitted and filed separately with the Commission.

2

BioGeneriX in and to any trademark designated for use with the Product anywhere in the Territory, whether pending, allowed or registered, and (iv) all rights of BioGeneriX in and to any Improvements related to ******; in each case, to the extent BioGeneriX has the right to license or sublicense any such right to Neose. 

                    1.5    “BLA”  means a Biologics License Application (or any successor application) filed with the FDA with respect to the Next Generation ******, or any comparable filing made with a regulatory authority outside the United States.

                    1.6    “Calendar Quarter” means each three-month period beginning on January 1, April 1, July 1 and October 1 of each year.

                    1.7    “******” means ******_  produced in ******.

                    1.8    “CMO” means a third-party, if any, selected by BioGeneriX to ****** under a contract between such third-party and BioGeneriX, all in accordance with this Agreement.

                     1.9    “Confidential Information” has the meaning set forth in Section 13.

                    1.10  “Effective Date” means the date of execution of this Agreement by both parties.

                    1.11  “EMEA” means the European Agency for the Evaluation of Medicinal Products.

                    1.12  “******”  ******.

                    1.13  “Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.

                    1.14  “FDA” means the U.S. Food and Drug Administration.

                    1.15  “Field” means any and all ****** indications.

                    1.16   “HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.

                    1.17  “Improvements”  means any and all developments, discoveries, inventions, additions, amendments, modifications, ideas, processes, methods, compositions, formulae, techniques, information and data, whether or not patentable, conceived, developed or reduced to practice, that improve or beneficially change, or enhance the economic and/or technical attributes of, any know-how or Patent Rights or any process, device or composition.

****** - Material has been omitted and filed separately with the Commission.

3

                    1.18  “******” means ****** produced in ******.

                    1.19  “Joint Improvements” means Improvements jointly owned by the parties, if any, as determined in accordance with Section 5.2.3.

                    1.20  “Joint Project Team” means the team established pursuant to Section 3.4, or any successor group appointed by the parties.

                    1.21  “License” means the license to be granted to BioGeneriX as a result of the exercise of the Option by BioGeneriX.

                    1.22  “License Effective Date” means, with respect to the License, the later of (i) the date on which BioGeneriX exercises the Option and (ii) if notification is required to be made under the HSR Act in respect of such grant, the expiration or earlier termination of any notice and waiting period under the HSR Act.

                    1.23  “Neose” means Neose.

                    1.24  “Neose Improvements” means any and all Research Technology (i) constituting Improvements to the Patent Rights owned or controlled by Neose on the Effective Date; (ii) constituting Improvements to the Patent Rights acquired by Neose after the Effective Date and owned or controlled by Neose during the Research Term; (iii) constituting Improvements to know-how owned or controlled by Neose on the Effective Date; and any and all other Improvements made, conceived or reduced to practice using any of the Reagents or in connection with the development and/or manufacture of the Next Generation ******.

                    1.25  “******”  ******.

                    1.26  “Neose Technology”  means any existing or future (i) Patent Rights owned or controlled by Neose in the Territory relating to glycosylation design or remodeling of ****** made using any of Neose’s GlycoAdvance™, GlycoPEGylation™ and GlycoConjugation™ technologies, (ii) know-how, trade secrets, technical information, formulae, processes and data owned or controlled by Neose which relate to the composition, design, remodeling, development, manufacture or use of ******, (iii) the rights of Neose in and to GlycoAdvance™, GlycoPEGylation™ and GlycoConjugation™ and any other trademark, and (iv) all rights of Neose in and to any Improvements related to ******; in each case, to the extent Neose has the right to license or sublicense any such right to BioGeneriX. 

                    1.27  “Net Sales” means the invoiced price of the Product charged to an unaffiliated third party purchaser in the Territory, net of returns and rejections, and after deducting, to the extent charged or credited to the purchaser and identified on the invoice or other documentation related to the sale, any sales or similar taxes, packaging charges, freight, insurance, trade and quantity discounts and allowances, rebates and commissions. 

****** - Material has been omitted and filed separately with the Commission.

4

                    1.28  “Next Generation ******” means a molecule remodeled under this Agreement using ****** and Neose Technology, which molecule has ******.

                    1.29  “Option” means the option granted to BioGeneriX in Section 4.1.

                    1.30  “Option Expiration Date” means the ninetieth day after the end of the Research Term.

                    1.31  “Ownership Rights” means any and all right, title and interest under patent, copyright, trade secret and trademark law, or any other intellectual property or other law, in and to any know-how, Patent Rights or Improvements.

                    1.32  “Patent Rights” means any patents or patent applications, including all corresponding foreign patents and patent applications, all divisions, continuations, continuations-in-part, reissues, renewals, extensions or additions to any such patents and patent applications.

                    1.33  “Product” means the Next Generation ******, whether alone or in combination with another active ingredient, that is developed and commercialized in accordance with this Agreement.

                    1.34  “Quarterly Research Report” means a quarterly progress report summarizing the progress of the Research, delivered by Neose to BioGeneriX on or before the last day of each Calendar Quarter during the Research Term.

                    1.35  “Reagents” means the enzymes, nucleotide sugars and sugar-PEGs used or to be used in the GlycoPEGylation process for the Product.

                    1.36  “Reasonable Commercial Efforts”  with respect to a party’s obligation under this Agreement will be deemed satisfied if the party exercises at least the same level of effort to perform such obligation as is customarily exercised by similarly situated parties developing or commercializing their own pharmaceutical products of like potential, with the party having such contractual obligation also having the burden of proof in the event of a dispute over its performance.

                    1.37  “Regulatory Approval” means any marketing authorization (including authorizations approving a BLA) required for a Product in the Territory.

                    1.38   “Research” means the work to be conducted in accordance with the Research Plan.

****** - Material has been omitted and filed separately with the Commission.

5

                    1.39  “Research Leader” means the person designated from time to time by BioGeneriX or Neose to manage its monitoring or performance of the Research, as provided in Section 3.1. 

                    1.41  “Research Deliverables” means the deliverables specified on Exhibit A hereto, as amended from time to time by agreement of the parties.

                    1.42  “Research Plan” means the plan for the Research and related timeline set forth as Exhibit B hereto, as amended from time to time by agreement of the parties.

                    1.43  “Research Technology” means the Patent Rights, know-how and Improvements created by either or both parties during the Research in furtherance of the Research Plan.

                    1.44  “Research Term” means the period during which Neose performs the Research in accordance with the Research Plan, which period is expected to last  approximately twelve (12) months and shall end upon delivery of the Research Deliverables by Neose to BioGeneriX.

                    1.45  “Sublicense” means a sublicense of any or all of BioGeneriX’s rights under the Neose Technology.

                    1.46  “Sublicensee” means a sublicensee under a Sublicense.

                    1.47  “Territory”  means the world.

                    1.48  “******” means the ****** molecule that is produced by or for, and under development by, BioGeneriX.

          2.       Purpose, Scope and Conduct of the Research.

                    2.1    Purpose.  The purpose of the Research is to allow Neose, at the request of BioGeneriX, to apply the Neose Technology to ****** supplied by BioGeneriX in order to identify a lead candidate Next Generation ******, which BioGeneriX may take into preclinical development. 

                    2.2    Scope and Duration.  The Research shall be conducted, and the Research Deliverables delivered, in accordance with the Research Plan.

                    2.3    Supply Obligations.  BioGeneriX promptly shall supply to Neose, without cost to Neose, such quantities of ****** as Neose may reasonably request to conduct the Research.  Neose shall supply any other materials necessary for the conduct of the Research.

****** - Material has been omitted and filed separately with the Commission.

6

                    2.4    Payment for Research.  BioGeneriX shall compensate Neose for performance of the Research by making the following payments to Neose:

                                    2.4.1  an upfront fee of US$******, payable upon the execution of this Agreement, of which (i) $****** has been paid pursuant to the Supply and Option Agreement dated as of January 28, 2005, and (ii) $****** will be paid simultaneously with the execution hereof in connection with the exercise of the option pursuant to such Supply and Option Agreement; and

                                    2.4.2  four quarterly payments of US$******, which quarterly payments shall not exceed US$******in the aggregate, payable within thirty (30) days after receipt of an invoice, as follows:  the first three quarterly payments payable after receipt of a Quarterly Research Report and upon the last day of each of the first three Calendar Quarters ending during the Research Term, respectively, and the fourth quarterly payment payable upon delivery by Neose to BioGeneriX of a report summarizing the Research Deliverables. 

