10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2005

or

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

Commission File Number: 0-22873

NUVELO, INC.

(Exact Name of Registrant as Specified in Its Charter)

DELAWARE	36-3855489
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

201 Industrial Road, Suite 310, San Carlos, CA	94070
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:

650-517-8000

Securities registered pursuant to Section 12(b) of the Exchange Act: None

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

Common Stock, $.001

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in rule 405 of the Securities Act.    Yes  ¨    No  þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 and Section 15(d) of the Act.    Yes  ¨    No  þ

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 75 days.    Yes  þ    No  ¨

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the Act).    Large accelerated filer  ¨    Accelerated filer  þ    Non-accelerated filer  ¨

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

The aggregate market value of the common stock held by non-affiliates of the Registrant on June 30, 2005 was $297,399,359, based on the last sale price of the common stock as reported by the Nasdaq Stock Market.*

As of February 28, 2006, the Registrant had 51,656,770 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Definitive Proxy Statement, which will be filed with the Commission pursuant to Section 14A in connection with the 2006 meeting of stockholders, are incorporated by reference into Part III of this Form 10-K.

* Excludes 3,575,900 shares of Common Stock held by directors, officers and stockholders whose beneficial ownership exceeded 5% of the Registrant’s Common Stock outstanding. The number of shares owned by stockholders whose beneficial ownership exceeded 5% of the Registrant’s Common Stock outstanding was determined based upon information supplied by such persons and upon Schedules 13D and 13G, if any, filed with the SEC. Exclusion of shares held by any person should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the Registrant, that such person is controlled by or under common control with the Registrant, or that such persons are affiliates for any other purpose.

TABLE OF CONTENTS

PART I	3
Item 1. Business	3
Item 1A. Risk Factors	16
Item 1B. Unresolved Staff Comments	39
Item 2. Properties	39
Item 3. Legal Proceeding	39
Item 4. Submission of Matters to a Vote of Security Holders	40
PART II	41
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters	41
Item 6. Selected Consolidated Financial Data	42
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	44
Item 7A. Qualitative and Quantitative Disclosures About Market Risk	58
Item 8. Financial Statements and Supplementary Data	60
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	61
CONSOLIDATED BALANCE SHEETS	63
CONSOLIDATED STATEMENTS OF OPERATIONS	64
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)	65
CONSOLIDATED STATEMENTS OF CASH FLOWS	66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	67
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	90
Item 9A. Controls and Procedures	90
PART III	92
Item 10. Directors and Executive Officers of the Registrant	92
Item 11. Executive Compensation	92
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	92
Item 13. Certain Relationships and Related Transactions	92
Item 14. Principal Accountant Fees and Services	92
PART IV	93
Item 15. Exhibits and Financial Statement Schedules	93
SIGNATURES	99

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PART I

Item 1. Business

We have included or incorporated by reference into this Annual Report on Form 10-K statements that may constitute “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words including “anticipate”, “believe”, “intends”, “estimates”, “expect”, “should”, “may”, “potential”, and similar expressions. Such statements are based on our management’s current expectations and involve risks and uncertainties. Our actual results and performance could differ materially from those projected in the forward-looking statements as a result of many factors discussed in this Annual Report, including those set forth in this section under the caption “Item 1A. Risk Factors,” as well as those under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and those discussed elsewhere in this Annual Report on Form 10-K.

Business Overview

We are a biopharmaceutical company dedicated to improving the lives of patients through the discovery, development and commercialization of novel acute cardiovascular and cancer therapies. Our development pipeline includes three acute cardiovascular programs focused on alfimeprase, rNAPc2 and a thrombin inhibiting aptamer. We also have an emerging pre-clinical oncology pipeline.

Our lead cardiovascular development program is for alfimeprase, a novel, direct-acting thrombolytic agent, or blood clot dissolver, which is currently in Phase 3 clinical trials for the treatment of acute peripheral arterial occlusion, or PAO, and for the treatment of catheter occlusion. We also intend to expand this development program by initiating a Phase 2 clinical trial in the second half of 2006 to evaluate the potential of alfimeprase for the treatment of ischemic stroke and another Phase 2 clinical trial in 2007 to evaluate the potential of alfimeprase to treat deep venous thrombosis, or DVT. As provided in the collaboration and license agreement that we entered into in January 2006, we granted Bayer HealthCare AG, or Bayer, the right to commercialize alfimeprase outside the United States, while retaining the right to commercialize alfimeprase in the United States.

