10-Q

FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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

For quarterly period ended June 30, 2004 Commission File Number 0-22962

HUMAN GENOME SCIENCES, INC.

(Exact name of registrant)

Delaware	22-3178468
(State of organization)	(I.R.S. Employer Identification Number)

14200 Shady Grove Road, Rockville, Maryland 20850-7464
(Address of principal executive offices and zip code)

(301) 309-8504
(Registrant’s telephone Number)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes            [X]            No             [   ]

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

Yes            [X]            No             [   ]

     The number of shares of the registrant’s common stock outstanding on June 30, 2004 was 130,198,405.

TABLE OF CONTENTS

		Page
		Number
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Operations for the three and six months ended June 30, 2004 and 2003		3
	Consolidated Balance Sheets at June 30, 2004 and December 31, 2003		4
	Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and 2003		5
	Notes to Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		17
Item 4.	Controls and Procedures		18
PART II.	OTHER INFORMATION
Item 4.	Submission of Matters to a Vote of Security Holders		18
Item 6.	Exhibits and Reports on Form 8-K		19
	Signatures		20
	Exhibit Index	Exhibit Volume

2

PART I. FINANCIAL INFORMATION

HUMAN GENOME SCIENCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

	Three months ended						Six months ended
	June 30,						June 30,
	2004			2003			2004			2003
	(dollars in thousands, except share and per share amounts)
Revenue – research and development collaborative contracts	$	644		$	642		$	2,287		$	2,284
Costs and expenses:
Research and development		54,268			47,787			107,324			94,080
General and administrative		8,366			9,665			17,462			19,331
Charge for restructuring		1,799			—			5,498			—
Total costs and expenses		64,433			57,452			130,284			113,411
Income (loss) from operations		(63,789	)		(56,810	)		(127,997	)		(111,127	)
Investment income		10,286			15,345			24,384			34,292
Interest expense		(5,024	)		(5,929	)		(10,342	)		(11,874	)
Income (loss) before taxes		(58,527	)		(47,394	)		(113,955	)		(88,709	)
Provision for income taxes		—			—			—			—
Net income (loss)	$	(58,527	)	$	(47,394	)	$	(113,955	)	$	(88,709	)
Net income (loss) per share, basic and diluted	$	(0.45	)	$	(0.37	)	$	(0.88	)	$	(0.69	)
Weighted average shares outstanding, basic and diluted		129,943,810			129,055,376			129,743,394			128,975,343

The accompanying Notes to Consolidated Financial Statements are an integral part hereof.

3

HUMAN GENOME SCIENCES, INC.
CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
	2004			2003
	(dollars in thousands, except
	share and per share amounts)
Assets
Current assets:
Cash and cash equivalents	$	16,293		$	33,269
Short-term investments		791,432			948,413
Prepaid expenses and other current assets		5,491			6,297
Total current assets		813,216			987,979
Long-term investments		25,165			24,055
Property, plant and equipment (net of accumulated depreciation and amortization)		199,276			154,717
Restricted investments		291,199			280,776
Other assets		16,545			18,677
TOTAL ASSETS	$	1,345,401		$	1,466,204
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of capital lease obligation	$	350		$	338
Accounts payable and accrued expenses		36,696			32,121
Accrued payroll and related taxes		10,497			9,060
Deferred revenues		2,568			2,568
Total current liabilities		50,111			44,087
Long-term debt, net of current portion		503,020			503,020
Capital lease obligation, net of current portion		453			644
Deferred revenues		6,419			7,703
Other liabilities		6,793			7,417
Total liabilities		566,796			562,871
Stockholders’ equity:
Preferred stock		—			—
Common stock		1,302			1,294
Additional paid-in capital		1,772,333			1,762,191
Unearned portion of compensatory stock options		(2,214	)		—
Accumulated other comprehensive income (loss)		8,010			26,719
Retained deficit		(1,000,826	)		(886,871	)
Total stockholders’ equity		778,605			903,333
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,345,401		$	1,466,204

The accompanying Notes to Consolidated Financial Statements are an integral part hereof.

4

HUMAN GENOME SCIENCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six months ended
	June 30,
	2004			2003
	(dollars in thousands)
Cash flows from operating activities:
Net income (loss)	$	(113,955	)	$	(88,709	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Accrued interest on short-term and restricted investments		4,550			3,675
Depreciation and amortization		10,640			11,973
Charge for restructuring, excluding stock option compensation expense		1,166			—
Compensation expense related to stock options		1,937			229
Loss (gain) on disposal of fixed assets		3			(21	)
Gain on sale of investments and marketable securities		(4,980	)		(4,115	)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		806			5,648
Other assets		4,767			754
Accounts payable and accrued expenses		7,023			(9,024	)
Accrued payroll and related taxes		1,437			2,825
Deferred revenues		(1,284	)		(1,284	)
Other liabilities		(4,371	)		197
Net cash provided by (used in) operating activities		(92,261	)		(77,852	)
Cash flows from investing activities:
Capital expenditures – property, plant and equipment		(57,704	)		(41,452	)
Proceeds from sale of property, plant and equipment		—			15,000
Purchase of short-term investments and marketable securities		(225,782	)		(290,300	)
Proceeds from sales and maturities of investments and marketable securities.		367,908			431,613
Net cash provided by (used in) investing activities		84,422			114,861
Cash flows from financing activities:
Proceeds from sale of restricted investments		—			22,247
Restricted investments		(14,956	)		(53,980	)
Payments on capital lease		(179	)		(125	)
Proceeds from issuance of common stock (net of expenses)		5,998			2,319
Net cash provided by (used in) financing activities		(9,137	)		(29,539	)
Net increase (decrease) in cash and cash equivalents		(16,976	)		7,470
Cash and cash equivalents – beginning of period		33,269			25,205
Cash and cash equivalents – end of period	$	16,293		$	32,675
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	10,746		$	10,755
Income taxes	$	—		$	—

The accompanying Notes to Consolidated Financial Statements are an integral part hereof.

5

HUMAN GENOME SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended June 30, 2004
(dollars in thousands, except share and per share data)

Note 1. Interim Financial Statements

The accompanying unaudited consolidated financial statements of Human Genome Sciences, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. In the opinion of the Company’s management, the consolidated financial statements reflect all adjustments necessary to present fairly the results of operations for the three and six month periods ended June 30, 2004 and 2003, the Company’s financial position at June 30, 2004, and the cash flows for the six month periods ended June 30, 2004 and 2003. These adjustments are of a normal recurring nature.

Certain notes and other information have been condensed or omitted from the interim consolidated financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with the Company’s 2003 Annual Report on Form 10-K and the Company’s March 31, 2004 Quarterly Report on Form 10-Q.

The results of operations for the three and six month periods ended June 30, 2004 are not necessarily indicative of future financial results.

Note 2. Stock-Based Compensation

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure (“SFAS No. 148”), the effect on net loss and net loss per share if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”), to stock-based employee compensation is as follows:

	Three months ended						Six months ended
	June 30,						June 30,
	2004			2003			2004			2003
Net income (loss), as reported	$	(58,527	)	$	(47,394	)	$	(113,955	)	$	(88,709	)
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(37,800	)		(18,844	)		(75,851	)		(54,415	)
Add: Stock-based compensation included in net income (loss)		1,799			—			1,937			229
Pro forma net income (loss)	$	(94,528	)	$	(66,238	)	$	(187,869	)	$	(142,895	)
Net income (loss) per share:
Basic and diluted – as reported	$	(0.45	)	$	(0.37	)	$	(0.88	)	$	(0.69	)
Basic and diluted – pro forma	$	(0.73	)	$	(0.51	)	$	(1.45	)	$	(1.11	)

For the three and six month periods ended June 30, 2004 and 2003, diluted net income (loss) per share is the same as basic net income (loss) per share as the inclusion of outstanding stock options and convertible debt would be antidilutive.

The effect of applying SFAS No. 123 on the pro forma net loss and net loss per share for the three and six month periods ended June 30, 2004 and 2003 as stated above, is not necessarily representative of the effects on reported net loss for future years due to, among other things, (1) the vesting period of the stock options and (2) the fair value of additional stock option grants in future years.

6

HUMAN GENOME SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended June 30, 2004
(dollars in thousands, except share and per share data)

Note 3. Comprehensive Income (Loss)

SFAS No. 130, Reporting Comprehensive Income, requires unrealized gains or losses on the Company’s available-for-sale short-term securities, long-term investments and the activity for the cumulative translation adjustment to be included in other comprehensive income.

During the three and six month periods ended June 30, 2004 and 2003, total comprehensive income (loss) amounted to:

	Three months ended						Six months ended
	June 30,						June 30,
	2004			2003			2004			2003
Net income (loss)	$	(58,527	)	$	(47,394	)	$	(113,955	)	$	(88,709	)
Net unrealized gains (losses):
Short-term investments		(15,572	)		(4,249	)		(13,232	)		(4,463	)
Long-term investments		(1,945	)		10,144			4,037			8,410
Restricted investments		(5,446	)		3,121			(4,533	)		3,441
Foreign currency translation		(1	)		(5	)		(1	)		(5	)
Subtotal		(22,964	)		9,011			(13,729	)		7,383
Reclassification adjustments for (gains) realized in net loss		(1,269	)		(835	)		(4,980	)		(4,115	)
Total comprehensive income (loss)	$	(82,760	)	$	(39,218	)	$	(132,664	)	$	(85,441	)

In June 2004, the Company sold 246,275 shares of Cambridge Antibody Technology Ltd., a long-term investment, for net proceeds of $2,266 and realized a loss of $68.

In February 2004, the Company sold its remaining 66,767 shares of Ciphergen Biosystems, Inc., a long-term investment, for net proceeds $662 and realized a gain of $352.

Realized gains and losses on securities sold before maturity, which are included in the Company’s net income (loss) for the three and six month periods ended June 30, 2004 and 2003, and their respective net proceeds were as follows:

	Three months ended						Six months ended
	June 30,						June 30,
	2004			2003			2004			2003
Realized gains	$	1,672		$	1,250		$	5,563		$	4,530
Realized losses		(403	)		(415	)		(583	)		(415	)
Net proceeds		169,442			95,919			488,028			213,578

7

HUMAN GENOME SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended June 30, 2004
(dollars in thousands, except share and per share data)

Note 4. Commitments and Other Matters

The Company leases all of its research and development and administrative facilities. The Company’s primary research and development and administrative facility, located on the Traville site in Rockville, Maryland, is owned by Wachovia Development Corporation (“WDC”). WDC, a wholly-owned subsidiary of Wachovia Corporation, is primarily engaged in real estate finance, development and leasing activities. The total financed cost of the Traville lease facility is $200,000. As of June 30, 2004, the total financed cost of the Traville facility relative to WDC’s total direct real estate investments and net real estate lease investments was below the level requiring consolidation of WDC into the Company’s consolidated financial statements. The construction of the research and development and administrative facility was substantially completed by November 2003, at which time the rent obligations under the Traville lease commenced. The Company’s rent obligation approximates the lessor’s debt service costs plus a return on the lessor’s equity investment. The Company’s rent obligation under the Traville lease is floating and is based primarily on short-term commercial paper, but the lessor can lock in a fixed interest rate at any time at the Company’s request. The floating rate was approximately 1.1% as of June 30, 2004.