                    2.5    Exclusivity.  Except as provided in the next sentence, during the term of this Agreement, the parties shall work exclusively with each other under the terms and conditions of this Agreement on the development of a next generation ****** in the Field. The parties acknowledge and agree that, during the term of this Agreement and otherwise:  (i) ******, which activities may be conducted ******, acting alone or with one or more third party collaborators or licensees; and (ii) ******.

          3.       Management of the Research during the Research Term

                    3.1    Research Leaders.  The Research shall be performed by Neose and monitored by BioGeneriX.  Each party shall appoint a Research Leader to oversee the management of the Research, maintain communication with the Research Leader for the other party, and facilitate the efficient conduct of the Research.  The initial Research Leaders are:  (i) for BioGeneriX, ******; telephone number ******; facsimile number: ******; e-mail address: ******; and (ii) for Neose, ******, telephone number: ******; facsimile number: ******; e-mail address: ******.  A party may designate a new Research Leader at any time, and from time to time, by notice to the other party.

                    3.2    Communications and Records.  It is anticipated that there will be multiple levels of communication relating to the Research among employees of BioGeneriX and employees of Neose.  Each Research Leader will be responsible for maintaining appropriate records of the deliberations and decisions relating to the Research.  A Research Leader may sign any notice or approval on behalf of the party that appointed the Research Leader, subject to any other signing requirements of such party and in conformity with this Agreement.  Until further notice, a party may rely on any notice or approval signed by the Research Leader for the other party. 

****** - Material has been omitted and filed separately with the Commission.

7

                    3.3    Establishment and Responsibilities of Joint Project Team. Promptly following the Effective Date, the parties will establish a Joint Project Team to monitor the activities of the Research Plan during the Research Term.  The Joint Project Team shall carry out the obligations assigned to it under this Agreement or by the Research Leaders, and shall make recommendations to the Research Leaders with respect to its activities.  In particular, from and after the Effective Date, the Joint Project Team shall be responsible for (i) monitoring the Research; (ii) communicating with the Research Leaders regarding the status of the Research; (iii) recommending to the Research Leaders any suggested changes to the Research Plan; (iv) communicating to the Research Leaders the completion of each of the Research Deliverables, and (v) such other activities as may be assigned to it by the Research Leaders.  If the Joint Project Team does not reach a decision on any matter for which it is responsible, the matter will be resolved in accordance with Section 19. 

                    3.4    Action by Joint Project Team.  The Joint Project Team shall consist of such number of members and alternate members as the parties may determine from time to time.  Each party shall appoint 50% of the permanent and alternate members of the Joint Project Team.  The members of the Joint Project Team shall include members of senior management of each party.  The members of the Joint Project Team representing a party and present at a meeting shall have one vote, collectively.  No action may be taken at a meeting of the Joint Project Team unless each party is represented by at least one member.  Any changes to the Research Plan may be made only by an amendment of this Agreement signed by each party.

                    3.5    Changes to Joint Project Team.  Each party may remove and replace its representatives on the Joint Project Team at any time, without cause, upon written notice to the other party.  An alternate member designated by a party shall be entitled to participate in the absence of a permanent member designated by such party.  All references to “members” in this Agreement refer to the then permanent members of the Joint Project Team and any alternate member acting in the place of a permanent member. 

                    3.6    Meetings.  Regular meetings of the Joint Project Team shall be scheduled by the Research Leaders.  Special meetings of the Joint Project Team may be called by the Research Leaders or by any two or more members, at least one of whom represents each party.  Meetings may be in person or by teleconference or videoconference, and notice of meetings may be by email.  Each party will bear its own costs in connection with the coordination of the Research and the Joint Project Team.

                    3.7    No Waiver.  No action, nor any failure to act, by the Joint Project Team shall alter, amend, waive or otherwise affect the obligations of the parties under this Agreement.

****** - Material has been omitted and filed separately with the Commission.

8

                    3.8    Selection of Development Partner.  BioGeneriX shall have the sole right to select its partner for the development of the Product, which selection may be made at any time following the exercise of the Option in accordance with Section 4.1.

          4.       Option and Intellectual Property Grants

                    4.1    Option.  Neose hereby grants to BioGeneriX a sole and exclusive right and option to obtain an exclusive license under the Neose Technology to develop and commercialize the Product.  BioGeneriX may exercise the Option by providing written notice of exercise to Neose at any time on or before the Option Expiration Date.

                    4.2    Exclusive License.  Subject to the terms and conditions of this Agreement, Neose hereby grants to BioGeneriX, as of the License Effective Date an exclusive, royalty-bearing license (or sublicense) under the Neose Technology that is useful for the Product in the Field (i) to make, have made, use, sell, offer to sell and import the Product in the Field in the Territory and (ii) to make, have made and use Reagents in the Territory solely for the purpose of making and having made the Product in the Field.  The licenses granted pursuant to this Section 4.2 shall include a right to grant Sublicenses in accordance with Section 4.3. 

                    4.3    Sublicense Rights.  Prior to the earlier of entering into a Sublicense or providing a proposed Sublicensee with Confidential Information of Neose, BioGeneriX shall give notice to Neose identifying the proposed Sublicensee.  Any such Sublicense shall be conditioned on the execution by the proposed Sublicensee of an agreement protecting the Confidential Information and intellectual property of Neose, which agreement shall be in form and substance reasonably acceptable to Neose.

                    4.4    Liability.  BioGeneriX shall remain primarily liable to Neose for the performance by each Affiliate and Sublicensee in accordance with the terms and conditions of this Agreement that are applicable to an Affiliate or Sublicensee, as the case may be.

                    4.5    Reservation of Rights.  Neose hereby reserves to itself all right, title and interest in and to the Neose Technology not expressly granted in the License.  Without limiting the foregoing, in no event shall this Agreement be construed to prohibit Neose from engaging in any of the following activities:  (i) practicing the processes, methods and know-how of the Neose Technology in connection with the development and/or commercialization of ******, or in any manner outside the Field, at any time; (ii) practicing the processes, methods and know-how of the Neose Technology in connection with the development of and/or commercialization of Next Generation ****** if BioGeneriX shall not have duly exercised the Option prior to the end of the Research Term; (iii) developing, making, using or selling proteins or Reagents, whether in conjunction with the Neose Technology or otherwise, for any use, except in connection

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with the development of any ****** in the Field; or (iv) entering into and performing agreements with third parties regarding any of the foregoing, including, without  limitation, research agreements, development agreements and licensing agreements.

                    4.6    BioGeneriX Technology.  Subject to the terms and conditions of this Agreement and solely to the extent necessary to enable Neose to carry out its obligations under the Research Plan and in connection with any technical assistance provided at the request of BioGeneriX, BioGeneriX hereby grants to Neose, a non-exclusive, royalty-free, license under the BioGeneriX Technology to use the BioGeneriX Technology for the sole purpose of carrying out its obligations under the Research Plan and to perform any technical assistance requested by BioGeneriX. 

                    4.7    No Other Rights or Licenses.  Except for the rights and licenses expressly granted in this Agreement or granted upon the exercise of the Option, nothing in this Agreement shall be deemed to grant to either party, or to any third party, any other rights or licenses, including, without limitation, any implied licenses.

                    4.8    Technology Transfer.  Promptly following the License Effective Date, Neose shall use Reasonable Commercial Efforts to transfer to BioGeneriX the know-how owned or controlled by Neose that is necessary in connection with the exercise by BioGeneriX of its rights under the License, and, to the extent that Neose has the right to transfer such know-how to BioGeneriX, useful in connection with the exercise by BioGeneriX of its rights under the License.  Furtheron, Neose shall transmit all necessary written documentation, including without limitation development reports, of the know-how to BioGeneriX.

          5.      Ownership of Intellectual Property

                    5.1    Intellectual Property Rights.  All Ownership Rights in and to the Neose Technology shall remain at all times with Neose.  All Ownership Rights in and  to the BioGeneriX Technology shall remain at all times with BioGeneriX, subject to the parties’ obligation to assign certain Ownership Rights to the other party under Sections 5.3 and 5.4.

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                    5.2    Improvements

                                    5.2.1  Neose Improvements.  Any and all Neose Improvements shall be owned solely by Neose and shall be deemed to be part of the Neose Technology for the purposes of the Option and the License.  Except as provided in Section 5.4, any and all Research Technology constituting Improvements made, conceived or reduced to practice solely by Neose shall be owned by Neose.

                                    5.2.2  BioGeneriX Improvements.  Except for the Neose Improvements, any Research Technology constituting Improvements made, conceived or reduced to practice solely by BioGeneriX shall be owned by BioGeneriX.