Our second cardiovascular development program is for recombinant nematode anticoagulant protein c2, or rNAPc2, an anticoagulant that inhibits the factor VIIa and tissue factor protease complex, which is responsible for initiating the blood clotting process. We recently completed a Phase 2a clinical trial with rNAPc2 in acute coronary syndrome, or ACS, and are currently enrolling patients in a subsequent Phase 2 trial intended to evaluate its potential use as a replacement for heparin, an anticoagulant, in patients with ACS.

Our third cardiovascular development program is in the preclinical stage and is focused on identifying an optimized thrombin inhibiting aptamer for potential use as a rapid-on/rapid-off anticoagulant for patients undergoing acute cardiovascular procedures, such as coronary artery bypass graft, or CABG, surgery.

In addition to these programs, we have an emerging oncology development pipeline. We are progressing a potent gastrointestinal epithelial growth factor, NU206, as a preclinical development candidate for the potential treatment of mucositis, which is a side effect of chemotherapy and radiation therapies received by cancer patients. NU206 is targeted to enter Phase 1 clinical development in the second half of 2006. We are also investigating the potential of rNAPc2 as a cancer therapy based on its apparent role in the cellular signaling of both metastasis and angiogenesis in a variety of cancers.

Finally, we have a drug discovery effort focused on two research programs: the first investigating secreted proteins and the second investigating antibodies against cell surface proteins as potential cancer targets. Through these programs, we plan to further expand our pipeline and create additional partnering and licensing opportunities.

As of December 31, 2005, our cash, cash equivalents and short-term investments totaled $70.3 million. In January 2006, following our entry into the alfimeprase collaboration and license agreement with Bayer, we

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received a $50.0 million up-front cash payment from Bayer, and in February 2006, we raised approximately $111.9 million in a public offering, after deducting underwriters’ fees and stock issuance costs of approximately $7.7 million, from the sale of 7,475,000 shares of our common stock, including 975,000 shares from the exercise of an over-allotment option granted to the underwriters, at a public offering price of $16.00 per share.

We expect gross operating expenses to increase significantly in 2006, as we advance our alfimeprase Phase 3 clinical trial activity, increase alfimeprase manufacturing expenditures under our agreement with Avecia Ltd. and future agreements with any other drug manufacturers and incur additional general corporate expenses, including those for continued preparations for the planned commercial launch of alfimeprase. This gross operating expense increase will be partially offset by cost-sharing reimbursements from Bayer for 40 percent of alfimeprase-related global development spending. We are currently operating at a loss and do not expect to be profitable, or to generate revenues from product sales, until we have successfully commercialized a product candidate.

Product Pipeline

The following table summarizes key information about our current product pipeline:

Products in Development

Alfimeprase

Our lead product candidate, alfimeprase, is a thrombolytic agent with a novel mechanism of action, for which we obtained worldwide development and commercialization rights from Amgen in October 2004. Alfimeprase is a modified and recombinant version of fibrolase, a naturally occurring enzyme that directly and rapidly degrades fibrin, the protein that provides the structural scaffold of blood clots. Thrombolytics currently on the market, such as Activase (alteplase), are plasminogen activators that work by activating plasminogen to form plasmin, which in turn degrades fibrin. In contrast, alfimeprase directly degrades fibrin, creating the potential for more rapid clot dissolution, or lysis. Alfimeprase is locally delivered at the site of the blood clot and is inactivated quickly by alpha-2 macroglobulin, a naturally occurring protein in the bloodstream. We believe this clearance mechanism limits the systemic activity of alfimeprase and implies that patients may experience fewer of the bleeding side effects associated with plasminogen activators.

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Alfimeprase in acute peripheral arterial occlusion

The lead medical indication we are pursuing for alfimeprase is acute PAO. Acute PAO is a significant cause of morbidity in the United States, with estimates of over 100,000 cases reported annually. Acute PAO occurs when arterial blood flow is blocked to a distant part of the body, usually the leg, by a blood clot. Traditionally, surgical approaches have been used to treat acute PAO. However, thrombolytic agents such as Activase have been used as a less-invasive alternative, even though they have not been approved by the FDA to treat acute PAO. Studies have shown that current thrombolytic therapies can take 24 to 36 hours or more to restore flow to the blocked limb, with five to 16 percent of patients experiencing a major bleed and one to two percent of patients experiencing intracerebral hemorrhage. We believe alfimeprase has the potential to be a more effective agent than existing agents for use in treating acute PAO by reducing treatment time and the potential for bleeding side effects.