In addition, the Company leases a research facility, located at 9800 Medical Center Drive (“9800 MCD”). The total financed cost of the facility covered under the 9800 MCD lease is $76,000. The Company’s rent obligation began in 2001 and approximates the lessor’s debt service costs. The lessor has fixed the interest rate on the total financed cost at a weighted-average interest rate of approximately 4.3% for the remaining term of the lease.

The Company’s restricted investments with respect to the Traville lease, the 9800 MCD lease and other leases for the existing process development and manufacturing facility will reach approximately $295,000, which serve as collateral for the duration of the leases. The Company will be required to restrict investments equal to 102% of the full amount of the $200,000 financed project cost for the Traville lease, or $204,000, with the payment of the remaining construction period obligations, and 100% of the full amount of the $76,000 financed project cost for the 9800 MCD lease. In addition, the Company is also required to maintain up to a maximum of $15,000 in restricted investments with respect to the process development and manufacturing facility leases. The Company’s restricted investments were $291,199 and $280,776 as of June 30, 2004 and December 31, 2003, respectively.

Under the Traville and 9800 MCD lease agreements, which the Company has accounted for as operating leases, the Company has the option to purchase the properties, during or at the end of the lease terms, at an aggregate amount of $276,000. Alternatively, the Company can cause the properties to be sold to third parties.

With respect to the Traville lease, the Company has a residual value guarantee of 87.75% of the total financed cost at lease termination. As of June 30, 2004, the Company’s residual value guarantee for the Traville lease had reached the full maximum amount of $175,500.

With respect to the 9800 MCD lease, the Company has a residual value guarantee of 85% of the total financed cost at lease termination. As of June 30, 2004, the Company’s residual value guarantee for the 9800 MCD lease had reached the full maximum amount of $64,600. See Note 5, Charge for Restructuring, for additional discussion.

In connection with the Traville lease, the Company must maintain minimum levels of unrestricted cash, cash equivalents and marketable securities and certain debt ratios. In connection with the 9800 MCD

8

HUMAN GENOME SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended June 30, 2004
(dollars in thousands, except share and per share data)

Note 4. Commitments and Other Matters (continued)

lease, the Company must maintain minimum levels of unrestricted cash, cash equivalents and marketable securities, as well as comply with certain dividend restrictions. There are not any recourse provisions under either the Traville or 9800 MCD leases that would enable the Company to recover from third parties any of the amounts paid under the guarantees. The Company has set aside collateral in the form of restricted investments sufficient to satisfy all current obligations under the guarantees. In addition, the Company has the right to cause the sale of the properties covered by the leases and may recover all or a portion of the money paid under the guarantees.

Note 5. Charge for Restructuring

During the first quarter of 2004, the Company announced plans to sharpen its focus on its most promising drug candidates. The Company has reduced the number of drugs in early development and is focusing resources on the drugs that address the greatest unmet medical needs with substantial growth potential. In order to reduce significantly future expenses, and thus enable the Company to dedicate more resources to the most promising drugs, the Company has reduced staff, is streamlining operations and currently evaluating a consolidation of facilities. The results for the three and six month periods ended June 30, 2004 include a charge of $1,799 and $5,498, respectively. This charge is shown as a Charge for restructuring in the consolidated statement of operations, relating primarily to the accrual of the total cost of employee severance benefits and costs associated with the planned retirement of the Company’s Chairman and Chief Executive Officer (“CEO”). During the first quarter of 2004, the Company recorded a deferred compensation charge of $4,151 related to the modification of the CEO’s stock options and is recognizing this charge ratably over his remaining service period, which is currently through October 2004. The unamortized balance of this charge is $2,214 as of June 30, 2004.

With respect to the consolidation of facilities, the Company is currently exploring alternatives relating to its possible exit from the lease of 9800 MCD. With respect to this lease, the Company has a residual value guarantee (“RVG”) to the lessor. In the event the property is sold, a realized value, net of transaction and other costs, below the financed cost of $76,000 would require the Company to record a charge relating to its RVG obligation. As of June 30, 2004, the Company has no indication that the net realized value would fall below $76,000 and accordingly, has not recorded a charge relating to the RVG obligation. The Company may or may not be able to fully recover the net book value of its leasehold improvements at 9800 MCD, which are approximately $9,900 as of June 30, 2004. The Company will continue to evaluate this and other facility consolidation alternatives during 2004. In addition, the Company is evaluating its equipment located at 9800 MCD, which has a net book value of approximately $10,300 as of June 30, 2004, to determine which items may be redeployed or sold. The Company may or may not be able to fully recover the net book value of this equipment.

9

HUMAN GENOME SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended June 30, 2004
(dollars in thousands, except share and per share data)

Note 5. Charge for Restructuring (continued)

The following table summarizes the activity related to the liability for restructuring costs as of June 30, 2004:

	Employee
	separation			CEO related
	benefits			charge		Total
Initial charge	$	2,500		$	1,060	$	3,560
Cash payments		(2,479	)		—		(2,479	)
Balance at June 30, 2004	$	21		$	1,060	$	1,081

The CEO related charge excludes the amortization of the non-cash deferred compensation charge related to the modification of the CEO’s stock options. The Company recognized amortization of $1,937 for the six months ended June 30, 2004.

Note 6. Fair Value of Financial Instruments

The carrying amounts for the Company’s cash and cash equivalents, investments, other assets, accounts payable and accrued expenses and other accrued expenses reflected in the consolidated balance sheets at June 30, 2004 and December 31, 2003 approximate their respective fair values.

The carrying value of the Company’s debt was approximately $504,000 as of both June 30, 2004 and December 31, 2003. The fair value of the Company’s long-term debt is based primarily on quoted market prices. The quoted market prices of the Company’s convertible debt increased as of June 30, 2004 as compared to December 31, 2003, and accordingly, the fair value of the Company’s debt increased to approximately $477,000 as of June 30, 2004 from $466,000 as of December 31, 2003.

Note 7. Reclassifications

Certain prior period balances have been reclassified to conform to 2004 presentation.

10

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Three Months and Six Months Ended June 30, 2004 and 2003

Overview

     Human Genome Sciences is a mid-stage development company with a significant product pipeline derived primarily from proprietary genomic technology. Our goal is to build a global biopharmaceutical company that discovers, develops, manufactures and markets gene-based protein and antibody drugs to treat and cure disease. The success of our drug discovery efforts derives from our expertise in genomics, the systematic collection and understanding of human genes and their functions. We focus our internal product development efforts on novel human protein and antibody drugs discovered through genomics-based research, and on new long-acting versions of existing protein drugs created using our albumin fusion technology. We use collaborations for the development of other protein and antibody drugs, gene therapy products, small molecule drugs, and diagnostic products discovered using our genomics-based technology.

     We have a number of products in clinical development. Companies with which we are collaborating have additional products in clinical trials. We continue to evaluate new drugs for advancement into clinical development.

     We have established strategic partnerships with a number of leading pharmaceutical and biotechnology companies to leverage our strengths and to gain access to complementary technologies and sales and marketing infrastructure. Some of these partnerships provide us with milestone payments, along with royalty payments as products are developed and commercialized. We also are entitled to certain co-promotion, co-development, revenue sharing and other product rights.

     We have not received any significant product sales revenue or royalties from product sales and any significant revenue from product sales or from royalties on product sales in the next several years is uncertain. To date, all of our revenue relates to payments made under our collaboration agreements with GlaxoSmithKline (“GSK”) and, to a lesser extent, other agreements. The initial research term associated with the GSK collaboration agreement and many of our other collaboration agreements expired in 2001 and those agreements will only generate additional milestone and royalty payments if our collaborators successfully develop drugs based on our technology. We may not receive any of these payments and may not be able to enter into additional collaboration agreements.

     We expect that any significant revenue or income for at least the next several years may be limited to investment income, payments under various collaboration agreements to the extent milestones are met, payments from the sale of product rights and other payments from other collaborators and licensees under existing or future arrangements, to the extent that we enter into any future arrangements. We expect to continue to incur substantial expenses relating to our research and development efforts, as we focus on preclinical and clinical trials required for the development of therapeutic protein, antibody and fusion protein product candidates. As a result, we expect to incur continued and significant losses over the next several years unless we are able to realize additional revenues under existing or new collaboration agreements. The timing and amounts of such revenues, if any, cannot be predicted with certainty and will likely fluctuate sharply. Results of operations for any period may be unrelated to the results of operations for any other period. In addition, historical results should not be viewed as indicative of future operating results.

Results of Operations

     Revenues. Revenues were $0.6 million for both the three months ended June 30, 2004 and 2003. Revenues for the three months ended June 30, 2004 represent primarily revenue recognized from Transgene, S.A. (“Transgene”). Revenues for the three months ended June 30, 2003 represent revenue recognized from Transgene. Revenues were $2.3 million for both the six months ended June 30, 2004 and

11

Results of Operations (continued)

2003. Revenues for the six months ended June 30, 2004 represent primarily $1.3 million in revenue recognized from Transgene and a $1.0 million milestone payment earned and received from GSK. Revenues for the six months ended June 30, 2003 represent $1.3 million in revenue recognized from Transgene and a $1.0 million milestone payment earned and received from GSK.

     Expenses. Research and development expenses were $54.3 million for the three months ended June 30, 2004 compared to $47.8 million for the three months ended June 30, 2003. Research and development expenses were $107.3 million for the six months ended June 30, 2004 compared to $94.1 million for the six months ended June 30, 2003. We track our research and development expenditures by type of cost incurred — research, drug development, manufacturing and clinical development costs.

     Our research costs decreased to $6.4 million for the three months ended June 30, 2004 from $8.0 million for the three months ended June 30, 2003. Research costs decreased to $14.9 million for the six months ended June 30, 2004 from $16.4 million for the six months ended June 30, 2003. The decrease in research costs for both the three and six months ended June 30, 2004 is primarily due to reduced activity in the study of preclinical therapeutic protein and antibody drug candidates.

     Our drug development costs decreased slightly to $13.3 million for the three months ended June 30, 2004 from $13.5 million for the three months ended June 30, 2003. Drug development costs increased to $28.4 million for the six months ended June 30, 2004 from $27.3 million for the six months ended June 30, 2003. The increase in drug development costs for the six months ended June 30, 2004 is primarily due to increased process development activity, where we are evaluating ways to develop or improve our product candidates and production processes.