                                    5.2.3  Joint Improvements.  Except as otherwise provided in Section 5.2.1 or 5.2.2, each of Neose and BioGeneriX shall own a one-half undivided interest in any Research Technology constituting Improvements made, conceived, or reduced to practice jointly by Neose and BioGeneriX, whether patentable or not, provided however, that a party shall lose its one-half undivided interest in any Patent Rights included in Joint Improvements with respect to which it does not fund patent prosecution and maintenance costs, as provided in Section 5.5.

                    5.3    Assignment by BioGeneriX.  To the extent that BioGeneriX may obtain or retain any Ownership Rights in any Neose Improvements, BioGeneriX hereby irrevocably assigns and transfers, and agrees to assign and transfer, to Neose any and all such Ownership Rights, in perpetuity or for the longest period otherwise permitted by law, without the necessity of further consideration, and Neose shall be entitled to receive and hold in its own name all such Ownership Rights.  With respect to any Ownership Rights that BioGeneriX is required to assign and transfer to Neose under this Section 5.3, at the request of Neose and at Neose’s expense, either before or after the termination of this Agreement, BioGeneriX shall assist Neose in acquiring and maintaining patent, copyright, trade secret and trademark protection upon, and confirming Neose’s title in and to, any such respective Ownership Rights, and BioGeneriX shall provide Neose appropriate documentation evidencing such Ownership Rights.  The assistance of BioGeneriX shall include, but shall not be limited to, signing all applications, and any other documents and instruments for patent, copyright and any other proprietary rights, providing executed license documents, cooperating in legal proceedings, and taking any other actions considered necessary or desirable by Neose.  For the purpose of facilitating the above assignments, BioGeneriX agrees that any and all employees and contractors employed or engaged by BioGeneriX and providing any service in connection with the Research, prior to providing such service, shall have agreed in writing to covenants consistent with the covenants of BioGeneriX set forth in this Section 5.3.

                    5.4    Assignment by Neose.  To the extent that Neose may obtain or retain any Ownership Rights in any BioGeneriX Improvements, Neose hereby irrevocably assigns and transfers, and agrees to assign and transfer, to BioGeneriX any and all such

****** - Material has been omitted and filed separately with the Commission.

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Ownership Rights, in perpetuity or for the longest period otherwise permitted by law, without the necessity of further consideration, and BioGeneriX shall be entitled to receive and hold in its own name all such Ownership Rights.   With respect to any Ownership Rights that Neose is required to assign and transfer to BioGeneriX under this Section 5.4, at the request and expense of BioGeneriX, either before or after termination of this Agreement, Neose shall assist BioGeneriX in acquiring and maintaining patent, copyright, trade secret and trademark protection upon, and confirming the title of BioGeneriX in and to, any such respective Ownership Rights, and Neose shall provide BioGeneriX appropriate documentation evidencing such Ownership Rights.  Neose’s assistance shall include, but shall not be limited to, signing all applications, and any other documents and instruments for patent, copyright and any other proprietary rights, providing executed license documents, cooperating in legal proceedings, and taking any other actions considered necessary or desirable by BioGeneriX.  For the purpose of facilitating the above assignments, Neose agrees that any and all employees and contractors employed or engaged by Neose and providing any service in connection with the Research, prior to providing such service, shall have agreed in writing to covenants consistent with Neose’s covenants set forth in this Section 5.4.

                    5.5    Prosecution ad Maintenance of Patent Rights in Research Technology.  Each party shall have the right, in its sole discretion and at its sole expense, to prepare, file, prosecute and maintain all Patent Rights covering Research Technology that such party solely owns, as determined in accordance with Section 5.  With respect to Joint Improvements, the parties shall meet to determine whether patent protection is appropriate and, if so, in which countries, if any, patent applications claiming such joint inventions and discoveries should be filed.  The parties shall jointly file, prosecute, and maintain, such patent applications, with each party funding one-half of the costs thereof.  Either party may at any time, in its sole discretion, discontinue funding the preparation, prosecution or maintenance of any Patent Rights covering Joint Improvements, in which case the party discontinuing such support shall provide notice thereof to the other party.  The parties shall retain undivided equal interests in and to all Patent Rights covering Joint Improvements for as long as they are sharing the costs of prosecuting and maintaining such Patent Rights.  If a party discontinues funding the preparation, prosecution or maintenance of any Patent Rights covering Joint Improvements, the other party shall, thereafter, have sole rights in and to such Patent Rights.

                    5.6    Use and Sublicensing of Joint Improvements.  Subject to the exclusive Ownership Rights of the parties under this Section 5 and the funding obligations of the parties under Section 5.5, each party shall be entitled to use its rights to Joint Improvements, and to sublicense such rights, without any further consideration to the other party.

          6.      Further Development of Next Generation ****** and Commercialization of the Product

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                    6.1    Responsibilities of BioGeneriX for Commercialization in EU.  From and after the License Effective Date, BioGeneriX shall use Reasonable Commercial Efforts during the term of the License to diligently (i) initiate preclinical development of Next Generation ******, (ii) pursue all approvals and obtain all licenses and permits necessary for the development of Next Generation ****** and commercialization of the Product in the EU; and (iii) market and sell the Product in the EU.  Such activities shall be the sole responsibility of BioGeneriX and shall be conducted at its sole cost and expense.  It is acknowledged and agreed that BioGeneriX may pursue such activities, and meet its obligations under this Section 6.1, with one or more partners.

                    6.2    Commercialization in the United States and Japan.  It is contemplated that BioGeneriX will pursue the development and commercialization of the Product in the United States, Japan and other countries in the Territory selected by BioGeneriX, with one or more partners.  With respect to each of the United States and Japan, if BioGeneriX (acting directly or through a partner) shall not have made the first commercial sale of the Product within two years after the later of ****** (or such other date as the parties shall mutually agree upon in writing) or the expiration of the last key blocking patent in such country, then the licenses granted to BioGeneriX under Section 4 with respect to such country shall be terminable by Neose upon 60 days’ notice, and the parties shall have the rights and obligations set forth in Section 21.1, to the extent applicable. This timeline can be extended by BioGeneriX in written manner solely based on the results of formal FDA requirements proposing the need for a longer development program.      

                    6.3    Supply of Reagents.  From and after the License Effective Date, BioGeneriX shall use Reasonable Commercial Efforts during the term of the License to (i) to supply to Neose, upon commercially reasonable terms, such quantities as Neose may reasonably request of any Reagents that are being manufactured by or for BioGeneriX under the License, and (ii) to the extent BioGeneriX cannot supply such quantities to provide to Neose, upon commercially reasonable terms, the know-how owned or controlled by BioGeneriX and/or its CMO that is useful in connection with the commercial-scale production of such Reagents by or for Neose, to the extent that BioGeneriX and/or its CMO has the right to transfer such know-how to Neose.

                    6.4    Technical Assistance.  Upon the reasonable request of BioGeneriX  at any time after the License Effective Date during the term of the License, Neose agrees to provide reasonable technical assistance to BioGeneriX (and/or its CMO) with respect to the further development of Next Generation ******, subject to reimbursement by  BioGeneriX for any such technical assistance based on Neose’s annual full-time-equivalent rate in effect at the time (which rate is now US$****** and shall be fixed, for the purposes of this Agreement, at US$****** until the third anniversary of the Effective Date).

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          7.      Royalties and Milestone Payments

                    7.1    Royalties.  BioGeneriX shall pay royalties to Neose on Net Sales of the Product in the Territory in each calendar year during the term of this Agreement, as follows:

                                    7.1.1  ******% of the portion of Net Sales of the Product in the calendar year up to US$******;

                                    7.1.2  ******% of the portion of Net Sales of the Product in the calendar year greater than US$****** and up to US$******; and

                                    7.1.3  ******% of the portion of Net Sales of the Product in the calendar year greater than US$******.