We completed our Phase 2 clinical trial in patients with acute PAO in the second quarter of 2004. This trial was an open label, dose-escalation study evaluating the safety and activity of alfimeprase. The trial enrolled 113 patients in multiple centers in the United States, Europe, Russia and other locations. The Phase 2 results indicate that alfimeprase has the potential to offer significant advances in the rapid resolution of a blood clot while minimizing potentially fatal side effects such as intracerebral hemorrhage and other bleeding complications. Analysis of the Phase 2 results showed that alfimeprase has the potential to partially or completely break up blood clots within four hours of initiation of dosing with rates of up to 76 percent and to restore arterial flow with rates of up to 60 percent. Up to 69 percent of study patients were able to avoid open vascular surgical intervention in the 30 days following treatment with alfimeprase. Among the 113 patients enrolled, there were no intracerebral hemorrhages or deaths at 30 days. There were seven major bleeding events reported, none of which was categorized as systemic bleeding events and only one of which was categorized by the investigator as possibly related to alfimeprase. Incidents of transient hypotension were also reported and were dose-related. Events associated with distal embolism were also noted. We do not believe that these events were more significant in number or severity than similar events associated with other therapies delivered by catheter to blood clots.

In April 2005, we commenced the first of two clinical trials in the alfimeprase Phase 3 acute PAO program, known as NAPA, or Novel Arterial Perfusion with Alfimeprase. This program consists of two overlapping trials that will include a total of 600 patients between the two trials. The first trial in this program, NAPA-2, is a randomized, double-blind study comparing 0.3 mg/kg of alfimeprase versus placebo in 300 patients. The trial is being conducted in approximately 100 centers worldwide. The study’s primary endpoint is avoidance of open vascular surgery within 30 days of treatment. Open vascular surgery includes procedures such as surgical embolectomy, peripheral arterial bypass graft surgery and amputation, but does not include catheter-based procedures such as percutaneous angioplasty or stenting. A variety of secondary endpoints are also being evaluated, including safety endpoints such as the incidence of bleeding, as well as pharmacoeconomic endpoints such as length of hospital and intensive care unit stay. We expect to complete enrollment in the NAPA-2 trial in the second half of 2006.

The second Phase 3 trial, NAPA-3, is the subject of a special protocol assessment, or SPA, agreement with the U.S. Food and Drug Administration, or FDA, and will essentially replicate the NAPA-2 trial. Under an SPA, the FDA provides guidance on the design of a trial prior to its initiation. We expect to begin enrollment in the NAPA-3 trial in early 2006.

We have been granted fast track designation by the FDA for alfimeprase in acute PAO. Fast track designation can potentially facilitate development and expedite review of biologics license applications, or BLAs. Fast track designation is reserved for new drugs that demonstrate the potential to address an unmet medical need and are intended for treatment of a serious or life-threatening condition. In addition, we have obtained orphan drug status for alfimeprase in the United States and Europe for the treatment of acute PAO, which may provide us with up to seven and ten years of market exclusivity in the United States and Europe, respectively, following market authorization.

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Alfimeprase in catheter occlusion

Alfimeprase is also in late-stage clinical development for use in catheter occlusion. Catheter occlusion is the obstruction of blood flow through a central venous catheter. It is estimated that about five million catheters are implanted in patients each year in the United States, and approximately 25 percent become occluded. Current treatment for catheter occlusion includes removal and replacement of the catheter, or treatment with Cathflo Activase (alteplase). Based on clinical trial evidence of alfimeprase’s activity, we believe alfimeprase has the potential to restore flow to occluded catheters more rapidly than Cathflo Activase.

In the third quarter of 2004, we completed patient enrollment in a Phase 2 multi-center, double-blind, randomized study in 55 patients with occluded central venous catheters comparing three doses (0.3 mg, 1.0 mg and 3.0 mg) of alfimeprase against the approved dose of Cathflo Activase (2.0 mg). The alfimeprase 3.0 mg dose produced cumulative flow rates of 40 percent at five minutes after the first dose, 50 percent at 15 minutes after the first dose, 60 percent at 30 minutes and 120 minutes after the first dose, and 80 percent at 120 minutes after the second dose. This is compared to Cathflo Activase, which produced flow rates of zero percent at five minutes after the first dose, zero percent at 15 minutes after the first dose, 23 percent at 30 minutes after the first dose, 46 percent at 120 minutes after the first dose, and 62 percent at 120 minutes after the second dose. No major hemorrhagic events were reported in any treated patients and only one patient had a catheter-related infection.

In September 2005, we commenced the first of two multi-national trials in the alfimeprase Phase 3 catheter occlusion program, known as SONOMA, or Speedy Opening of Non-functional and Occluded catheters with Mini-dose Alfimeprase. The first trial is an efficacy study called SONOMA-2, which is a randomized, double-blind trial, comparing 3.0 mg of alfimeprase with placebo in 300 patients with occluded central venous catheters. Two-thirds of the patients will receive alfimeprase and the remainder will receive placebo. The study’s primary endpoint is restoration of function to occluded central venous catheters at 15 minutes. We expect to complete enrollment in the SONOMA-2 trial in the second half of 2006.