     Our manufacturing costs increased to $20.0 million for the three months ended June 30, 2004 from $15.7 million for the three months ended June 30, 2003. Manufacturing costs increased to $38.1 million for the six months ended June 30, 2004 from $31.1 million for the six months ended June 30, 2003. The increase in manufacturing costs for both the three and six months ended June 30, 2004 is due to the increased production activities within our process development and manufacturing facilities and payments made to a third-party manufacturer needed to support our increased clinical activities.

     Our clinical development costs increased to $14.6 million for the three months ended June 30, 2004 from $10.6 million for the three months ended June 30, 2003. Clinical development costs increased to $25.9 million for the six months ended June 30, 2004 from $19.3 million for the six months ended June 30, 2003. The increase in clinical development costs for both the three and six months ended June 30, 2003 is primarily due to the cost of continuing ongoing trials from 2003 as well as initiating new trials in 2004, partially offset by trials no longer ongoing in 2004.

     General and administrative expenses decreased to $8.4 million for the three months ended June 30, 2004 from $9.7 million for the three months ended June 30, 2003. General and administrative expenses decreased to $17.5 million for the six months ended June 30, 2004 from $19.3 million for the six months ended June 30, 2003. The decrease for both the three and six months ended June 30, 2004 resulted primarily from lower facility and marketing research costs.

     The charge for restructuring of $1.8 million and $5.5 million for the three and six months ended June 30, 2004 relates to our decision in March 2004 to sharpen our focus on our most promising drug candidates. We are reducing the number of drugs in early development and are focusing resources on our drugs that address the greatest unmet medical needs with substantial growth potential. In order to reduce significantly future expenses, and thus enable us to dedicate more resources to the most promising drugs, we have reduced staff, are streamlining operations and are currently evaluating a consolidation of facilities. The charge of $1.8 million for the three months ended June 30, 2004 relates to costs associated with the planned retirement of our Chairman and Chief Executive Officer (“CEO”). The charge of $5.5 million for

12

Results of Operations (continued)

the six months ended June 30, 2004 relates primarily to a charge for employee severance benefits along with costs associated with the planned retirement of our CEO. We recorded a deferred compensation charge of $4.2 million during the first quarter of 2004 related to the modification of the CEO’s stock options and are recognizing this charge ratably over his remaining service period, which is currently through October 2004. The unamortized balance of this charge is $2.2 million as of June 30, 2004.

     With respect to the consolidation of facilities, we are currently exploring alternatives relating to our possible exit from the lease of 9800 Medical Center Drive. With respect to this lease, we have a residual value guarantee (“RVG”) to the lessor. In the event the property is sold, a realized value, net of transaction and other costs, below the financed cost of $76.0 million would require us to record a charge relating to our RVG obligation. As of June 30, 2004, we have no indication that the net realized value would fall below $76.0 million and accordingly, have not recorded a charge relating to the RVG obligation. In addition, we may or may not be able to recover the net book value of our leasehold improvements at 9800 Medical Center Drive, which are approximately $9.9 million as of June 30, 2004. In addition, we are evaluating the equipment located at 9800 Medical Center Drive, which has a net book value of approximately $10.3 million, to determine which items may be redeployed or sold. We may or may not be able to recover the net book value of this equipment as of June 30, 2004. We will continue to evaluate this and other facility consolidation alternatives during 2004.

     Investment income decreased to $10.3 million for the three months ended June 30, 2004 from $15.3 million for the three months ended June 30, 2003. Investment income decreased to $24.4 million for the six months ended June 30, 2004 from $34.3 million for the six months ended June 30, 2003. The decrease in investment income for both the three and six months ended June 30, 2004 is due to lower average cash and short-term investment balances and reduced yield due to declining interest rates. Investment income also includes net realized gains on our short-term, restricted and long-term investments of $1.3 million and $0.8 million for the three months ended June 30, 2004 and 2003, respectively and $5.0 million and $4.1 million for the six months ended June 30, 2004 and 2003, respectively. Our average cash balance decreased during 2004 as a result of our net losses and capital expenditures in 2004. We believe investment income will continue to be lower than the prior year as our short-term investments mature and are reinvested at rates lower than previously obtained. Interest expense decreased for both the three and six months ended June 30, 2004 compared to the three and six months ended June 30, 2003, due to capitalized interest of $0.9 million and $1.5 million for the three and six months ended June 30, 2004 relating to the construction of our large-scale manufacturing facility. Assuming the cost of the manufacturing facility reaches approximately $230.0 million when construction is complete and production activities commence in 2006, capitalized interest could approximate $15.0 million. Total interest expense, before capitalized interest, was $5.9 million and $11.9 million for the three and six months ended June 30, 2004, respectively.

     Net Income (Loss). We recorded a net loss of $58.5 million, or $0.45 per share, for the three months ended June 30, 2004 compared to a net loss of $47.4 million, or $0.37 per share, for the three months ended June 30, 2003. We recorded a net loss of $114.0 million, or $0.88 per share, for the six months ended June 30, 2004 compared to a net loss of $88.7 million, or $0.69 per share, for the six months ended June 30, 2003. The increased loss for both the three and six months ended June 30, 2004 reflects increased manufacturing operations, increased investment in clinical drug candidates, reduced net investment income and a charge for restructuring.

     Excluding the charge for restructuring of $1.8 million, or $0.01 per share, incurred during the three months ended June 30, 2004, our pro forma net loss of $56.7 million, or $0.44 per share, would have compared to a net loss of $47.4 million, or $0.37 per share, for the three months ended June 30, 2003. Excluding the charge for restructuring of $5.5 million, or $0.04 per share, incurred during the six months ended June 30, 2004, our pro forma net loss of $108.5 million, or $0.84 per share, would have compared to a net loss of $88.7 million, or $0.69 per share, for the six months ended June 30, 2003. The increased loss

13

Results of Operations (continued)

for both the three and six months ended June 30, 2004 is primarily due to increased manufacturing operations, increased investment in clinical drug candidates, and reduced investment income. These pro forma financial measures are not prepared in accordance with GAAP. We refer to these non-GAAP financial measures because they provide meaningful supplemental information regarding our operational performance and facilitate comparisons to our historical operating results.

Liquidity and Capital Resources

     We had working capital of $763.1 million and $943.9 million at June 30, 2004 and December 31, 2003, respectively. The reduction in our working capital for the six months ended June 30, 2004 is primarily due to our net loss, our capital expenditures and our increase in restricted investments during this period.

     We expect to continue to incur substantial expenses relating to our research and development efforts, which may increase relative to historical levels as we focus on development and clinical trials required for the development of therapeutic protein, antibody and fusion protein product candidates.

     The amounts of expenditures that will be needed to carry out our business plans are subject to numerous uncertainties, which may adversely affect our liquidity and capital resources. We are proceeding with numerous clinical trials. We have several Phase 1 and Phase 2 trials underway and expect to initiate additional trials in the future. Completion of these trials may extend several years or more, but the length of time generally varies considerably according to the type, complexity, novelty and intended use of the drug candidate. We estimate that the completion periods for our Phase 1, Phase 2 and Phase 3 trials could span one year, one to two years and two to four years, respectively. The duration and cost of our clinical trials are a function of numerous factors such as the number of patients to be enrolled in the trial, the amount of time it takes to enroll them, the length of time they must be treated and observed, and the number of clinical sites and countries for the trial.

     We identify our potential drug candidates by conducting numerous preclinical studies. We may conduct multiple clinical trials to cover a variety of indications for each drug candidate. Based upon the results from our trials, we may elect to discontinue clinical trials for certain indications or certain drugs in order to concentrate our resources on more promising drug candidates.

     We are advancing a number of drug candidates, including therapeutic proteins, antibodies and albumin fusion proteins, in part to diversify the risks associated with our research and development spending. In addition, our manufacturing facilities have been designed to enable multi-product manufacturing capability. Accordingly, we believe our future financial commitments, including those for preclinical, clinical or manufacturing activities, are not substantially dependent on any single drug candidate. Should we be unable to sustain a multi-product drug pipeline, our dependence on the success of one or a few drug candidates would increase.

     We must receive regulatory approval from FDA or foreign equivalents to advance each of our products into and through each phase of clinical testing. Moreover, we must also receive regulatory approval to launch any of our products commercially. In order to receive such approval, these regulatory agencies must conclude that our clinical data establish safety and efficacy and that our products and the manufacturing facilities meet all regulatory requirements. We cannot be certain that we will establish sufficient safety and efficacy data to receive regulatory approval for any of our drugs or that our drugs and the manufacturing facilities will meet all regulatory requirements.

     In addition, part of our business plan includes collaborating with others. For example, GSK is developing four products discovered by GSK as part of our collaboration with them. We have no control over the progress of GSK’s development plans. While we have received an aggregate of $2.0 million from GSK in connection with development milestones met by GSK during 2004 and 2003, we cannot forecast

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Liquidity and Capital Resources (continued)

with any degree of certainty the likelihood of receiving future milestone or royalty payments. We also cannot forecast with any degree of certainty whether any of our current or future collaborations will affect our drug development efforts and, therefore, our capital and liquidity requirements.

     Because of the uncertainties discussed above, the costs to advance our research and development projects are difficult to estimate and may vary significantly. We expect that our existing funds and investment income will be sufficient to fund our operations for the next several years.

     Our future capital requirements and the adequacy of our available funds will depend on many factors, including scientific progress in our research and development programs (including our discovery and development activities), the magnitude of those programs, the ability to establish collaborative and licensing arrangements, the cost involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and competing technological and market developments. There can be no assurance that any additional financing required in the future will be available on acceptable terms, if at all.

     Depending upon market and interest rate conditions, we are exploring, and, from time to time, may take actions to strengthen further our financial position. In this regard, in the second quarter of 2003, we restructured certain of our outstanding lease obligations and may further modify our lease financings and repurchase or restructure some or all of our outstanding convertible debt instruments in the future depending upon market and other conditions.

     We have certain contractual obligations, including some that are not recorded on our balance sheets, which will have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources that is material to investors. Certain of these obligations include covenants relating to maintaining minimum levels of unrestricted cash, cash equivalents and marketable securities and certain debt ratios. Our operating leases, including those with residual value guarantees, along with our unconditional purchase obligations are not recorded on our balance sheets.

     Our unrestricted and restricted funds may be invested in U.S. Treasury securities, government agency obligations, high grade corporate debt securities and various money market instruments rated “A” or better. Such investments reflect our policy regarding the investment of liquid assets, which is to seek a reasonable rate of return consistent with an emphasis on safety, liquidity and preservation of capital.

Off-Balance Sheet Arrangements

     We have entered into lease agreements for a research and development and administrative facility and another research facility (the “Traville lease” and the “9800 MCD lease,” respectively) that have been structured such that they are accounted for as operating leases. This structure provides us with cost-effective financing and future financing flexibility. None of our directors, officers or employees has any financial interest with regard to these lease arrangements.