                    7.2    Milestone Payments.  BioGeneriX shall pay milestone payments in the amounts set forth below, in each case, upon the occurrence of the respective milestone event:

                                    7.2.1    US$****** upon the ******;

                                    7.2.2    US$****** upon the ******;

                                    7.2.3    US$****** upon the ******;

                                    7.2.4    US$****** upon the ******for the Product ******;

                                    7.2.5    US$****** upon the ****** of the Product in ******;

                                    7.2.6    US$****** when ******of the Product in the ******;

                                    7.2.7    US$****** upon ****** of the Product in ******;

                                    7.2.8    US$****** upon the ******;

                                    7.2.9    US$****** upon ****** of the Product in ******;

                                    7.2.10  US$****** when ****** of the Product ******;

                                    7.2.11  US$****** when ****** in the Territory ****** in any calendar year; and

                                    7.2.12  US$****** when ****** in the Territory ****** in any calendar year.

                    7.3    Royalty Reports.  Within forty-five (45) days after the close of each Calendar Quarter, BioGeneriX shall furnish to Neose a written report showing in reasonably specific detail, on a country-by-country basis for the Product:  (i) all Net Sales

****** - Material has been omitted and filed separately with the Commission.

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during such quarter expressed in United States Dollars; (ii) the exchange rates used in determining Net Sales in United States Dollars in accordance with Section 11.2; and (iii) royalties payable in United States Dollars based upon such Net Sales during such quarter. According to §14 Section 2, Sentence 2 German UStG, BioGeneriX will give a credit note to Neose.  Payments will be made within 60 days after the end of each quarter.

          8.      Certain Regulatory Matters

                    8.1    Establishment Licenses.  BioGeneriX shall be responsible for complying with all establishment registration requirements and obtaining all other applicable approvals required for its activities in respect of the development of Next Generation ****** and production of the Product.  Neose shall provide reasonable technical assistance to BioGeneriX in respect of these activities, in accordance with Section 6.4.

                    8.2    Regulatory Approvals.  BioGeneriX shall be responsible for obtaining any and all Regulatory Approvals required in the jurisdictions where it intends to develop or commercialize the Product, each of which will be owned by, and registered in the name of, BioGeneriX or its partner.

                    8.3    Meetings with Government Agencies.  BioGeneriX shall promptly furnish to Neose copies of any correspondence with the FDA, EMEA or other government agency that relates to the Neose Technology.

                    8.4    Governmental Inspection.  BioGeneriX shall advise Neose of any governmental visits to, or written or oral inquiries about, any facilities or procedures for the manufacture, storage or handling of the Product, promptly (but in no event later than seven calendar days) after such visit or inquiry, if such visit or inquiry relates to the Neose Technology.  BioGeneriX shall furnish to Neose, within seven days after receipt, a copy of any report or correspondence issued by the governmental authority in connection with such visit or inquiry, purged only of confidential or proprietary information that is unrelated to the Neose Technology.  In addition, to the extent practicable, BioGeneriX shall furnish to Neose, at least five working days prior to sending, a copy of any correspondence proposed to be sent to any governmental authority that is related to the Neose Technology, and shall revise such correspondence to take into account the reasonable suggestions of Neose made during the five-working-day period. 

                    8.5    Government Inquiries.  BioGeneriX shall advise Neose of any inquiry, notice or investigation initiated or made by any governmental authority relating to the clinical development, promotion, advertisement, marketing or sale of the Product, if such inquiry, notice or investigation relates to the Neose Technology.  The parties shall cooperate and consult with each other in responding to any such governmental authority.

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                    8.6    Adverse Reactions.  BioGeneriX shall notify Neose of any adverse drug reactions related to the Product, which procedures shall be consistent with the strictest requirements of any jurisdiction where it is developing or commercializing the Product in the Territory. 

                    8.7    Recalls and Market Withdrawals.  If at any time (i) any governmental or regulatory authority in the Territory issues a request, directive, or order that the Product be recalled or withdrawn, or (ii) a court of competent jurisdiction orders such a recall or withdrawal in the Territory, or (iii) BioGeneriX determines that the Product should be recalled, BioGeneriX promptly shall notify Neose of such fact and any the reasons therefor.

                    8.8    Compliance with Law.  Each party shall comply with all applicable laws, rules and regulations that are material to the conduct of its activities under this Agreement.

          9.       Trademarks and Labeling.  BioGeneriX shall be solely responsible for the (i) selection, maintenance and use of trademarks to be used for the Product, and (ii) label, package insert, packaging, advertising and promotional materials for the Product.

          10.      Intellectual Property Claims

                    10.1  Defense Proceedings.  If a claim is asserted against a party by a third party alleging infringement of the third party’s intellectual property rights resulting from the development, manufacture, use or sale of the Product, such party shall promptly notify the other party of the claim.  The party against whom the claim has been made shall control the defense of any such claim at its sole cost.  If a claim is asserted against both parties, then the parties shall cooperate with respect to the defense of such claim and shall share the costs thereof equally, or in such other proportions as they may mutually agree.

                    10.2  Third Party Infringements.  If, in the opinion of a party, any patent, trademark or other right included in the Neose Technology, the BioGeneriX Technology or any other Joint Improvements has been infringed by a process and/or product of a third party in the Territory, that party shall give notice of such infringement to the other party. The party owning the infringed right may, at its discretion and expense, take such steps as it deems necessary or desirable to prosecute such infringement.  If the party owning the right does not bring suit or take other appropriate action within 90 days after receiving notice of such infringement, the other party shall have the right, but not the obligation, to bring suit or take other appropriate action with respect to the infringed right, at its own expense and risk. The party owning the infringed right shall duly cooperate with the party bringing suit or taking action in order to enable the latter to do so. If the right consists of Joint Improvements not owned solely by a party, the parties shall determine the appropriate procedures for handling the alleged infringement.

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                    10.3  Settlement of Claims.  Neither party may settle a claim described in this Section 10 without the consent of the other party, if such settlement would impose any monetary obligation on the other party or require the other party to submit to an injunction or otherwise limit the other party’s rights under this Agreement.

                    10.4  Allocation of Awards.  All monetary damages awarded to the parties in any action against a third party under this Section 10 shall be used first to reimburse the costs incurred by the party or parties prosecuting or defending such action, and any excess shall be allocated as follows: (i) any amount that is attributable to a Product within the Territory shall be treated as Net Sales, and (ii) any amount that is explicitly attributable to a subject matter other than the Product shall be remitted to the party who owns the intellectual property at issue.

                    10.5  Cooperation.  In conducting the defense or prosecution of any claim described in this Section 10, each party shall consult with and keep the other party informed of the status of the action.  Upon reasonable request, a party shall assist the persons controlling the defense or prosecution of an infringement claim, at the cost of the requesting party.

          11.     Payments

                    11.1  Place of Payment.  All payments to Neose under this Agreement shall be made by wire transfer in immediately available funds in US dollars to the account designated in writing by Neose from time to time. 

                    11.2  Currency Conversion.  If Net Sales are received in a currency other than U.S. dollars, Net Sales shall be computed using the average of the conversion rates of the non-U.S. currency into U.S. dollars published in The Wall Street Journal during the Calendar Quarter for which Net Sales are reported.

                    11.3  Late Payments.  Payments hereunder shall be deemed paid as of the day on which they are received at the account designated pursuant to Section 11.1.  Any payment which is not paid within 30 days after it becomes due shall accrue interest thereon from such date until the date of its payment in full at three (3) percentage points over the per annum interest rate published as the “Prime Rate” in The Wall Street Journal, but in no event shall such rate exceed the maximum rate permitted by applicable law. 

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          12.          Books, Records and Accounting

                         12.1  Maintenance of Records.  BioGeneriX shall maintain complete and accurate books of account in accordance with generally accepted accounting principles, in sufficient detail to allow Net Sales to be verified.  BioGeneriX shall retain such records for at least five years.

                         12.2  Access and Inspection.  Neose shall have reasonable access to the books and records of BioGeneriX relating to the development of Next-Generation ****** and commercialization of the Product.  Neose, at its own expense and upon reasonable prior notice, shall have the right to have such books and records examined and audited by outside auditors reasonably acceptable to BioGeneriX.  BioGeneriX shall make its relevant books and records available for inspection by the independent auditors of Neose, at the expense of Neose, not more than once each calendar year, upon reasonable prior notice and during normal business hours.  The independent auditors shall report to Neose only whether or not the reports submitted by BioGeneriX are accurate for the period covered and the details concerning any identified discrepancies.  If any such audit reveals an underpayment, BioGeneriX shall promptly pay to Neose the amount of such underpayment.  If any such underpayment exceeds 10% of the amount due, BioGeneriX shall pay the entire expense of such audit within 20 days after invoice.  Any inspection of the books and records of BioGeneriX shall be conducted subject to the confidentiality obligations under Section 13.