The second study, known as SONOMA-3, is an open label, single-arm trial evaluating alfimeprase in 800 patients. This study’s primary endpoint is safety, although we will be evaluating efficacy in these patients as well. We began enrolling patients in this trial in February 2006.

Alfimeprase in stroke

In January 2006, we announced our intention to expand the alfimeprase development program and initiate a Phase 2 clinical trial in the second half of 2006 to study the potential of alfimeprase to treat patients with ischemic stroke. Each year, approximately 650,000 patients suffering from stroke are admitted into hospitals in the United States. Some of these patients have hemorrhagic strokes, which are characterized by the rupture of blood vessels in the brain and usually result in death. The large majority of stroke patients suffer from ischemic strokes, which are characterized by blood clots that prevent the flow of blood to the brain, thereby depriving the brain of oxygen. Depending on the location and severity of the blood clot, the most common consequence of ischemic stroke is loss of function, including paralysis.

Currently, the therapeutic options for patients with ischemic stroke are limited. Activase has been approved in the United States for treatment of ischemic stroke. Its use has been limited, however, by the requirement that patients receive it within three hours of onset of the stroke and by the increased bleeding risk associated with its use. We believe that alfimeprase has the potential to expand the treatment window for ischemic strokes due to its rapid and direct mechanism of action and its potential safety profile.

Alfimeprase in deep venous thrombosis

In January 2006, we also announced our intention to initiate a Phase 2 clinical program in 2007 to evaluate the potential of alfimeprase to treat patients suffering from DVT. Each year, approximately 300,000 patients are diagnosed with DVT in the United States. DVT is characterized by blood clots in the venous system of peripheral

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limbs, typically the legs. The consequences of DVT include pain and swelling of the affected limb and, in relatively rare circumstances, pulmonary embolism which can result in death.

Currently, very few DVT patients receive thrombolytics. DVT is rarely a life-threatening condition and, therefore, doctors are typically reluctant to administer thrombolytics, which expose DVT patients to significant bleeding risk. As a result, DVT patients generally receive anticoagulants intended to prevent further propagation of the blood clot and are told to limit activity until the blood clot resolves, often over a period of months. We believe alfimeprase has the potential to treat this patient population with a reduced bleeding risk because of its unique mechanism of action and its potential safety profile.

rNAPc2

Our second drug candidate, rNAPc2, is a recombinant version of a naturally occurring protein that has anticoagulant properties. Specifically, rNAPc2 has been shown to block the factor VIIa and tissue factor protease complex, which is responsible for the initiation of the process leading to blood clot formation and has also been shown to play a role in both metastasis, or the secondary growth of cancer cells, and angiogenesis, or the formation of new blood vessels, as they relate to tumor growth. Compared to other commercially available anticoagulants, which all exert their effects at later stages of the blood coagulation cascade, rNAPc2 is designed to block the first step in the cascade. By blocking the coagulation cascade before amplification of the coagulation process, rNAPc2 could prove to be more effective in treating patients with conditions such as ACS, or as a prophylactic against clot formation in conditions such as DVT. In addition, the novel mechanism of action of rNAPc2 offers the potential to have therapeutic utility in cancer.

ACS occurs when an atherosclerotic plaque ruptures in a coronary artery, which triggers the coagulation cascade and results in the formation of a blood clot. The clot blocks the flow of blood to the heart muscle, depriving it of oxygen and causing chest pain and, if severe, permanent heart muscle death. In the United States, ACS accounts for approximately 1.4 million hospital admissions annually. Patients with ACS are traditionally given aspirin and heparin, among other agents, to stabilize their medical condition. Recent guidelines also recommend the addition of the antiplatelet agent Plavix (clopidogrel) to the standard of care. However, based upon the significant number of patients with ACS who continue to experience poor outcomes, such as recurrent angina, myocardial infarction or death, we believe there is a need for improved antithrombotic therapies.

rNAPc2, given alone or with standard therapy, may reduce the risk of subsequent heart attack or death in patients suffering from ACS. Unlike aspirin, heparin, and other current antithrombotic agents, which all exert their effects at later stages of the blood coagulation cascade, rNAPc2 blocks the first step in the clotting cascade. A medical regimen that includes rNAPc2 could, therefore, enable a multi-pronged attack at several points along the blood coagulation process. Alternatively, by stopping coagulation at the outset, rNAPc2 could also prove effective as a stand-alone therapy.