     The Traville lease has a term of approximately seven years beginning in 2003 and relates to a research and development and administrative facility located on the Traville site in Rockville, Maryland. The total financed cost of the Traville lease facility is $200.0 million. Our rent obligation approximates the lessor’s debt service costs plus a return on the lessor’s equity investment. The rent under this lease is currently based on the rate for short-term commercial paper, but the lessor can lock in a fixed interest rate at any time at our request. To the extent the lessor does not lock in a fixed interest rate, if interest rates increase, our rent obligations would also increase. If interest rates decrease, our rent obligations would decrease. The current floating rate was approximately 1.1% as of June 30, 2004.

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Off-Balance Sheet Arrangements (continued)

     The 9800 MCD lease has a term of seven years beginning in 2001 and relates to a $76.0 million research facility located at 9800 Medical Center Drive, near our Traville facility in Rockville, Maryland. The rent under this lease is fixed. As of June 30, 2004, the weighted-average interest rate was approximately 4.3%.

     Our restricted investments with respect to the Traville lease, the 9800 MCD lease and other leases for the existing process development and manufacturing facility are expected to reach approximately $295.0 million. These restricted investments will serve as collateral for the duration of the leases. We will be required to restrict investments equal to 102% of the full amount of the $200.0 million financed project cost for the Traville lease, or $204.0 million, upon the payment of the remaining construction period obligations, and 100% of the full amount of the approximately $76.0 million financed project cost for the 9800 MCD lease as collateral for the duration of the leases. In the event the 9800 Medical Center Drive lease is terminated, we could reduce our restricted investments by up to $76.0 million, in the event we did not need to use our restricted investments to meet any residual value guarantee obligation. In addition, we are also required to maintain up to a maximum of $15.0 million in restricted investments with respect to the process development and manufacturing facility leases. Our restricted investments for all of these leases aggregated $291.2 million as of June 30, 2004 compared to $280.8 million as of December 31, 2003.

     In connection with the Traville lease, we must maintain minimum levels of unrestricted cash, cash equivalents and marketable securities and certain debt ratios. In connection with the 9800 MCD lease, we must maintain minimum levels of unrestricted cash, cash equivalents and marketable securities, as well as comply with certain dividend restrictions.

     Under the Traville and 9800 MCD leases, we have the option to purchase the properties during and at the end of the lease terms at an aggregate amount of approximately $276.0 million. Alternatively, we can cause the properties to be sold to third parties. We are contingently liable for the residual value guarantee associated with each property in the event the net sale proceeds are less than the original financed costs of the facilities. We are contingently liable for the residual value guarantee associated with the Traville lease and the 9800 MCD lease of approximately $175.5 million and $64.6 million, respectively. See Note 4, Commitments and Other Matters, and Note 5, Charge for Restructuring, for additional discussion.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

     Certain statements contained Management’s Discussion and Analysis of Financial Condition and Results of Operations are 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. The forward-looking statements are based on our current intent, belief and expectations. These statements are not guarantees of future performance and are subject to certain risks and uncertainties that are difficult to predict. Actual results may differ materially from these forward-looking statements because of our unproven business model, our dependence on new technologies, the uncertainty and timing of clinical trials, our ability to develop and commercialize products, our dependence on collaborators for services and revenue, our substantial indebtedness and lease obligations, our changing requirements and costs associated with planned facilities, intense competition, the uncertainty of patent and intellectual property protection, our dependence on key management and key suppliers, the uncertainty of regulation of products, the impact of future alliances or transactions and other risks described in this filing and our other filings with the Securities and Exchange Commission. Existing and prospective investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today’s date. We undertake no obligation to update or revise the information contained in this announcement whether as a result of new information, future events or circumstances or otherwise.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

     We do not have operations of a material nature that are subject to risks of foreign currency fluctuations, nor do we use derivative financial instruments in our operations or investment portfolio. Our investment portfolio may be comprised of low-risk U.S. Treasuries, government agency obligations, high-grade debt having at least an “A” rating and various money market instruments. The short-term nature of these securities, which currently have an average term of approximately 19 months, significantly decreases the risk of a material loss caused by a market change. We believe that a hypothetical 100 basis point adverse move (increase) in interest rates along the entire interest rate yield curve would adversely affect the fair value of our cash, cash equivalents and short-term and restricted investments by approximately $17.5 million, or approximately 1.6% of the aggregate fair value of $1.1 billion, at June 30, 2004. For these reasons, and because these securities are generally held to maturity, we believe we do not have significant exposure to market risks associated with changes in interest rates related to our debt securities held as of June 30, 2004. We believe that any market change related to our investment securities held as of June 30, 2004 is not material to our consolidated financial statements. However, given the short-term nature of these securities, a general decline in interest rates would adversely affect the interest income from our portfolio as securities mature and are replaced with securities having a lower interest rate.

     As of June 30, 2004, the carrying values of our equity investments in Transgene S.A., Cambridge Antibody Technology Ltd. (“CAT”) and Corautus Genetics Inc. (“Corautus”) were approximately $5.4 million, $10.6 million, and $9.2 million, respectively. Our investments in Transgene and Corautus are subject to equity market risk. Our investment in CAT is denominated in pounds sterling and is subject to both foreign currency risk as well as equity market risk.

     The facility leases we entered into during 2003 and 2001 require us to maintain minimum levels of restricted investments as collateral for these facilities. By 2005, our maximum restricted investments for these leases could be approximately $280.0 million. Together with the requirement to maintain up to approximately $15.0 million in restricted investments with respect to our process development and manufacturing facility leases, our overall level of restricted investments could reach $295.0 million. In the event the 9800 Medical Center Drive lease is terminated, we could reduce our restricted investments by up to $76.0 million, in the event we did not have to meet any residual value guarantee obligation. Although the market value for these investments may rise or fall as a result of changes in interest rates, we will be required to maintain this level of restricted investments in both a rising or declining interest rate environment.

     The rent under the Traville lease is based on a floating interest rate. We can direct the lessor to lock in a fixed interest rate. As of June 30, 2004, such a fixed rate for six years would be approximately 4.5% compared to the floating rate as of June 30, 2004 of approximately 1.1%. If interest rates increase, our rent obligations would also increase, which would result in an increase in our operating expenses.

     Changes in interest rates do not affect interest expense incurred on our Convertible Subordinated Notes because they bear interest at fixed rates.

     We established a wholly-owned subsidiary, Human Genome Sciences Europe GmbH (“HGS Europe”), that manages our clinical trials and clinical research collaborations in European countries. Although HGS Europe’s activities are denominated primarily in euros, we believe the foreign currency fluctuation risks for 2004 to be immaterial to our operations as a whole.

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Item 4. Controls and Procedures

     Our management, including our principal executive and principal financial officers, has evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2004. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in this quarterly report on Form 10-Q has been appropriately recorded, processed, summarized and reported. Based on that evaluation, our principal executive and principal financial officers have concluded that our disclosure controls and procedures are effective at the reasonable assurance level.

     Our management, including our principal executive and principal financial officers, has evaluated any changes in our internal control over financial reporting that occurred during the quarterly period ended June 30, 2004, and has concluded that there was no change during the quarterly period ended June 30, 2004 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

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

     At our Annual Meeting of Shareholders, held on May 20, 2004, the following members were elected or re-elected to the Board of Directors:

	Affirmative		Votes
	Votes		Withheld
Terms expiring in 2007
Richard J. Danzig		112,483,793		884,476
Jurgen Drews, M.D.		112,448,346		919,923
Kathryn E. Falberg		112,481,860		886,409
Argeris N. Karabelas, Ph.D.		90,409,972		22,958,297

     The following proposals were approved at our Annual Meeting of Shareholders:

	Affirmative		Negative				Broker
	Votes		Votes		Abstentions		Non-Votes
Ratification of the selection of Ernst & Young, LLP as independent auditors for the fiscal year ending December 31, 2004.		112,024,529		1,276,587		67,153	—
Ratification of the proposal to approve Amendment No. 1 to the Company’s Stock Incentive Plan.		51,612,548		25,159,425		1,814,530		34,781,766
Ratification of the proposal to approve Amendment No. 2 to the Company’s Stock Incentive Plan.		61,763,252		15,004,176		1,819,085		34,781,756
Ratification of the proposal to approve an option exchange program for the Company’s employees.		58,843,462		11,492,485		8,250,557		34,781,765

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Item 6. Exhibits and Reports on Form 8-K

     (a) Exhibits

     10.1 Employment Agreement, dated May 6, 2004, with Craig A. Rosen, Ph.D.

     31.1 Rule 13a-14(a) Certification of Principal Executive Officer.

     31.2 Rule 13a-14(a) Certification of Principal Financial Officer.

     32.1 Section 1350 Certification of Chief Executive Officer.

     32.2 Section 1350 Certification of Chief Financial Officer.

     (b) Reports on Form 8-K

We filed a Current Report on Form 8-K, on April 29, 2004, furnishing our financial results for the three months ended March 31, 2004.

We filed a Current Report on Form 8-K, on July 30, 2004, furnishing our financial results for the three and six months ended June 30, 2004.

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SIGNATURES

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

HUMAN GENOME SCIENCES, INC.
BY:	/s/ William A. Haseltine, Ph.D.
	William A. Haseltine, Ph.D.
	Chairman and Chief Executive Officer
BY:	/s/ Steven C. Mayer
	Steven C. Mayer
	Executive Vice President and
	Chief Financial Officer

Dated: August 6, 2004

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EXHIBIT INDEX

Exhibit Page Number

10.1 Employment Agreement, dated May 6, 2004, with Craig A. Rosen, Ph.D.

31.1 Rule 13a-14(a) Certification of Principal Executive Officer.

31.2 Rule 13a-14(a) Certification of Principal Financial Officer.

32.1 Section 1350 Certification of Chief Executive Officer.

32.2 Section 1350 Certification of Chief Financial Officer.

EX-10.1

Exhibit 10.1

EMPLOYMENT AGREEMENT

     This EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into as of the 6th day of May, 2004 (the “Effective Date”), by and between HUMAN GENOME SCIENCES, INC. (the “Company”), and CRAIG A. ROSEN, Ph.D. (“Executive”).

     1. EMPLOYMENT. The Company shall employ Executive, and Executive shall continue employment with the Company upon the terms and subject to the conditions set forth in this Agreement.

     2. TERM OF EMPLOYMENT. The period of Executive’s employment under this Agreement shall commence on the Effective Date and continue for a period of one (1) year, and shall automatically be renewed for successive one (1) year periods thereafter, unless Executive’s employment is terminated in accordance with Section 5 below or the Company or Executive notifies the other party in writing, no later than ninety (90) days before the next subsequent anniversary of the Effective Date, of its or his intention not to renew the rights and obligations set forth in this Agreement. The period during which Executive is employed with the Company under this Agreement, including all renewal periods, is referred to as the “Employment Period.”