          13.          Confidentiality.

                         13.1  Obligations of Receiving Party.  Each party and its representatives will maintain in confidence any information relating to this Agreement that is received from, or owned by, the other party that is confidential or proprietary (the “Confidential Information”) and will use the Confidential Information only for purposes of this Agreement, including but not limited to third party manufacturing and commercialization of the Product.  Except as expressly provided in this Agreement, the parties shall not at any time during their access to the Confidential Information or at any time thereafter, use or permit others to use any of the Confidential Information for any purpose, except as may be necessary to perform their obligations under this Agreement.  The foregoing obligations shall not apply to, and the definition of “Confidential Information” does not include any information that:

                                        13.1.1  is now, or in the future becomes, public knowledge other than through any acts or omissions of the receiving party;

                                        13.1.2  is required to be disclosed pursuant to applicable laws, rules, regulations, government requirement or court order (provided, however, that the receiving party shall promptly advise the furnishing party of its notice of any such requirement or order and shall cooperate with the furnishing party’s reasonable efforts to limit such disclosure);

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                                        13.1.3  the receiving party can demonstrate by written records was  known by it before receipt from the furnishing party; or

                                        13.1.4  is received by the receiving party from another person or entity that is under no obligation of confidentiality to the furnishing party to keep the same confidential.

                         13.2  Injunctive Relief.  Both parties agree that it would be impossible or inadequate to measure and calculate the other party’s damages from any breach of the covenants made in Section 13.1.  Accordingly, the receiving party agrees that if it breaches any of such covenants, the furnishing party will have available, in addition to any other right or remedy available, the right to seek an injunction from a court of competent jurisdiction restraining such breach or threatened breach and to seek specific performance of any such provision of this Agreement.  Both parties further agree that no bond or other security shall be required in obtaining such equitable relief.

          14.          Certain Representations, Warranties and Covenants.  Each party represents and warrants to the other that:

                         14.1  it is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation;

                         14.2  it has the corporate power and authority to execute, deliver and perform this Agreement;

                         14.3  the execution, delivery and performance of this Agreement by it have been duly authorized by all necessary corporate action and this Agreement is binding and enforceable against such party in accordance with its terms;

                         14.4  the execution, delivery and performance of this Agreement by it (i) do not conflict with, or constitute a breach or default under its organizational documents or any law, order, judgment or governmental rule or regulation applicable to it, and (ii) do not and will not conflict with, or constitute a breach or default under or require any consent or approval not obtained under, any provision of any material agreement, contract, commitment or instrument to which it is a party;

                         14.5  subject to Section 23, to its knowledge, it is not required to obtain the consent or approval of any third party to perform its obligations under this Agreement;

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                         14.6  it shall use Reasonable Commercial Efforts to maintain in full force and effect its licenses from third parties that are included as of the Effective Date in the BioGeneriX Technology or the Neose Technology, as the case may be, and shall notify the other party promptly if it receives a notice of default or termination of any such rights; and if such maintenance is not possible or practicable in any case, it shall use best efforts to assist the other party in obtaining such license rights directly from its licensor;

                         14.7  in the case of BioGeneriX, it owns all intellectual property rights included as of the Effective Date in its license to Neose under Section 4.6 and has the right to transfer the ****** to Neose for the purpose of performing the Research; and in the case of Neose, it has owns or has the right to sublicense any licensed rights included in the Neose Technology.

                         14.8  in the case of Neose,  it has obtained from ****** (the “Licensors”), the Licensor’s agreement that, in the event the license agreement between Neose and such Licensor is terminated, such Licensor will enter into an agreement granting to BioGeneriX a nonexclusive license in the Field of any Patent Rights included in the Neose Technology and licensed by such Licensor to Neose.

          15.          No Inconsistent Agreements.  Neither party shall enter into any oral or written agreement after the Effective Date that would be inconsistent with its obligations under this Agreement or deprive the other party of the benefits of this Agreement in any substantial respect.

          16.          Disclaimer, Indemnification and Insurance

                         16.1  No Warranty.  EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY EXPRESS OR IMPLIED WARRANTIES, STATUTORY OR OTHERWISE, CONCERNING NEXT GENERATION ****** OR THE TECHNOLOGY LICENSED, OR TO BE LICENSED, BY IT TO THE OTHER PARTY.   WITHOUT LIMITING THE FOREGOING, NEITHER PARTY MAKES ANY EXPRESS OR IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE, QUALITY OR USEFULNESS OF THE TECHNOLOGY OR THE PRODUCT.

                         16.2  Indemnification by Neose.  Neose shall indemnify, defend and hold harmless BioGeneriX, and its employees, officers, directors and agents (each, a “BioGeneriX Indemnified Party”) from and against any and all third party claims, suits, losses, obligations, damages, deficiencies, costs, penalties, liabilities (including strict liabilities), assessments, judgments, amounts paid in settlement, fines, and expenses (including court costs and reasonable fees of attorneys and other professionals) (individually and collectively, “Losses”) resulting from or arising in connection with (i) the breach by Neose of any of its representations, warranties or covenants contained in

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Section 14 or 15, and (ii) any claim by a third party alleging that the use of the Neose Technology infringes upon the Patent Rights of such third party.  Notwithstanding the foregoing, Neose shall have no obligation to indemnify, defend or hold harmless a BioGeneriX Indemnified Party for any Losses to the extent that such Losses were caused by (i) the negligence, unlawful act or willful misconduct of any of the BioGeneriX Indemnified Parties, or (ii) a breach by BioGeneriX of any of its representations, warranties or covenants set forth in Section 14 or 15.

                         16.3  Indemnification by BioGeneriX.  BioGeneriX shall indemnify, defend and hold harmless Neose, and its employees, officers, directors and agents (each, a “Neose Indemnified Party”) from and against any and all Losses resulting from or arising in connection with (i) the breach by BioGeneriX of any of its representations, warranties or covenants set forth in Section 14 or 15, (ii) the promotion, distribution, use, testing, marketing, sale, or other disposition of the Product, and (iii) any claim by a third party alleging that the use of the BioGeneriX Technology in the Research, or the manufacture, sale or use of the Product by or for BioGeneriX infringes upon the Patent Rights of such third party, except to the extent such claims arise solely as a result of the use of Neose Technology in accordance with the License.  Notwithstanding the foregoing, BioGeneriX shall have no obligation to indemnify, defend or hold harmless a Neose Indemnified Party for any Losses to the extent that such Losses were caused by (i) the negligence, unlawful act or willful misconduct of any of the Neose Indemnified Parties, or (ii) a breach by Neose of any of its representations, warranties or covenants set forth in Section 14 or 15.

                         16.4  Indemnification Procedure.  Each party shall provide prompt written notice to the other of any actual or threatened Loss or claim therefor of which the other becomes aware; provided that the failure to provide prompt written notice shall only be a bar to recovering Losses to the extent that a party was prejudiced by such failure.  In the event of any such actual or threatened Loss or claim therefor, each party shall provide the other information and assistance as the other shall reasonably request for purposes of defense and each party shall receive from the other all necessary and reasonable cooperation in such defense including, but not limited to, the services of employees of the other party who are familiar with the transactions or occurrences out of which any such Loss may have arisen.  The indemnifying party shall keep the indemnified party reasonably informed of the progress of any claim, suit or action under this Section 16.4 and the indemnified party shall have the right to participate in any such claim, suit or proceeding with counsel of its choosing at its own expense, but the indemnifying party shall have the sole right to control the defense of settlement thereof.  Notwithstanding the foregoing, the indemnifying party shall not be liable for any amounts due as a result of settlement or compromise or admission of liability by the indemnified party except as otherwise agreed in advance in writing by the indemnifying party.

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                         16.5  Consequential Damages.  EXCEPT FOR DAMAGES PAYABLE IN CONNECTION WITH A PARTY’S INDEMNIFICATION OBLIGATIONS (WHICH MAY INCLUDE LIABLITY FOR CONSEQUENTIAL DAMAGES OWED BY THE INDEMNIFIED PARTY TO A THIRD PARTY), NEITHER PARTY SHALL HAVE ANY LIABILITY TO THE OTHER PARTY FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL, EXEMPLARY, PUNITIVE OR INCIDENTAL DAMAGES SUFFERED BY SUCH OTHER PARTY AND ARISING OUT OF OR RELATED TO THIS AGREEMENT, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE), INCLUDING, WITHOUT LIMITATION, LOST PROFITS, AND WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

          17.          Publications

                         17.1  Public Announcement of Agreement.  Each party shall be entitled to announce the signing of this Agreement in substantially the form attached as Exhibit C, and, otherwise, with the prior written consent of the other party, which shall not be unreasonably withheld.  The parties acknowledge and agree that neither party may disclose the identity of the protein that is the focus of the Research except in compliance with Sections 13 and 17.2.2.  

                         17.2  Other Publicity

                                        17.2.1  Certain Neose Publications.  Neose shall have the right to use the results of Research for scientific and promotional publication purposes, with the prior written consent of BioGeneriX, which may be withheld only as reasonably necessary to protect confidentiality and Patent Rights. 