We licensed the worldwide rights for all indications of rNAPc2 and all of the rNAPc molecules owned by Dendreon Corporation in February 2004. The United States government may claim a non-exclusive right to use rNAPc2 with respect to the treatment of hemorrhagic fever. To date, rNAPc2 has been shown to be well tolerated in over 650 patients and healthy volunteers in several Phase 1 and 2 clinical studies.

In May 2005, we completed a Phase 2a double-blind, placebo-controlled clinical trial that was conducted with the TIMI Study Group, showing that rNAPc2 has an acceptable safety profile and is well tolerated in doses up to ten micrograms/kg in patients being treated for ACS, including unstable angina and non-ST segment elevation myocardial infarction. Results showed that treatment with rNAPc2, in addition to standard antithrombotic therapies in patients with ACS, resulted in a dose-related inhibition of thrombin generation without an increase in clinically significant bleeding. The difference in TIMI major or minor bleed rate was not statistically significant between the two treatment groups (4.3 percent in patients treated with rNAPc2 versus 2.5 percent in those treated with placebo). In addition, rNAPc2 suppressed prothrombin fragments one and two and

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prolonged the prothrombin time, both in a dose-related fashion. Additional data is now being generated from this Phase 2a trial based on surrogate endpoints, and we expect to present efficacy data sometime in 2006.

Based on the encouraging safety results from the Phase 2a trial, we initiated a Phase 2 heparin-replacement trial with rNAPc2 in August 2005. The Phase 2 study, which is also being conducted with the TIMI Study Group, is an open label study that is evaluating the efficacy and safety of rNAPc2 by reducing the dose of, and ultimately replacing, unfractionated heparin in patients being treated for ACS. The study will include 50 to 100 patients and is being conducted in approximately 25 centers across the United States and Canada. This trial is expected to complete enrollment in the first half of 2006.

In addition, we are planning to investigate the potential of rNAPc2 as a cancer therapy. The factor VIIa and tissue factor protease complex, which rNAPc2 inhibits, has been shown to play a role in the cellular signaling of both metastasis and angiogenesis in a variety of cancers. As an inhibitor of these processes, which are critical to the progression of a number of cancer types, rNAPc2 may have potential as a therapy for these cancers.

Thrombin inhibiting aptamer

We continue to pursue the development of a thrombin inhibiting aptamer under a collaboration agreement entered into with Archemix Corporation, a privately held biotechnology company located in Cambridge, Massachusetts, in January 2004. In September 2005, we concluded a Phase 1 clinical study for the first target molecule from this program, ARC183. This study evaluated the safety, tolerability, anticoagulation activity and titratability of ARC183 for potential use in acute cardiovascular settings such as CABG surgery. Preliminary results from the trial showed that administration of ARC183 resulted in a rapid onset of anticoagulation and demonstrated stable, dose-related anticoagulation activity and rapid self-reversal of drug effects after administration of the drug infusion ceased. However, the amount of drug needed to achieve the desired anticoagulation for use in CABG surgery resulted in a sub-optimal dosing profile. For that reason, we decided jointly with Archemix not to pursue further development of ARC183 and instead are pursuing optimized thrombin inhibiting aptamers.

NU206

In March 2005, we entered into a collaboration agreement with the Pharmaceutical Division of Kirin Brewery Company, Ltd., for the development and commercialization of NU206. Under this collaboration, we expect to initiate a Phase 1 clinical program with NU206 in the second half of 2006. We plan to initially pursue NU206 as a supportive cancer therapy, specifically to treat radiation and chemotherapy-induced mucositis in the gastrointestinal tract. Research to date indicates that NU206 acts as a highly specific and potent stimulator of gastrointestinal epithelial cells. In addition, NU206 appears to be highly active in multiple animal models of gastrointestinal disease that could support clinical testing in additional indications.

Research programs

In addition to our clinical and development stage drug candidates, we have two ongoing drug discovery programs focused on the identification of novel human genes that encode proteins with therapeutic potential: the first program is focused on secreted proteins and the second on cancer antibody targets. Over the long-term, we intend to develop additional product opportunities from our ongoing discovery efforts. In addition to the development of internal therapeutic candidates, we intend to leverage these discoveries to create revenue-generating licensing and partnering arrangements.

The secreted protein program included a research program with Kirin and includes our internal discovery program. Our 2001 collaboration agreement with Kirin for the research and development of secreted proteins expired December 31, 2005, in accordance with its terms. We and Kirin have already advanced several secreted protein candidates to more extensive studies to better define their therapeutic utility based upon early findings in

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initial mouse models, and are currently discussing the possibility of engaging in additional research and development with respect to certain secreted proteins to be selected by us and Kirin from the pool of candidates that were the subject of the 2001 collaboration. Within our internal secreted protein discovery program, we have developed a fast and efficient method of expressing human secreted proteins in mice. This program could significantly bolster our ability to identify which secreted proteins within our patent estate have the greatest potential for therapeutic use.