     3. DUTIES AND RESPONSIBILITIES. Executive shall serve as the Acting Chief Operating Officer and President of Research and Development. In such capacity, Executive shall perform such duties and have the power, authority, and functions commensurate with such positions in similarly-sized public companies within the Company’s industry, and have and possess such other authority and functions consistent with such positions as may be assigned to Executive from time to time by the Chief Executive Officer. In addition, Executive is a member of the Board of Directors of the Company (the “Board”) as of the Effective Date and shall continue to serve in that capacity for the balance of his existing term, and the Company will take all commercially reasonable steps, subject to applicable law, to cause Executive to continue to be nominated for reelection to the Board throughout the Employment Period. Executive shall report directly to the Company’s Chief Executive Officer. Except for absences due to temporary illness, during the Employment Period Executive shall devote substantially his full time and efforts to the business of the Company and shall not engage in consulting work or any trade or business activity for his own account or for or on behalf of any other person or entity that, in the reasonable judgment of the Company, competes, conflicts or interferes with the performance of his duties under this Agreement in any way, whether or not such activity is pursued for gain, profit or other pecuniary advantage. Executive will be permitted to serve on the scientific advisory board and/or editorial board of the entities and publications specified on Exhibit A attached hereto, and, subject to approval by the Company’s Chief Executive Officer and each successor Chief Executive Officer, to perform certain duties for third parties that are not associated with the Company, so long as the performance on such boards or of such duties does not compete, conflict or materially interfere with the performance of his duties under this Agreement or result in the violation of any covenant in this Agreement.

     4. COMPENSATION AND BENEFITS.

     (a) BASE SALARY. During the Employment Period, the Company shall pay Executive a base salary at the annual rate of Four Hundred and Two Thousand Dollars ($402,000.00) per year, or such higher rate as may be determined from time to time by the Board (“Base Salary”). Such Base Salary shall be paid in accordance with the Company’s standard payroll practice. Once increased, the Base Salary shall not be reduced.

     (b) ANNUAL BONUS. During the Employment Period, Executive shall be eligible to receive an annual bonus award from time to time at the discretion of the Board; provided, however, that Executive shall receive for each fiscal year ending within the Employment Period a minimum guaranteed bonus award in an amount equal to 10% of Executive’s Base Salary as in effect for such fiscal year which guaranteed amount shall be payable without regard to achievement of performance objectives.

     (c) STOCK INCENTIVES. During the Employment Period, Executive shall be eligible to receive grants of stock options or other equity-based awards from time to time at the discretion of the Board.

     (d) BENEFIT PLANS. Subject to the terms of such plans, Executive shall be eligible to participate in or receive benefits under any pension or profit sharing plan, salary deferral plan, medical,

dental, vision and prescription drug benefit plans, life insurance plan, short-term and long-term disability plans, or any other health, welfare or fringe benefit plan, generally made available by the Company to similarly-situated senior executives.

     (e) VACATION. During the Employment Period, Executive shall be entitled to vacation each year in accordance with the Company’s policies in effect from time to time, but in no event less than four (4) weeks paid vacation per calendar year.

     (f) EXPENSE REIMBURSEMENT. The Company shall promptly reimburse Executive for the ordinary and necessary business expenses incurred by Executive in the performance of his duties in accordance with the Company’s customary practices applicable to its senior executives.

     (g) OTHER PERQUISITES. During the Employment Period, Executive shall be entitled to all perquisites provided by the Company to similarly-situated senior executives, including an automobile allowance at the monthly rate of Five Hundred and Eighty Dollars ($580.00), payable in accordance with the Company’s standard payroll practice for its senior executives.

     5. TERMINATION OF EMPLOYMENT.

     Executive’s employment with the Company may be terminated during the Employment Period under the following circumstances:

     (a) DEATH. Executive’s employment with the Company shall terminate automatically upon Executive’s death.

     (b) TOTAL DISABILITY. The Company may terminate Executive’s employment due to Executive becoming “Totally Disabled.” For purposes of this Agreement, Executive shall be “Totally Disabled” if Executive becomes eligible to receive total disability benefits under the Company’s long-term disability plan. In the absence of Executive’s receipt of such long-term disability benefits, the Board may, in its reasonable discretion based upon appropriate medical evidence, determine that Executive is Totally Disabled if Executive has been physically or mentally incapacitated so as to render Executive incapable of performing the essential functions of Executive’s positions, with or without reasonable accommodation, for ninety (90) calendar days within any one hundred and eighty (180)-day period.

     (c) TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate Executive’s employment for “Cause” by providing a Notice of Termination for Cause to Executive, as provided herein.

     (i) For purposes of this Agreement, the term “Cause” means any of the following: (A) Executive’s willful and continued failure substantially to perform the duties of his position (other than as a result of disability, as defined in Section 72(m)(7) of the Internal Revenue Code of 1986, as amended, or as defined under the Company’s long-term disability plan, or as a result of termination by Executive for Good Reason), provided that such “Cause” shall have been found by a majority vote of the Board after at least ten (10) days’ written notice to Executive specifying the failure on the part of Executive and giving Executive the opportunity to cure his actions or inactions in the event that they are susceptible to cure within ten (10) days of written notice, an opportunity for Executive to be heard at a meeting of the Board, and delivery of a “Notice of Termination for Cause,” as provided below; (B) any willful act or omission by Executive constituting dishonesty, fraud or other malfeasance, and any act or omission by Executive constituting immoral conduct, which in any such case is injurious to the financial condition or business reputation of the Company; or (C) Executive’s indictment for a felony under the laws of the United States or any state thereof or any other jurisdiction in which the Company conducts business. For purposes of this definition, no act or failure to act shall be deemed “willful” unless effected by Executive not in good faith and without a reasonable belief that such action or failure to act was in or not opposed to the best interests of the Company.

     (ii) For purposes of this Agreement, the phrase “Notice of Termination for Cause”

2

shall mean a written notice that indicates the specific termination provision(s) in Section 5(c)(i) relied upon, and sets forth in reasonable detail the facts and circumstances which provide the basis for termination for Cause. A termination for Cause shall be effective the date the Notice of Termination for Cause is given to Executive. Any purported termination for Cause which is held by an arbitrator not to have been based on the grounds set forth in this Agreement or not to have followed the procedures set forth in this Agreement shall be deemed a termination by the Company without Cause.

     (d) TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company may terminate Executive’s employment without Cause at any time upon written notice to Executive.

     (e) TERMINATION BY EXECUTIVE. Executive may terminate his employment with or without Good Reason at any time upon written notice to the Company; provided, however, that any termination of employment by Executive without Good Reason, including any Permitted Resignation, as defined in Section 6(d) of this Agreement, or nonrenewal of the Agreement by Executive, that is effected without providing ninety (90) days’ advance written notice to the Company shall be treated as a termination for Cause for purposes of Section 6 of this Agreement.

     (i) For purposes of this Agreement, the term “Good Reason” means, without Executive’s consent: (A) removal from, or failure to be reappointed or reelected to, the Board or Executive’s principal position (other than as a result of a promotion), excluding for this purpose the position of Acting Chief Operating Officer; (B) diminution in Executive’s title, position, duties or responsibilities, or the assignment to Executive of duties that are inconsistent, in a material respect, with the scope of duties and responsibilities associated with Executive’s position under this Agreement; (C) reduction in Executive’s compensation, excluding bonuses (other than the minimum guaranteed bonus provided for under Section 4(b) of this Agreement) and equity compensation; (D) relocation of Executive’s principal workplace to a location which is more than fifty (50) miles from its location on the Effective Date; or (E) any failure by the Company to require any successor to assume the terms of this Agreement in the absence of a successor agreement acceptable to Executive. For purposes of clauses (A), (B) or (C) of the preceding sentence, an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of written notice thereof given by the Executive shall be excluded. No diminution of title, position, duties or responsibilities shall be deemed to occur solely because the Company becomes a subsidiary of another corporation or due to a change in the reporting hierarchy incident thereto, or due to the Company’s hiring, or promotion of another person to the position, of Chief Operating Officer or Executive’s ceasing to be Acting Chief Operating Officer.

     (ii) A termination of employment by Executive for Good Reason shall be effected by giving the Company written notice (a “Notice of Termination for Good Reason”) of the termination, setting forth in reasonable detail the specific conduct of the Company that constitutes Good Reason and the specific provision(s) of this Agreement on which the Executive relies.. A termination of employment by the Executive for Good Reason shall be effective ten (10) business days following the date when the Notice of Termination for Good Reason is given, unless, if applicable, the event constituting Good Reason is remedied by the Company prior to that date. Actions by the Company that constitute Good Reason shall be disregarded in the calculation of termination benefits described in Section 6.

     (iii) A termination of Executive’s employment by the Executive without Good Reason shall be effected by giving the Company ninety (90) days’ advance written notice of the termination.

     (f) DATE OF TERMINATION. The term “Date of Termination” means the earliest of: (i) the date of Executive’s death; (ii) the date on which the Company gives written notice of termination of employment to Executive due to his having become Totally Disabled; (iii) the date on which the termination of Executive’s employment by the Company for Cause or without Cause or by Executive by way of Permitted Resignation or Voluntary Termination, for Good Reason or without Good Reason, is

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effective; or (iv) the last day before the next subsequent anniversary of the Effective Date after a notice of nonrenewal and termination of employment is given timely by the Company or Executive. Upon Executive’s termination of employment for any reason, Executive shall immediately resign from the Board and from all other offices and positions he holds with the Company and its subsidiary and affiliate companies.

     6. COMPENSATION FOLLOWING TERMINATION OF EMPLOYMENT. In the event that Executive’s employment is terminated, Executive, in lieu of the compensation and benefits described in Section 4 of this Agreement, shall be entitled to the following compensation and benefits upon such termination:

     (a) TERMINATION BY REASON OF DEATH. In the event that Executive’s employment is terminated by reason of Executive’s death, the Company shall pay the following amounts and provide the following benefits to Executive’s beneficiary(ies) or estate, as applicable, as soon as practicable following Executive’s death:

     (i) All accrued but unpaid Base Salary, any earned but unpaid bonuses for any prior period, all accrued but unpaid expenses required to be reimbursed under this Agreement, and all accrued but unused vacation time (collectively referred to as “Accrued Compensation”).

     (ii) All vested benefits under the Company’s benefit plans, policies and programs in which Executive participated, in accordance with the terms of such plans, policies and programs, except to the extent that such benefits are duplicative of benefits provided for under Section 6 of this Agreement (collectively referred to as “Accrued Benefits”).

     (iii) A pro-rata bonus payment for the year in which Executive’s death occurs equal to the amount of Executive’s annual bonus earned for the prior fiscal year multiplied by a fraction, the numerator of which is the number of days during the year that transpired before the Date of Termination and the denominator of which is three hundred sixty-five (365).

     (iv) If Executive’s Date of Termination that results from his death occurs on or after the date that is nine (9) months after the Effective Date (the “Nine-Month Anniversary”), payment of Category I Severance Benefits as defined in Section 6(h) of this Agreement.