                                        17.2.2  Procedures.  Except as otherwise provided in Section 17.1, the parties shall consult with each other and coordinate all publicity concerning the existence and terms of this Agreement and the activities and progress of the Research and the further development of Next Generation ****** and commercialization of the Product.  A party shall not disclose the confidential terms of this Agreement to any third parties without the prior written consent of the other party.  The foregoing prohibition shall not apply to the extent that any disclosure is (i) of information in the public domain other than through the fault of the disclosing party or its employees, licensees, agents or subcontractors, in violation of this Agreement, (ii) believed in good faith to be required to comply with any applicable law, regulation or order of a government authority or court of competent jurisdiction (including any securities laws applicable to a party), in which event the disclosing party shall use all reasonable efforts to advise the other party in advance of the need for such disclosure, or (iii) made, under confidentiality, to a recipient who is a licensor, licensee or potential licensor or licensee and to whom such disclosure is reasonably required to define the scope of rights which could be granted to the recipient without violating the terms of this Agreement.

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          18.          Standstill.  BioGeneriX agrees that, ******, except with the written consent of the Board of Directors of Neose, BioGeneriX shall not:  (i) increase its beneficial ownership of Common Stock of Neose to a number of shares representing ******% or more of the outstanding shares of Common Stock of Neose at any time without the prior written consent of Neose; (ii) make, or in any way participate in, any “solicitation” of “proxies” (as such terms are defined under Regulation 14A of the Exchange Act) to vote or seek to advise or influence in any manner whatsoever any person or entity with respect to the voting of any securities of Neose or any of its subsidiaries; (iii) form, join or in any way participate in a “group” (within the meaning of Section 13(d)(3) of the Exchange Act) with respect to any securities of Neose or any of its subsidiaries; or (iv) otherwise act, whether alone or in concert with others, to seek to propose to Neose, any subsidiary of Neose or any of their stockholders any merger, business combination, restructuring, recapitalization or similar transaction to or with Neose or any of its subsidiaries or otherwise seek or propose to influence or control the management or policies of Neose.

          19.          Dispute Resolution

                         19.1  By Senior Officers.  If any dispute arises under this Agreement which cannot be resolved expeditiously by the Joint Project Team after due consideration, the matter shall be submitted to the Chief Executive Officer of BioGeneriX and the Chief Executive Officer of Neose for resolution.  If the two executives can not resolve the dispute to their mutual satisfaction within 30 days, the dispute shall be referred to arbitration under Section 19.2 below.

                         19.2  Arbitration

                                        19.2.1  Except as otherwise provided, all disputes arising between Neose and BioGeneriX under this Agreement that have not been resolved in accordance with Section  19.1 shall be settled by arbitration conducted in accordance with the procedures of the International Chamber of Commerce (“ICC”). The version of the arbitration rules which are in force when the dispute occurs shall be decisive. The arbitration tribunal shall have one arbitrator, who shall be selected from the panels of the ICC by agreement of the parties, provided, however that if the parties cannot agree on the  arbitrator, the arbitration tribunal shall consist of three arbitrators, one selected by Neose, one selected by BioGeneriX, and the third selected by the other two arbitrators. The arbitration tribunal may also decide on the validity of the arbitration agreement. The place of the arbitration tribunal shall be London, United Kingdom. The arbitration proceedings, orders and writs shall be in the English language. 

                                        19.2.2  Any award rendered by the arbitrators shall be binding upon the parties hereto and shall be final.  Judgment upon the award may be entered in any court of record of competent jurisdiction.

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                                        19.2.3  Each party shall pay its own expenses of arbitration and the expenses of the arbitrators shall be equally shared unless otherwise ordered by the arbitrators.

          20.          Term and Termination

                         20.1  Term.  The Agreement shall commence as of the Effective Date and, unless earlier terminated in accordance with this Section 20, shall expire on a country-by-country basis upon the expiration of the last to expire patent included in the Neose Technology.

                         20.2  Termination By BioGeneriX.  This Agreement may be terminated by BioGeneriX at any time after the end of the Research Term, effective upon 60 days written notice to Neose.

                         20.3  Termination by Neose.  This Agreement may be terminated by Neose upon 90 days written notice to BioGeneriX based upon the occurrence of any of the situations described in Sections 20.3.1 through 20.3.3 if the situation has not been remedied within the 90-day period. 

                                        20.3.1  ******, or such later date as the parties may mutually agree upon in writing within 90 days after the end of the Research Term.

                                        20.3.2  ******, or such later date as the parties may mutually agree upon in writing within 90 days after the end of the Research Term.

                                        20.3.3  ******, or such later date as the parties may mutually agree upon in writing within 90 days after the end of the Research Term. This timeline can be extended ******in written manner solely based on ******.

                                        20.3.4  ******.

With respect to the dates set forth in Sections 20.3.1 through 20.3.3, if BioGeneriX duly exercises the Option, the parties shall meet promptly after the end of the Research Term to determine whether the dates in each such section are reasonable in view of all the facts and circumstances available at that time.  With respect to any such date that is determined by the parties not to be reasonable, the parties shall use Reasonable Commercial Efforts to mutually agree upon a reasonable date, which shall be substituted therefor by amendment of this Agreement.  If the parties cannot agree in any such instance, the matter shall be subject to dispute resolution in accordance with Section 19.

                         20.4  Termination Upon Breach.  This Agreement may be terminated by a party upon breach by the other party of ******, the other party in this Agreement if, as a result, the non-breaching party is denied ******and the breach is not substantially cured within 60 calendar days after the non-breaching party gives the breaching party written notice of such breach.

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                         20.5  Termination After Court Order.

This Agreement may be terminated by BioGeneriX as to the Product or any indication if a court or governmental authority of competent jurisdiction in an order or decree restrains or enjoins the development, manufacture or sale of the Product or indication under this Agreement in any material respect.    This Agreement may be terminated by Neose as to the Product or any indication if a court or governmental authority of competent jurisdiction in a final order or decree restrains or enjoins, for any reason other than the infringement by the Neose Technology of the intellectual property of a third party, the development, manufacture or sale of the Product or indication under this Agreement in any material respect.  In either case, if any such order or decree affects the development, manufacture or sale of the Product only in a particular country within the Territory, the termination of this Agreement shall apply only to that country. 

                         20.6  Effective Date of Termination.  Unless otherwise provided in this Agreement, termination by either party pursuant to this Section 20 shall be effective on the date of delivery of written notice of termination to the other party hereto.

          21.          Rights and Obligations on Termination

                         21.1  Rights and Obligations of the Parties.  Upon the termination or partial termination of this Agreement for any reason, the License and all Sublicenses shall terminate (on a country-by-country basis in the case of partial termination), and BioGeneriX promptly shall effect the transfer to Neose all of the know-how owned or controlled by BioGeneriX and/or any CMOs that is useful in connection with the commercial-scale production of Reagents by or for Neose, to the extent that BioGeneriX has the right to effect such transfer.  In addition, upon the termination of this Agreement by BioGeneriX under Section 20.2 or by Neose under Section 20.3 or 20.4, or the partial termination under Section 20.5.3, and, in each case, the written notice from Neose to BioGeneriX indicating that Neose elects to continue the development and commercialization of the Product in one or more countries, to the extent that BioGeneriX has the right to do so, BioGeneriX shall effect the grant to Neose of the exclusive right to develop the Next Generation ****** and commercialize the Product, worldwide or in such countries, as the case may be, subject to the payment of ******, as determined in accordance with Section 21.2.  Furthermore, in the case of a partial termination under Section 20.5.3, BioGeneriX shall use Reasonable Commercial Efforts to supply Neose such quantities as Neose may require to commercialize the Product in the country or countries as to which the partial termination shall have occurred, upon commercially reasonable terms and conditions.

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                         21.2  Establishment of Royalties.  Any rights and licenses granted to Neose in accordance with second sentence of Section 21.1 shall be subject to payment to BioGeneriX of ****** in each country or territory, at commercially reasonable rates, to be determined by the parties in good faith, at the time of the grant, taking into account: (i) benchmark ****** in the industry for products (a) at a similar stage of development, (b) being developed for similar indications, and (c) having similar market potential; (ii) the existing and future supply and technology transfer arrangements in the Field between the parties; (iii) ******; and (iv) any other significant factors mutually agreed upon by the parties.  During the 45-day period following notice from Neose’s election to continue the development and commercialization of the Product, the parties shall negotiate in good faith the royalties of the license required to be granted under Section 21.1 and any supply arrangements to be entered into under Section 21.3.  If such royalties and supply arrangements shall not have been established, or such licenses shall not have been effectively granted during such 45-day period, the royalties shall be determined by the dispute resolution procedures set forth in Section 19.