The cancer antibody program is focused on screening our proprietary gene sequence collection to identify proteins located on the surface of tumor cells that could be targeted by therapeutic monoclonal antibodies.

Our Strategy

We are focused on building a successful biopharmaceutical business and committed to creating a product-focused company that leverages our drug discovery and development expertise. Key elements of our strategy are to:

Successfully develop and commercialize our lead drug candidate, alfimeprase

We are seeking to develop and commercialize our lead drug candidate, alfimeprase, for the treatment of acute PAO, catheter occlusion, and a variety of other thrombotic conditions, including stroke and DVT. As part of this strategy, in 2005 we initiated two pivotal Phase 3 clinical programs in acute PAO and in catheter occlusion. We have exclusive rights to this compound in the United States and in 2006 we entered into a significant development and collaboration agreement with Bayer for the development and commercialization of alfimeprase outside the United States.

Commercialize our hospital-based products in the United States

Rather than license other companies to commercialize our products in the United States, we plan to sell them ourselves through our own hospital-based sales force. We believe that the resources required to develop a sales and marketing organization to sell products to hospitals is manageable for a company of our size, and will allow us to capture more value from our clinical development successes. In 2005, we began to hire a marketing organization, which we plan to expand in 2006. Our marketing organization is currently performing market research and planning for the anticipated launch of alfimeprase.

Leverage our expertise in cardiovascular disease and oncology to advance our clinical development programs

We are primarily focused on the development of acute, hospital-based, cardiovascular drug candidates and oncology drug candidates. We believe this portfolio leverages our expertise in cardiovascular and oncology drug development, enabling us to pursue a more rapid path toward drug commercialization.

Build a diversified pipeline of product candidates

We are pursuing several drug development candidates in various stages of clinical and preclinical development. In addition, we seek to identify drug development candidates that have the potential to receive regulatory approval to treat a number of different indications, thereby further diversifying our risk by providing each drug candidate with a number of potential commercialization paths. We believe this strategy reduces our exposure to the impact of any single product failure, maximizes our potential returns from successful compounds, and increases our flexibility to eliminate programs we deem less promising. By broadening our portfolio across indications and products, we intend to increase the probability of clinical and commercial success. In addition, we focus on molecules that we believe have a greater chance of success due to the predictability of preclinical models used in their development.

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Opportunistically seek to license or acquire complementary products

We intend to supplement our internal drug discovery efforts through the acquisition of products that complement our development strategy. We continue to identify, evaluate and pursue the acquisition or licensing of strategically valuable product opportunities.

Corporate Information

We were incorporated as “Hyseq, Inc.” in Illinois in 1992 and reincorporated in Nevada in 1993. On January 31, 2003, we merged with Variagenics, Inc., a publicly traded Delaware corporation based in Massachusetts, and, in connection with the merger, changed our name to “Nuvelo, Inc.” On March 25, 2004, we reincorporated from Nevada to Delaware. Our principal executive offices are located at 201 Industrial Road, Suite 310, San Carlos, California 94070.

We file our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 electronically with the Securities and Exchange Commission. The public may read or copy any materials we file with the SEC at the SEC’s Public Reference Rooms at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov.

You may obtain a free copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports on the day of filing with the SEC on our website, on the World Wide Web at http://www.nuvelo.com or by contacting the Investor Relations Department at our corporate office by calling (650) 517-8000 or sending an e-mail message to ir@nuvelo.com. Information found on our website is not incorporated by reference into this report.

Research and Development Collaborations

Expenditures for research and development were $57.8 million, $40.0 million and $30.0 million in 2005, 2004 and 2003, respectively. Our significant research and development collaborations are as follows:

Bayer

In January 2006, we entered into a license and collaboration agreement with Bayer for the global development and commercialization of alfimeprase. Under this agreement, Bayer will commercialize alfimeprase in all territories outside the United States and will pay us tiered royalties ranging from a minimum of 15 percent to a maximum of 37.5 percent. We retain all commercialization rights and profits from alfimeprase sales in the United States. We are eligible to receive up to $385.0 million in milestone payments from Bayer, including a $50.0 million up-front cash payment that we received in January 2006, up to $165.0 million in development milestones and $170.0 million in sales and commercialization milestones over the course of the agreement. We expect to receive a $10.0 million development milestone fee in the second half of 2006 upon the initiation of a phase 2 trial for alfimeprase in ischemic stroke. In addition, Bayer will be responsible for 40 percent of the costs for global development programs. We will be responsible for 60 percent of the costs and will remain the lead for the design and conduct of the global development programs. Each party will bear its own expenses for any country-specific alfimeprase clinical trials it conducts, where the country-specific clinical trials are not part of the agreed global development program.