     (v) If Executive’s Date of Termination that results from his death occurs before the Nine-Month Anniversary, the Company shall continue to provide coverage for Executive’s eligible dependents, at their sole expense, under the Health Plan (as defined in Section 6(h) of this Agreement), for sixty (60) months after the Date of Termination; provided that they are not eligible to participate in a group health plan of another entity. Executive’s eligible dependents’ right to receive continuation coverage under COBRA shall commence after, and not run coincident with, the continuation coverage provided under this Section 6(a)(v), and such COBRA coverage shall be provided entirely at Executive’s eligible dependents’ expense. Executive’s eligible dependents’ right to receive continuation coverage under this Agreement other than COBRA will terminate upon the earlier of the date specified herein or the date that such dependent first becomes eligible to participate in a group health plan of another entity.

     (b) TERMINATION BY REASON OF TOTAL DISABILITY. In the event that Executive’s employment is terminated by reason of Executive’s Total Disability, the Company shall pay the following amounts and provide the following benefits to Executive:

     (i) All Accrued Compensation and Accrued Benefits.

     (ii) A pro-rata bonus payment for the year in which Executive’s termination of employment due to Total Disability occurs equal to the amount of Executive’s annual bonus earned for the prior fiscal year multiplied by a fraction, the numerator of which is the number of days during the year that transpired before the Date of Termination and the denominator of which is three hundred sixty-five (365). The bonus payment will be paid to Executive as soon as practicable following the Date of Termination.

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     (iii) If Executive’s Date of Termination that results from his Total Disability occurs on or after the Nine-Month Anniversary, payment of Category I Severance Benefits as defined in Section 6(h) of this Agreement.

     (iii) If Executive’s Date of Termination that results from his Total Disability occurs before the Nine-Month Anniversary, the Company shall continue to provide coverage for Executive and his eligible dependents, at Executive’s sole expense, under the Health Plan (as defined in Section 6(h) of this Agreement), for sixty (60) months after the Date of Termination; provided that Executive is not eligible to participate in a group health plan of another entity. Executive’s (and his eligible dependents’) right to receive continuation coverage under COBRA shall commence after, and not run coincident with, the continuation coverage provided under this Section 6(b)(iii), and such COBRA coverage shall be provided entirely at Executive’s expense. Executive’s (and his eligible dependents’) right to receive continuation coverage under this Agreement other than COBRA will terminate upon the earlier of the date specified herein or the date that Executive (or such eligible dependent, as applicable) first becomes eligible to participate in a group health plan of another entity.

     The payments and benefits to be made pursuant to Section 6(b)(ii) and (iii) shall be conditioned upon Executive’s complete adherence to the covenants and restrictions in Section 7 of this Agreement, and his prior execution and nonwithdrawal of a release of all claims arising in connection with his employment or termination of employment with the Company, in such form as is used by the Company generally at the time of his termination (the “Release”).

     (c) TERMINATION FOR CAUSE. In the event that Executive’s employment is terminated by the Company for Cause, including for this purpose any Permitted Resignation, as defined in Section 6(d) of this Agreement, or other voluntary termination of employment without Good Reason or nonrenewal of the Agreement by Executive in any such case without providing ninety (90) days’ advance written notice that is treated, pursuant to Section 5(e), as a termination for Cause, the Company shall pay to Executive all Accrued Compensation and Accrued Benefits. In addition, in the event of any termination of employment by Executive without Good Reason, including any Permitted Resignation, or nonrenewal of the Agreement by Executive, that is effected in any such case without providing ninety (90) days’ advance written notice to the Company, the Company shall continue to provide coverage for Executive and his eligible dependents, at Executive’s sole expense, under the Health Plan (as defined in Section 6(h) of this Agreement), for sixty (60) months after the Date of Termination; provided that Executive is not eligible to participate in a group health plan of another entity. Executive’s (and his eligible dependents’) right to receive continuation coverage under COBRA shall commence after, and not run coincident with, the continuation coverage provided under this Section 6(c), and such COBRA coverage shall be provided entirely at Executive’s expense. Executive’s (and his eligible dependents’) right to receive continuation coverage under this Agreement other than COBRA will terminate upon the earlier of the date specified herein or the date that Executive (or such eligible dependent, as applicable) first becomes eligible to participate in a group health plan of another entity.

     (d) RESIGNATION BY EXECUTIVE FOLLOWING THE START DATE OF A NEW CEO. In the event that Executive voluntarily terminates employment, other than for Good Reason, after the start of employment with the Company of a new Chief Executive Officer (referred to as Executive’s “Permitted Resignation”), and provided that Executive provides the Company at least ninety (90) days’ advance written notice, the Company shall pay the following amounts and provide the following benefits to Executive:

     (i) All Accrued Compensation and Accrued Benefits.

     (ii) A pro-rata bonus payment the amount of which will be the amount of Executive’s annual bonus earned for the prior fiscal year multiplied by a fraction, the numerator of which is the number of days during the year of his Permitted Resignation that transpired before the Date of Termination, and the denominator of which is three hundred sixty-five (365). The bonus payment will be paid to Executive as soon as practicable following the Date of Termination.

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     (iii) Neither Category I Severance Benefits nor Category II Severance Benefits, as each is defined in Section 6(h) of this Agreement, shall be provided if the Date of Termination that results from Executive’s Permitted Resignation occurs before the earlier of (A) the Nine-Month Anniversary or (B) the date that is six (6) months after the start of employment with the Company of a new Chief Executive Officer (the “CEO Six-Month Anniversary”). However, the Company shall continue to provide coverage for Executive and his eligible dependents, at Executive’s sole expense, under the Health Plan (as defined in Section 6(h) of this Agreement), for sixty (60) months after the Date of Termination; provided that Executive is not eligible to participate in a group health plan of another entity. Executive’s (and his eligible dependents’) right to receive continuation coverage under COBRA shall commence after, and not run coincident with, the continuation coverage provided under this Section 6(d)(iii), and such COBRA coverage shall be provided entirely at Executive’s expense. Executive’s (and his eligible dependents’) right to receive continuation coverage under this Agreement other than COBRA will terminate upon the earlier of the date specified herein or the date that Executive (or such eligible dependent, as applicable) first becomes eligible to participate in a group health plan of another entity.

     (iv) Category I Severance Benefits, as defined in Section 6(h) of this Agreement, shall be provided if the Date of Termination that results from Executive’s Permitted Resignation occurs before the Nine-Month Anniversary but on or after the CEO Six-Month Anniversary.

     (v) Category I Severance Benefits, as defined in Section 6(h) of this Agreement, shall be provided if the Date of Termination that results from Executive’s Permitted Resignation occurs on or after the Nine-Month Anniversary but before the earlier of (A) the CEO Six-Month Anniversary or (B) the first anniversary of the Effective Date.

     (vi) Category II Severance Benefits, as defined in Section 6(h) of this Agreement, shall be provided if the Date of Termination that results from Executive’s Permitted Resignation occurs on or after the first anniversary of the Effective Date, whether or not six (6) months have elapsed since the date the new CEO commenced employment with the Company.

     The payments and benefits to be made pursuant to Section 6(d)(ii), (iv), (v) and (vi) shall be conditioned upon Executive’s complete adherence to the covenants and restrictions in Section 7 of this Agreement, and his prior execution and nonwithdrawal of a Release.

     (e) RESIGNATION BY EXECUTIVE ABSENT A NEW CEO OR GOOD REASON. In the event that Executive voluntarily terminates employment, other than for Good Reason, before the start of employment with the Company of a new Chief Executive Officer (referred to as Executive’s “Voluntary Termination”), and provided that Executive provides the Company at least ninety (90) days’ advance written notice, the Company shall pay the following amounts and provide the following benefits to Executive:

     (i) All Accrued Compensation and Accrued Benefits.

     (ii) A pro-rata bonus payment the amount of which will be the amount of Executive’s annual bonus earned for the prior fiscal year multiplied by a fraction, the numerator of which is the number of days during the year of his termination that transpired before the Date of Termination, and the denominator of which is three hundred sixty-five (365). The bonus payment will be paid to Executive as soon as practicable following the Date of Termination.

     (iii) Neither Category I Severance Benefits nor Category II Severance Benefits, as each is defined in Section 6(h) of this Agreement, shall be provided if the Date of Termination that results from Executive’s Voluntary Termination occurs before the Nine-Month Anniversary. However, the Company shall continue to provide coverage for Executive and his eligible dependents, at Executive’s sole expense, under the Health Plan (as defined in Section 6(h) of this Agreement), for sixty (60) months after the Date of Termination; provided that Executive is not eligible to participate in a group health plan of another entity. Executive’s (and his eligible dependents’) right to receive continuation coverage under COBRA shall commence after, and not

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run coincident with, the continuation coverage provided under this Section 6(e)(iii), and such COBRA coverage shall be provided entirely at Executive’s expense. Executive’s (and his eligible dependents’) right to receive continuation coverage under this Agreement other than COBRA will terminate upon the earlier of the date specified herein or the date that Executive (or such eligible dependent, as applicable) first becomes eligible to participate in a group health plan of another entity.

     (iv) Category I Severance Benefits, as defined in Section 6(h) of this Agreement, shall be provided if the Date of Termination that results from Executive’s Voluntary Termination occurs on or after the Nine-Month Anniversary but before the first anniversary of the Effective Date.

     (v) Category II Severance Benefits, as defined in Section 6(h) of this Agreement, shall be provided if the Date of Termination that results from Executive’s Voluntary Termination occurs on or after the first anniversary of the Effective Date.

     The payments and benefits to be made pursuant to Section 6(e)(iii), (iv) and (v) shall be conditioned upon Executive’s complete adherence to the covenants and restrictions in Section 7 of this Agreement, and his prior execution and nonwithdrawal of a Release.

     (f) TERMINATION BY THE COMPANY WITHOUT CAUSE OR BY EXECUTIVE WITH GOOD REASON. In the event that Executive’s employment is terminated by the Company for reasons other than death, Total Disability, Cause or nonrenewal, or Executive terminates his employment for Good Reason, the Company shall pay the following amounts and provide the following benefits to Executive:

     (i) All Accrued Compensation and Accrued Benefits.

     (ii) A pro-rata bonus payment the amount of which will be the amount of Executive’s annual bonus earned for the prior fiscal year multiplied by a fraction, the numerator of which is the number of days during the year of his termination that transpired before the Date of Termination, and the denominator of which is three hundred sixty-five (365). The bonus payment will be paid to Executive as soon as practicable following the Date of Termination.

     (iii) Category II Severance Benefits, as defined in Section 6(h) of this Agreement, shall be provided; provided, however, that, notwithstanding the provisions of Section 6(h)(ii)(B) to the contrary, vesting of Executive’s outstanding stock options will cease upon Executive’s acceptance of employment with a for-profit employer but the twenty-five (25)-month exercise period applicable to vested options granted prior to the Effective Date would continue to apply.