                         21.3  Supply Arrangements.  Promptly after Neose’s election to continue the development and commercialization of the Product, to the extent that BioGeneriX has the right to do so, BioGeneriX shall transfer to Neose, upon request, all Confidential Information in its possession that is necessary for the manufacture, use or sale of the Product, except for one copy that may be retained in its confidential archives.  In addition, upon the request of Neose, BioGeneriX shall use Reasonable Commercial Efforts to supply the Product, or any materials supplied by BioGeneriX, or to transfer to the Neose the technology required to manufacture the Products or required materials, in each case upon commercially reasonable terms.  Neose shall use Reasonable Commercial Efforts to identify a replacement manufacturer or establish a manufacturing facility for the Product, or required materials, in a timely manner.  To the extent that BioGeneriX has the right to do so, BioGeneriX shall use Reasonable Commercial Efforts to enable Neose to assume the business of producing the Product, including, without limitation:  (i) providing all approvals, consents, documents and information that are necessary or desirable to permit Neose to enter into a development or supply agreement with any CMOs on substantially the same business terms as those in then in effect between BioGeneriX and such CMOs; (ii) providing all manufacturing information and descriptions of the applicable technology and processes used by BioGeneriX to manufacture the Product, in sufficient detail to permit Neose to manufacture (or have manufactured) the Product in commercial quantities in an efficient manner; (iii) providing samples of all organisms or other materials and processes used in producing the Product, or required materials; and (iv) providing such training of personnel as may be necessary to permit Neose to manufacture (or have manufactured) the Product.  If for any reason BioGeneriX is not legally permitted to transfer the necessary technology or rights to Neose for these purposes, BioGeneriX will use Reasonable Commercial Efforts to otherwise make available to Neose the benefits of this Section 21.3. 

                         21.4  ******.  ******.

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                         21.5  Survival.  Neither party shall be relieved of its obligations to pay any sums of money due or payable or accrued under this Agreement as of the date of its termination.  Sections regarding confidentiality, royalty payments, access and inspection, warranties, indemnification, insurance, standstill, and rights and obligations on termination (including, without limitation, provisions relating to the rights and obligations of the parties under this Section 21), and ****** shall survive the termination of this Agreement.  In addition, any provision required to interpret and enforce the parties’ rights and obligations under this Agreement also shall survive to the extent required for the full observation and performance of this Agreement in accordance with their respective terms.  For the avoidance of doubt, the parties agree that, in the event of termination by BioGeneriX for the material breach of this Agreement by Neose, royalties will not continue to accrue after such termination.

                         21.6  Remedies Not Exclusive.  The termination by either party pursuant to Section 20 shall not prejudice any other remedy that a party might have in law or equity with the exception, however, of claiming compensation for consequential loss or indirect damages resulting from such termination.  

          22.          Certain Taxes

                         22.1  Withholding Taxes and VAT.  In the event that any withholding tax is applicable to the payment of royalties or any other payment due by one party to the other party under this Agreement, the party obligated to pay such tax shall be responsible for payment of the tax and shall be entitled to reduce the amount of the respective royalties or other payment due by the amount of such tax paid.  With respect to any VAT, Neose shall pay any VAT imposed by the U.S. tax authorities, and BioGeneriX shall pay any VAT imposed by the German tax authorities.

                         22.2  Evidence of Payment and Assistance.  Each party shall promptly provide the other party such official receipts and other evidence of payment of taxes as the other party may reasonably request.  Each party shall render reasonable assistance in order to allow the other party the benefit of any present or future treaty against double taxation applicable to the activities of the parties under this Agreement.

          23.          Governmental Approval

                         23.1  HSR Filing.  If BioGeneriX exercises the Option or if Neose exercises its rights under Section 21, each party shall make the determination as to whether filing under the HSR Act is required.  If any HSR filing is required, to the extent necessary, each party shall file, as soon as practicable after the date this Agreement is executed, with the Federal Trade Commission (the “FTC”) and the Antitrust Division of the United States Department of Justice (the “Antitrust Division”) the notification and report form (the “Report”) required under the HSR Act with respect to the transactions as contemplated hereby and shall reasonably cooperate with the other party to the extent necessary to assist the other party in the preparation of its Report and to proceed to obtain

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necessary approvals under the HSR Act, including but not limited to the expiration or earlier termination of any and all applicable waiting periods required by the HSR Act.  Each party shall bear its own expenses, including, without limitation, legal fees, incurred in connection with preparing such filings.

                         23.2  Obligations.  Each party shall use its good faith efforts to eliminate any concern on the part of any court or government authority regarding the legality of the proposed transaction, including, if required by federal or state antitrust authorities, promptly taking all steps to secure government antitrust clearance, including, without limitation, cooperating in good faith with any government investigation including the prompt production of documents and information demanded by a second request for documents and of witnesses if requested.

                         23.3  Additional Approvals.  Each party will cooperate and use respectively all reasonable efforts to make all other registrations, filings and applications, to give all notices and to obtain as soon as practicable all governmental or other consents, transfers, approvals, orders, qualifications authorizations, permits and waivers, if any, and to do all other things necessary or desirable for the consummation of the transactions as contemplated hereby.  Neither party shall be required, however, to divest or out-license products or assets or materially change its business if doing so is a condition of obtaining approval under the HSR Act or other governmental approvals of the transactions contemplated by this Agreement.

                         23.4  Termination.  If a Report is required to be filed under the HSR Act, either party hereto may terminate this Agreement by written notice to the other party, if, within one hundred twenty (120) days after a party duly elects to become a Continuing Licensee under this Agreement, approval of the provisions of this Agreement relating to the Continuing Licensee and Continuing Licensor under the HSR Act has not been obtained or the notice and waiting period, as may be extended by the FTC, under the HSR Act has not expired without adverse action regarding this Agreement or the transactions contemplated hereby.  If this Agreement is terminated pursuant to this Section 23.4, then, notwithstanding any provision in this Agreement to the contrary, neither party hereto shall have any further obligation to the other party with respect to the subject matter of this Agreement.

                         24.  Miscellaneous

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                         24.1  Entire Agreement.  This Agreement and the Exhibits, Schedules and Appendices hereto contain the entire understanding of the parties with respect to the subject matter hereof and supersede all previous verbal and written agreements, representations and warranties with respect thereto.  This Agreement may be released, waived, modified or amended only by written agreement signed by the party against whom enforcement of any release, waiver, modification, amendment or other change is sought. The parties are also parties to a Research, Development and License Agreement dated April 26, 2004 which relates to difference subject matter and remains in full force and effect.

                         24.2  Headings; Definitions.  The section headings contained in this Agreement are inserted for convenience of reference only and will not affect the meaning or interpretation of this Agreement.  All references to any Section, Exhibit, Schedule or Appendix contained in this Agreement means a Section, Exhibit, Schedule or Appendix to this Agreement unless otherwise stated.  All capitalized terms defined in this Agreement are equally applicable to both the singular and plural forms of such terms.

                         24.3  Force Majeure.  Failure of any party to perform its obligations under this Agreement (except the obligation to make payments) shall not subject such party to any liability or place it in breach of any term or condition of this Agreement if such failure is caused by any cause beyond the reasonable control of the nonperforming party, including without limitation acts of God, fire, explosion, flood, drought, war, riot, sabotage, embargo, strikes or other labor trouble, failure in whole or in part of suppliers to deliver on schedule materials, equipment or machinery, interruption of or delay in transportation, a national health emergency or compliance with any order or regulation of any government entity acting with color of right, provided that the nonperforming party uses all reasonable efforts to limit the effects of the force majeure event. 

                         24.4  No Interference with Existing Businesses.  Each of BioGeneriX and Neose acknowledges that the other party is engaged in the business of developing, manufacturing, marketing and selling products and services outside the Field.  Nothing in this Agreement shall prevent either party from continuing to carry on its business or from entering into agreements with third parties outside the Field.

                         24.5  Waiver.  The failure of a party to enforce any breach or provision of this Agreement shall not constitute a continuing waiver of such breach or provision and such party may at any time thereafter act upon or enforce such breach or provision of this Agreement.  Any waiver of breach executed by either party shall affect only the specific breach and shall not operate as a waiver of any subsequent or preceding breach.