Amgen

In October 2004, we obtained worldwide rights to develop and commercialize alfimeprase from Amgen, in exchange for the future payment to Amgen of previously negotiated milestone payments and royalties. In

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accordance with the terms of the license agreement, Amgen has transferred the technology necessary for the manufacture of alfimeprase drug substance to our designated manufacturer, Avecia. As a result of dosing the first patient in the first Phase 3 clinical trial for alfimeprase in April 2005, we paid a $5.0 million milestone fee to Amgen in May 2005, which was charged to expense. Future milestone payments under the license agreement could total as much as $35.0 million, although we currently cannot predict if or when any of these additional milestones will be achieved. Under our agreement with Bayer, we will continue to bear sole responsibility for these milestone payments and royalties owed to Amgen.

Dendreon

We have obtained exclusive worldwide rights to all indications of rNAPc2 and all other rNAPc molecules owned by Dendreon Corporation, as a result of a licensing agreement entered into with them in February 2004. Under the terms of the agreement, we paid Dendreon an upfront fee of $4.0 million ($0.5 million in cash and $3.5 million in Nuvelo common stock), and incurred $5.6 million in expenses for this and related development costs in 2004 and $1.5 million for related development costs in 2005. Future milestone payments to Dendreon could reach as much as $23.5 million if all development and commercialization milestones are achieved. A $2.0 million milestone for dosing of the first patient in a Phase 3 clinical trial may be achieved within the next 12 months, although we currently cannot predict if or when this or any other milestones will be achieved. If rNAPc2 is commercialized, we will also be responsible for paying future royalties to Dendreon depending on sales of rNAPc2.

Archemix

We continue to pursue the development of a thrombin inhibiting aptamer under a collaboration agreement entered into with Archemix Corporation, a privately held biotechnology company located in Cambridge, Massachusetts, in January 2004. In accordance with the terms of the agreement, we paid Archemix an upfront fee of $3.0 million and paid the first $4.0 million of costs associated with development. We and Archemix will equally share all development and commercialization costs in excess of $4.0 million. We incurred $7.7 million in expenses for the upfront fee and related development costs in 2004 and $2.6 million for related development costs in 2005. Archemix is initially responsible for leading development and for all clinical development activities through the dosing of the first patient in a Phase 2 study. Thereafter, we and Archemix will agree on leadership of clinical development and commercialization activities. We are required to pay Archemix total development milestone payments of up to $11.0 million, consisting of $10.0 million upon dosing of the first patient in a Phase 2 trial and $1.0 million upon the designation of any backup compound selected by both Archemix and us for IND-enabling studies. The milestone for designation of a backup compound may be achieved within the next 12 months, although we currently cannot predict if or when this or the $10.0 million milestone will be achieved.

Pharmaceutical Division of Kirin Brewery Company, Ltd.

In March 2005, we entered into a collaboration agreement with the Pharmaceutical Division of Kirin Brewery Company, Ltd., for the development and commercialization of NU206. Under this agreement, we received a $2.0 million upfront cash payment from Kirin in April 2005, and we will lead worldwide development, manufacturing and commercialization of the compound. All operating expenses and profits related to the development and commercialization of NU206 will be shared 60 percent by us and 40 percent by Kirin. If this agreement is terminated, or Kirin or we elect under certain circumstances to no longer actively participate in the collaboration, the relationship with respect to NU206 will convert from an expense and profit-sharing structure to a royalty-based structure. We have recorded expenses of $2.7 million in 2005 in relation to this collaboration.

Our 2001 collaboration agreement with Kirin for the research and development of secreted proteins expired December 31, 2005, in accordance with its terms. We and Kirin are currently discussing the possibility of

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engaging in additional research and development with respect to certain secreted proteins to be selected by us and Kirin from the pool of candidates that were the subject of the 2001 collaboration. We recorded expenses of $0.3 million in 2005, $3.0 million in 2004, and $0.2 million in 2003, in relation to this collaboration.