     The payments and benefits to be made pursuant to Section 6(f)(ii) and (iii) shall be conditioned upon Executive’s complete adherence to the covenants and restrictions in Section 7 of this Agreement, and his prior execution and nonwithdrawal of a Release.

     (g) NONRENEWAL. In the event of termination of Executive’s employment with the Company upon nonrenewal of the Agreement, the Company shall pay the following amounts and provide the following benefits to Executive:

     (i) All Accrued Compensation and Accrued Benefits.

     (ii) Category II Severance Benefits, as defined in Section 6(h) of this Agreement, shall be provided.

     (iii) A pro-rata bonus payment for the year in which the Date of Termination occurs equal to the amount of Executive’s annual bonus earned for the prior fiscal year multiplied by a fraction, the numerator of which is the number of days during the year that transpired before the Date of Termination and the denominator of which is three hundred sixty-five (365). The bonus

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payment will be paid to Executive as soon as practicable following the Date of Termination.

     The payments and benefits to be made pursuant to Section 6(g)(ii) and (iii) shall be conditioned upon Executive’s complete adherence to the covenants and restrictions in Section 7 of this Agreement, and his prior execution and nonwithdrawal of a Release.

     Notwithstanding the above, the compensation and benefits set forth in this Section 6(g) shall not be payable to Executive in the event of any nonrenewal of the Agreement by Executive that is effected without providing ninety (90) days’ advance written notice to the Company and which, therefore, is treated, pursuant to Section 5(e), as a termination for Cause.

     (h) SEVERANCE CATEGORIES. For purposes of this Agreement, the following terms shall have the following meanings.

     (i) “Category I Severance Benefits” shall consist of:

     (A) Continuation of Executive’s Base Salary during the twelve (12)-month period that commences on the Date of Termination (the “12-Month Salary Continuation Period”). Such payments shall be paid at the same time and in the same manner as Base Salary would have been paid if Executive had remained actively employed by the Company until the end of the 12-Month Salary Continuation Period.

     (B) Executive shall continue to vest in all outstanding stock options granted prior to the Effective Date, in accordance with the vesting schedules set forth in the applicable award agreements, during the 12-Month Salary Continuation Period. Executive, or his estate as applicable, shall have thirteen (13) months after the Date of Termination to exercise all vested stock options granted prior to the Effective Date, but in no event may Executive or his estate exercise any stock option beyond its term stated in the applicable award agreement. The provisions of this Agreement serve to amend any provision in an applicable award agreement to the contrary.

     (C) During the 12-Month Salary Continuation Period, the Company shall continue to provide coverage for Executive and his eligible dependents, at Company’s sole expense, under the Company’s group health plan, within the meaning of Section 607 of the Employee Retirement Income Security Act of 1974, as amended, in which Executive and his eligible dependents were participating as of the Date of Termination (the “Health Plan”); provided that Executive is not eligible to participate in a group health plan of another entity. Upon expiration of the 12-Month Salary Continuation Period until the fifth anniversary of the Date of Termination, the Company shall continue to provide coverage to Executive and his eligible dependents under the Health Plan at Executive’s sole expense; provided that Executive is not eligible to participate in a group health plan of another entity. Executive’s (and his eligible dependents’) right to receive continuation coverage under COBRA shall commence after, and not run coincident with, the continuation coverage provided under this Section 6(h)(i)(C), and any such COBRA coverage shall be provided entirely at Executive’s expense. Executive’s (and his eligible dependents’) right to receive continuation coverage under this Agreement other than COBRA will terminate upon the earlier of the date specified herein or the date that Executive (or such eligible dependent, as applicable) first becomes eligible to participate in a group health plan of another entity.

     (ii) “Category II Severance Benefits” shall consist of:

     (A) Continuation of Executive’s Base Salary during the eighteen (18)-month period that commences on the Date of Termination (the “18-Month Salary Continuation Period”). Such payments shall be paid at the same time and in the same manner as Base Salary would have been paid if Executive had remained actively employed by the Company until the end of the 18-Month Salary Continuation Period.

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     (B) Executive shall continue to vest in all outstanding stock options granted prior to the Effective Date, in accordance with the vesting schedules set forth in the applicable award agreements, during the twenty-four (24)-month period that commences on the Date of Termination. Executive, or his estate as applicable, shall have twenty-five (25) months after the Date of Termination to exercise all vested stock options granted prior to the Effective Date, but in no event may Executive or his estate exercise any stock option beyond its term stated in the applicable award agreement. The provisions of this Agreement serve to amend any provision in an applicable award agreement to the contrary.

     (C) During the 18-Month Salary Continuation Period, the Company shall continue to provide coverage for Executive and his eligible dependents under the Health Plan at Company’s sole expense; provided that Executive is not eligible to participate in a group health plan of another entity. Upon expiration of the 18-Month Salary Continuation Period until the fifth anniversary of the Date of Termination, the Company shall continue to provide coverage to Executive and his eligible dependents under the Health Plan at Executive’s sole expense; provided that Executive is not eligible to participate in a group health plan of another entity. Executive’s (and his eligible dependents’) right to receive continuation coverage under COBRA shall commence after, and not run coincident with, the continuation coverage provided under this Section 6(h)(ii)(C), and any such COBRA coverage shall be provided entirely at Executive’s expense. Executive’s (and his eligible dependents’) right to receive continuation coverage under this Agreement other than COBRA will terminate upon the earlier of the date specified herein or the date that Executive (or such eligible dependent, as applicable) first becomes eligible to participate in a group health plan of another entity.

     7. RESTRICTIVE COVENANTS.

     (a) CONFIDENTIAL INFORMATION. Executive shall at all times hold in a fiduciary capacity for the benefit of the Company all secret, confidential or proprietary information, knowledge or data relating to the Company, and its respective businesses, which shall have been obtained by Executive during Executive’s employment by the Company and which shall not be or become public knowledge (other than by acts by Executive or representatives of Executive in violation of this Agreement) including, but not limited to, the following: (i) gene and protein sequences; (ii) biological data; (iii) clones and biologic materials; (iv) laboratory, pre-clinical and clinical experiments and studies; (v) performance characteristics of the Company’ products; (vi) marketing plans, business plans, strategies, forecasts, budgets, projections and costs; (vii) gene sequencing techniques and reagents; (viii) bioinformatics; (ix) personnel information; (x) customer, vendor and supplier lists; (xi) customer, vendor and supplier needs, transaction histories, contacts, volumes, characteristics, agreements and prices; (xii) promotions, operations, sales, marketing, and research and development; (xiii) business operations, internal structures, and financial affairs; (xiv) systems and procedures; (xv) pricing structure of the Company’ services and products; (xvi) proposed services and products; (xvii) contracts with other parties; and (xviii) any other information that the Company is obligated by law, rule or regulation to maintain as confidential (the “Confidential Information”). During Executive’s employment with the Company and after termination of such employment at any time or for any reason, and regardless of whether any payments are made to Executive under this Agreement as a result of such termination, Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any Confidential Information to any person other than the Company and those designated by it or use any Confidential Information except for the benefit of the Company. Immediately upon termination of Executive’s employment with the Company at any time or for any reason, Executive shall return to the Company all Confidential Information, including, but not limited to, any and all copies, reproductions, notes or extracts of Confidential Information.

     (b) COMPETITIVE BUSINESSES. During the eighteen (18)-month period following the Date of Termination, Executive shall be permitted, directly or indirectly, to engage in or assist others in engaging in a business which, at the Date of Termination, is in competition with the Company or any of its subsidiary or affiliate companies, whether as an owner, officer, director, employee, consultant, partner or agent, until such time, if any, as the organization or person engaged in such competitive business owns a product approved by the Food and Drug Administration (“FDA”) that is in direct competition with a

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product of the Company or any of its subsidiary or affiliate companies approved by the FDA and sold by the Company or any of its subsidiary or affiliate companies, in which event Executive shall terminate Executive’s relationship with such organization or person within ten (10) business days following the date Executive becomes aware of such competitive situation. Notwithstanding the foregoing, in no event shall it be a violation of this Section 7(b) for Executive to enter the employ of, or render any services to, whether as an owner, officer, director, employee, consultant, partner or agent, any person, firm, entity or corporation engaged in any not-for-profit business or any academic institution.

     (c) SOLICITATION OF EMPLOYEES. During Executive’s employment with the Company and for a period of twelve (12) months after the Date of Termination, Executive shall not solicit, participate in or promote the solicitation of any person who was employed by the Company or any of its subsidiary or affiliate companies at the time of the Date of Termination to leave the employ of the Company or any of its subsidiary or affiliate companies, or, on behalf of himself or any other person, hire, employ or engage any such person. Executive further agrees that, during such time, if an employee of the Company or any of its subsidiary or affiliate companies contacts Executive about prospective employment, Executive will inform such employee that he cannot discuss the matter further without informing the Company.

     (d) COMPANY’S RIGHT TO INTELLECTUAL PROPERTY. Executive shall promptly disclose to the Company, for its sole use and benefit, any and all inventions, ideas, discoveries, information, works of authorship, proposals, drawings, plans, schematics, computer software or programs, know-how, processes, formulas, designs, data, improvements or revisions (collectively, “Inventions”), whether or not copyrightable or patentable, which he/she may, in whole or any part, make, devise, conceive, create, design, invent, develop, reduce to practice or discover, either solely or jointly with another or others (whether or not Company personnel), during his employment by the Company (whether at the request or upon the suggestion of the Company or otherwise, and whether during or outside of normal working hours), which relate to, or are capable of use in connection with, the business of the Company or its subsidiary or affiliate companies and/or those which result directly or indirectly, in whole or in part, from use of the time, facilities, materials or information of the Company, together with all patent applications, letters patent, copyrights and reissues thereof that may at any time be granted for or upon any such Inventions. Executive further agrees to assign, grant and convey, and hereby assigns, grants and conveys, to the Company all of the rights, titles and interests in and to any and all such Inventions that Executive, in whole or in part, has or may acquire in such Inventions. Executive agrees that the Company will be the sole owner of all patents, copyrights, trademarks and other intellectual property rights in connection therewith, and agrees to take all such actions as may be requested by the Company with respect to any such Inventions to confirm or evidence such assignment, transfer, conveyance or ownership, and to assist in the Company’ maintenance, enforcement, license, assignment, transfer, or conveyance of such rights. In connection therewith:

     (i) Executive shall without charge, but at the expense of the Company, promptly at all times hereafter execute and deliver such applications, assignments, descriptions and other instruments as may be reasonably necessary or proper in the opinion of the Company to vest title to any such inventions, improvements, technical information, patent applications, patents, copyrights or reissues thereof in the Company and to enable it to obtain and maintain the entire right and title thereto throughout the world; and

     (ii) Executive shall render to the Company at its expense (including reimbursement to the Executive of reasonable out-of-pocket expenses incurred by the Executive and a reasonable payment for the Executive’s time involved in case he is not then in its employ) all such assistance as it may require in the prosecution of applications for said patents, copyrights or reissues thereof, in the prosecution or defense of interferences which may be declared involving any said applications, patents or copyrights and in any litigation in which the Company may be involved relating to any such patents, inventions, improvements or technical information.