                         24.6  No Assignment.  No party may sell, assign, pledge or otherwise dispose of all or any portion of its interest in the Collaboration or right thereto without the prior written consent of the other party, except that any such consent required for any

****** - Material has been omitted and filed separately with the Commission.

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such transfer to an Affiliate shall not be unreasonably withheld and no such consent shall be required for any such transfer to a successor to substantially all of the party’s business.  Subject to the foregoing, this Agreement shall inure to the benefit of and be binding upon the parties and their respective permitted successors and assigns.

                         24.7  Severability.  If any clause or provisions of this Agreement is declared invalid or unenforceable by a court of competent jurisdiction, such provision shall be severed and the remaining provisions of the Agreement shall continue in full force and effect.  The parties shall use their best efforts to agree upon a valid and enforceable provision as a substitute for the severed provision, taking into account the intent of this Agreement.

                         24.8  Notices.  Any notice, request or other communication required to be given pursuant to the provisions of this Agreement shall be in writing and shall be deemed to be given when delivered in person or three business days after being delivered to a recognized international courier service (e.g., Federal Express, DHL, UPS), charges prepaid, to the other party, addressed as follows:

If to BioGeneriX:	BioGeneriX AG
	High-Tech-Park Neckarau
	Janderstrasse 3
	D-68199 Mannheim
	Germany
	Attention:  Chief Financial Officer
If to Neose:	Neose Technologies, Inc.
	102 Witmer Road
	Horsham, PA 19044
	USA
	Attention:  General Counsel

                         24.9  Choice of Law.  This Agreement shall be governed by the laws of the Federal Republic of Germany without regard to provisions for conflicts of law. The UN Convention for International Sale of Goods shall be explicitly excluded.

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                         24.10  Counterparts.  This Agreement may be executed in two counterparts, each of which shall be an original and all of which, together, shall constitute the same document.

                         IN WITNESS WHEREOF, each party has caused this Agreement to be signed by its duly authorized representative(s) as of the date first above written.

BIOGENERIX GMBH		NEOSE TECHNOLOGIES, INC.
By:		By:
Name:	Elmar Schäfer	Name:	C. Boyd Clarke
Title:	Chief Executive Officer	Title:	President and CEO
By:
Name:	Klaus Maleck, Ph.D.
Title:	Chief Financial Officer

****** - Material has been omitted and filed separately with the Commission.

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Exhibit A

Research Deliverables

• Identification of lead candidate for preclinical development of Next Generation ******.

• Research-scale GlycoPEGylation process for lead candidate recommended for preclinical development.

• Research-scale Reagent process for Reagents used in research-scale GlycoPEGylation process for lead candidate recommended for preclinical development.

• Research-scale analytical methods for analysis of lead candidate recommended for preclinical development.

• A referral to a source of supply for each of the research-scale Reagents used during the Research Term in the GlycoPEGylation process for the lead candidate recommended for preclinical development.

****** - Material has been omitted and filed separately with the Commission.

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Exhibit B

******

****** - Material has been omitted and filed separately with the Commission.

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Exhibit C

Form of Press Release

Neose and BioGeneriX Enter Into Commercial Agreement for Second GlycoPEGylated™ Next Generation Protein

MONTH/DAY/2005, Horsham, PA and Mannheim, Germany.  Neose Technologies, Inc. (Nasdaq NM: NTEC) and BioGeneriX AG, a company of the ratiopharm Group, today announced that they have entered into a research, license and option agreement to use Neose’s proprietary GlycoPEGylation™ technology to develop a long-acting, next-generation version of a currently marketed therapeutic protein.  Neose and BioGeneriX had previously announced a supply and option agreement for this protein.

Under the commercial agreement, Neose will receive further upfront and research payments, and could receive milestone payments totaling up to $61.5 million, as well as royalties on product sales.  BioGeneriX has the right to an exclusive, worldwide license to use Neose’s GlycoPEGylation™ technology to develop and commercialize a long-acting, next generation version of the undisclosed therapeutic protein.

About BioGeneriX
BioGeneriX was founded in June 2000 to develop biopharmaceutical drugs with known modes of action and established drug markets.  With its internal resources and a large network of strategic partners and service providers, BioGeneriX develops a high-quality biotech portfolio for marketing and distribution by its parent company and global partners.  For more information, visit its website at www.biogenerix.com.

About the ratiopharm Group
ratiopharm is Europe’s leading generics producer and in its home country Germany the top selling and most commonly prescribed pharmaceutical brand.  The company produces high quality medicines and sells them at low prices.  By doing so, it contributes to cost containment in the healthcare sector.  With over 700 medicines, available exclusively from pharmacies, it has one of the widest product ranges in the business.  ratiopharm sells 322 million pack units every year, meeting the needs of virtually all areas of medicine, from allergies to circulation problems and from gastroenteritis to toothaches.  Founded in 1974, ratiopharm is now bringing its business model and experience to international markets.  It is already active in 24 countries.  In addition to sales revenues of 680 million Euros in Germany (including oncology unit), the company’s world-wide operations currently generate sales of 421 million Euros.  For more information, visit its website at www.ratiopharm.de.

****** - Material has been omitted and filed separately with the Commission.

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About Neose
Neose is a biopharmaceutical company using its proprietary enzymatic technologies to develop improved drugs, focusing primarily on therapeutic proteins.  Neose uses its GlycoAdvance® and GlycoPEGylation™ technologies to develop improved versions of drugs with proven safety and efficacy.  Neose intends to apply its technologies to products it is developing on its own and to products it co-develops and co-owns with others.  It also expects to make its technologies available, through strategic partnerships, to improve the products of other parties.  Neose’s first two proprietary candidates are GlycoPEG-EPO (NE-180), a long-acting version of erythropoietin, and GlycoPEG-GCSF, a long-acting version of granulocyte colony stimulating factor (G-CSF).  It is expected that an investigational new drug application (IND) for NE-180 will be submitted to the U.S. Food and Drug Administration (FDA) during the second quarter of 2005.  In addition, it is expected that the equivalent of an IND will be submitted in an EU country by the end of 2005 for GlycoPEG-GCSF.

About GlycoPEGylation™
Neose’s GlycoPEGylation technology can extend and customize protein half-life by uniquely linking various size PEG (polyethylene glycol) polymers to glycans that are remote from the protein’s active site, thereby preserving activity.  Proteins that have not benefited from traditional chemical pegylation may benefit from GlycoPEGylation.

CONTACTS:

Neose Technologies, Inc.	BioGeneriX AG
A. Brian Davis	Klaus Maleck
Sr. Vice President	Chief Financial Officer
and Chief Financial Officer	49-621-875 56 0
Barbara Krauter
Manager, Investor Relations
(215) 315-9000
E-mail: info@neose.com

For more information, please visit www.neose.com.

Neose “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995:  Statements in this press release regarding our business that are not historical facts are “forward-looking statements” that involve risks and uncertainties.  For a discussion of these risks and uncertainties, any of which could cause our actual results to differ from those contained in the forward-looking statement, see the section of Neose’s Annual Report on Form 10-K for the year ended December 31, 2004, entitled “Factors Affecting the Company’s Prospects” and discussions of potential risks and uncertainties in Neose’s subsequent filings with the SEC.

****** - Material has been omitted and filed separately with the Commission.

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EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, C. Boyd Clarke, certify that:

          1.          I have reviewed this quarterly report on Form 10-Q of Neose Technologies, Inc.;

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

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

          4.          The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Securities Exchange Act of 1934 (“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 is made known to us by others within the registrant, particularly during the period in which this report is being prepared; and

                        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; and

                        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 that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; 

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

                        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.

August 4, 2005	/s/ C. BOYD CLARKE
Date	C. Boyd Clarke
	President, Chief Executive Officer and Chairman

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, A. Brian Davis, certify that:

          1.          I have reviewed this quarterly report on Form 10-Q of Neose Technologies, Inc.;

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

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

          4.          The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Securities Exchange Act of 1934 (“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 is made known to us by others within the registrant, particularly during the period in which this report is being prepared; and

                        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; and

                        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 that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

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

                        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.

August 4, 2005	/s/ A. BRIAN DAVIS
Date	A. Brian Davis
	Senior Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Neose Technologies, Inc. (the “Company”) on Form 10-Q for the fiscal quarter ending June 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, C. Boyd Clarke, President, Chief Executive Officer and Chairman of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

/s/ C. BOYD CLARKE

C. Boyd Clarke

President, Chief Executive Officer and Chairman

August 4, 2005

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Neose Technologies, Inc. (the “Company”) on Form 10-Q for the fiscal quarter ending June 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, A. Brian Davis, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

/s/ A. BRIAN DAVIS

A. Brian Davis

Senior Vice President and Chief Financial Officer

August 4, 2005