     8. INDEMNIFICATION. The Company will continue to cover Executive under its directors’ and officers’ insurance policy following the Date of Termination for a period of time equal to the applicable statute of limitations. The Company shall indemnify and hold Executive harmless to the same extent it indemnifies its other

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officers and directors under its by-laws, in respect of any liability, damage, cost or expense (including reasonable attorneys’ fees) actually and reasonably incurred in connection with the defense of any claim, action, suit or proceeding to which Executive is a party by reason of Executive’s being or having been an officer or director of the Company or any subsidiary or affiliate thereof, or Executive’s serving or having served at the request of such other entity as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, business organization, enterprise or other entity, including service with respect to employee benefit plans. Without limiting the generality of the foregoing, the Company shall pay the expenses (including reasonable attorneys’ fees) actually and reasonably incurred in defending any such claim, action, suit or proceeding in advance of its final disposition, upon receipt of Executive’s undertaking to repay all amounts advanced unless it is ultimately determined that Executive is entitled to be indemnified under this Section.

     9. ARBITRATION; EQUITABLE RELIEF.

     (a) ARBITRATION. Any controversy, dispute or claim of whatever nature arising out of, or in relation to, the Company’s and Executive’s relationship as provided in this Agreement, shall be resolved first by prompt, informal, good faith negotiations by the parties. If a mutually satisfactory resolution is not reached by such good faith negotiations within forty-five (45) days, the parties agree that such controversy, dispute or claim shall be resolved exclusively through final and binding arbitration before a single neutral arbitrator selected jointly by the parties. If the parties are unable to agree on a single arbitrator, each of the Company and Executive shall select an arbitrator, and those arbitrators will jointly select a third, who will arbitrate the dispute. The arbitrator must be a former judge, and the arbitration shall be conducted in accordance with the rules of JAMS/ENDISPUTE then in effect. The arbitration shall take place in Rockville, Maryland. The Company will pay the direct costs and expenses of the arbitration. The Company and Executive will each separately pay its counsel fees and expenses; provided, however, the Company shall reimburse Executive for his reasonable costs (including without limitation, attorneys’ fees) incurred if Executive succeeds on the merits with respect to a material breach of this Agreement and Executive is not found to be in material breach. The parties agree that any award rendered by the arbitrator shall be final and binding, and that judgment upon the award may be entered in any court having jurisdiction thereof. The provisions of this Section 9 shall survive the expiration or termination of this Agreement and of Executive’s employment.

     (b) EQUITABLE RELIEF. The parties further acknowledge and agree that, due to the Company’s business, the Executive’s breach any of the covenants set forth in Section 7 of this Agreement would cause significant hardship to the Company and immediate, material and irreparable injury and damage for which there is no adequate remedy at law. Accordingly, in the event of a breach, or threatened breach, by Executive of the provisions of Section 7 of this Agreement, the Company shall be entitled immediately to seek, and nothing in this Section 9 shall preclude the Company from seeking, enforcement of Section 7 of this Agreement in a court of competent jurisdiction by means of a decree of specific performance, an injunction without the posting of a bond or the requirement of any other guarantee, and any other form of equitable relief, and that the Company is entitled to recover from Executive the costs and attorneys’ fees it incurs to obtain such equitable relief (including an injunction) or any other damages for a breach of Section 7 of this Agreement. This provision is not a waiver of any other rights, which the Company may have under this Agreement, including the right to recover money damages for any other claim at law or in equity.

     (c) The provisions of this Section 9 shall survive the expiration or termination of this Agreement and of Executive’s employment.

     10. LEGAL FEES. Company agrees to reimburse Executive for all legal and professional fees and costs incurred by the Executive in connection with the negotiation and preparation of this Agreement, but in no event to exceed Ten Thousand Dollars ($10,000.00).

     11. WITHHOLDING OF TAXES. The Company may withhold from any compensation and benefits payable under this Agreement all applicable federal, state, local, or other taxes.

     12. ASSIGNMENT. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, representatives, successors and assigns. This Agreement shall not be assignable by

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Executive (but any payments due under this Agreement which would be payable at a time after Executive’s death shall be paid to Executive’s designated beneficiary or, if none, his estate). The Company shall require any successor, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all of the business and/or assets of the Company expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would have been required to perform it if no such succession had taken place. As used in this Agreement, the term “Company” shall mean both the Company as defined above and any such successor.

     13. ENTIRE AGREEMENT; NON-DUPLICATION OF BENEFITS. This Agreement, together with the Company’s Key Executive Severance Plan (the “Severance Plan”), shall constitute the entire understanding of the parties with respect to the subject matter herein and shall supersede any and all existing oral or written agreements, representations, or warranties between Executive and the Company or any of its subsidiaries or affiliated entities relating to the terms of Executive’s employment by the Company including, without limitation, that certain employment agreement between the Company and Executive entered into on October 5, 1992. In the event that Executive is entitled to benefits under the Severance Plan and this Agreement, he shall be entitled to the better benefits of the two, determined in the aggregate and in his discretion, and in no event will he be entitled to benefits under both this Agreement and the Severance Plan.

     14. AMENDMENT. This Agreement shall not be amended except by a written agreement signed by both parties.

     15. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Maryland applicable to agreements made and to be performed in that State, without regard to its conflict of laws provisions.

     16. REQUIREMENT OF TIMELY PAYMENTS. If any amounts which are required, or determined to be payable or reimbursable, to Executive under this Agreement are not so paid promptly at the times provided herein, such amounts shall accrue interest, at the applicable Federal short-term rate in effect under Internal Revenue Code Section 1274(d) as of the date such amount first became due to Executive, compounded annually, from the date such amounts were required or determined to have been payable or reimbursable to Executive, until such amounts and any interest accrued thereon are finally and fully paid, provided, however, that in no event shall the amount of interest contracted for, charged or received hereunder, exceed the maximum non-usurious amount of interest allowed by applicable law.

     17. NOTICES. Any notice, consent, request or other communication made or given in connection with this Agreement shall be in writing and shall be deemed to have been duly given upon receipt when delivered by hand or by overnight courier, or three (3) days after deposit in the U.S. mail by registered or certified mail, return receipt requested, with proper postage affixed, to the parties at their following respective addresses or at such other address as each may specify by notice to the others in accordance with this Section. Notices to the Company shall be addressed to the Secretary of Human Genome Sciences, Inc. at 14200 Shady Grove Road, Rockville, Maryland 20850. Notices to the Executive shall be addressed to Executive’s address as reflected on Company’s personnel records.

     18. MISCELLANEOUS.

     (a) WAIVER. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver thereof or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.

     (b) NO DUTY TO MITIGATE. The Company agrees that, if Executive’s employment with the Company terminates, Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to or in respect of Executive by the Company pursuant to this Agreement. Further, the amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation earned by Executive as the result of employment by another employer or by retirement benefits.

     (c) TERMINATION OF AGREEMENT. This Agreement shall terminate upon the

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termination of Executive’s employment, except that terms of this Agreement which must survive the termination of this Agreement in order to be effectuated (including the provisions of Sections 6, 7, 8, 9, 13 and 15) shall survive until, by their terms, such provisions are no longer operative. Upon the termination of the Executive’s employment, Executive consents to the notification by the Company to the Executive’s new employer of Executive’s obligations under this Agreement.

     (d) SEPARABILITY. If any portion of this Agreement shall be found to be invalid or contrary to public policy, the same may be modified or stricken by a court of competent jurisdiction, to the extent necessary to allow the court to enforce such provision in a manner which is as consistent with the original intent of the provision as possible. If any term or provision of this Agreement is declared illegal or unenforceable by any court of competent jurisdiction and cannot be modified to be enforceable, such term or provision shall immediately become null and void, leaving the remainder of this Agreement in full force and effect.

     (e) HEADINGS. Section headings are used herein for convenience of reference only and shall not affect the meaning of any provision of this Agreement.

     (f) RULES OF CONSTRUCTION. Whenever the context so requires, the use of the singular shall be deemed to include the plural and vice versa.

     (g) COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, and such counterparts will together constitute but one Agreement.

(Signature page follows)

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     IN WITNESS WHEREOF, this Agreement is EXECUTED and EFFECTIVE as of the day set forth above.

CRAIG A. ROSEN, Ph.D.		WITNESS:
(“Executive”)
/s/ Craig A. Rosen, Ph.D.		/s/ Cynthia B. Thir
Craig A. Rosen, Ph.D.		Cynthia B. Thir
HUMAN GENOME SCIENCES, INC.		ATTEST:
(“Company”)
By:	/s/ Susan Bateson McKay	/s/ Shelly D’Amico
	Susan Bateson McKay	Shelly D’Amico
Title:	Senior Vice President, HR

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EXHIBIT A

PERMITTED RELATIONSHIPS

     The Company agrees that, during the Employment Period and provided that such service does not materially interfere with the performance of his duties to the Company, Executive may serve on the Scientific Advisory Boards for the Wistar Institute and the Institute for Human Virology, and on the editorial boards of the following publications:

     None

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EX-31.1

Exhibit 31.1

I, William A. Haseltine, Ph.D., certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q for the period ended June 30, 2004 of Human Genome Sciences, 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 Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	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
(c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 6, 2004

/s/ William A. Haseltine, Ph.D.

William A. Haseltine, Ph.D.

Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

I, Steven C. Mayer, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q for the period ended June 30, 2004 of Human Genome Sciences, 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 Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	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
(c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 6, 2004

/s/ Steven C. Mayer

Steven C. Mayer

Executive Vice President and

Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification of Principal Executive Officer
Pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act of 2002)

I, William A. Haseltine, Ph.D., Chairman and Chief Executive Officer (principal executive officer) of Human Genome Sciences, Inc. (the “Registrant”), certify, to the best of my knowledge, based upon a review of the Quarterly Report on Form 10-Q for the period ended June 30, 2004 of the Registrant (the “Report”), that:

     (1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and

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

/s/ William A. Haseltine, Ph.D.
Name: William A. Haseltine, Ph.D.
Date: August 6, 2004

EX-32.2

Exhibit 32.2

Certification of Principal Financial Officer
Pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act of 2002)

I, Steven C. Mayer, Chief Financial Officer (principal financial officer) of Human Genome Sciences, Inc. (the “Registrant”), certify, to the best of my knowledge, based upon a review of the Quarterly Report on Form 10-Q for the period ended June 30, 2004 of the Registrant (the “Report”), that:

     (1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and

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

/s/ Steven C. Mayer
Name: Steven C. Mayer
Date: August 6, 2004