Manufacturing

In June 2005, we entered into a development and validation agreement with Avecia Limited, a United Kingdom-based company, for the scaled-up manufacturing process of alfimeprase. In accordance with the terms of this new agreement, Avecia will conduct process development and validation work for the manufacture of alfimeprase drug substance, in accordance with FDA regulations. We are to pay Avecia fees totaling £12.9 million for completion of this work, payable upon completion by Avecia of pre-negotiated milestones, including £2.9 million as a result of an amendment to the work program in December 2005 to provide for additional process development and validation work. The milestone fees paid to date have been recorded as either research and development expenses in the income statement or clinical trial supplies in the balance sheet, depending on the nature of the expense. We are also paying certain related fees and expenses including the cost of supplies, materials, specified subcontracted work and equipment. The agreement does not cover the commercial manufacture of alfimeprase drug substance, but we and Avecia have agreed to negotiate in good faith towards the completion of a commercial supply agreement once Avecia has commenced the validation campaign. The development and validation agreement remains in force until the completion of the work contemplated under it, but may be terminated early by Avecia if we breach the agreement, and by us for any reason, subject in some cases to cancellation fees and penalties.

In accordance with the terms of the license and collaboration agreement with Bayer, we will supply alfimeprase to Bayer for use in global development of alfimeprase without charging Bayer separately for those supplies, but will be entitled to include the costs of manufacturing these supplies in the development expenses shared by the two parties. In addition, we and Bayer have agreed to use diligent efforts to negotiate and complete a manufacturing agreement within 6 months from entering into the license and collaboration agreement, pursuant to which Nuvelo will sell alfimeprase to Bayer for use in any country-specific trials conducted by Bayer and for commercial sale by Bayer in any countries outside the United States in which alfimeprase is approved for sale.

We rely on Avecia as a sole-source manufacturer of alfimeprase drug substance, and currently do not have a long-term supply agreement for the commercial-scale manufacture of this drug substance or for the manufacture of alfimeprase final drug product. If Avecia and a final drug product manufacturer are unable to produce alfimeprase in the quantities and with the quality required, we may incur significant additional expenses, and efforts to complete clinical trials and obtain approval to market alfimeprase could be significantly delayed. Additionally, we do not have long-term supply agreements in place for the manufacture of rNAPc2 or NU206.

Patents and Trade Secrets

We own or have rights in a number of patents and patent applications relating to each of our clinical candidate molecules, and we also own or have acquired rights in many of our pre-clinical molecules and technologies. The table below shows the actual or estimated year that the primary patent for each of our clinical candidate molecules expires:

Clinical Molecule	Territory	Anticipated Expiration
Alfimeprase	U.S.	2019
Alfimeprase	Europe	2020
rNAPc2	U.S.	2016
rNAPc2	Europe	2015

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In some cases, certain of the U.S. patents may be entitled to an extension of their term and certain European patents may be entitled to supplemental protection in one or more countries in Europe. The length of any such extension, if an extension is granted, will vary by country.

We cannot ensure that any of the patents that we own or have rights in will provide sufficient legal protection for the molecules or processes that such patents cover, or any competitive advantage. Any of our granted patents could be challenged, and held unenforceable or invalid in legal proceedings, or could be infringed or circumvented by others. Further, it is possible that others could obtain patent protection for molecules, processes and the like that are competitive with our potential products. In addition, other patent holders could assert their patents against us, claiming that such patents prevent us from marketing our products. Upon expiration of each of the relevant patents, other entities could enter the market with competitive products and/or processes in each country where a patent has expired.

We place a high value on our trade secrets. To protect these trade secrets, we typically require employees to enter in to a confidentiality agreement upon commencing employment. In addition, we generally require our consultants, licensing and collaboration partners, and scientific advisors to enter into confidentiality agreements. There can be no assurance, however, that these confidentiality agreements will be honored or that we can effectively protect our rights to such unpatented trade secrets. Moreover, there can be no assurance that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets.

Competition

The biopharmaceutical industry is intensely competitive and is accentuated by the rapid pace of technological development. We expect to face increased competition in the future as new companies enter our markets. Research and discoveries by others may result in breakthroughs that render our potential products obsolete even before they begin to generate any revenue. Our competitors include major pharmaceutical, medical device and biotechnology firms, many of which have substantially greater research and product development capabilities and financial, scientific, marketing and human resources than we have. Our lead product candidate alfimeprase, if approved, will face competition in the catheter occlusion indication from alteplase, an approved Genentech, Inc. product, and will potentially face competition in the acute PAO indication from product candidates being developed and/or marketed by PDL BioPharma, Inc. and Genentech.

Our competitors may obtain patents and regulatory approvals for their competing products more rapidly than we, or our collaboration partners, or develop products that are more effective than those developed by us, or our collaboration partners. All of our products will face competition from companies developing similar products as well as from companies developing other forms of treatment for the same conditions.

Many of the companies developing competing products have significantly greater financial resources than we have. Many such companies also have greater expertise than we have, and may have greater expertise than our collaboration partners have, in discovery, research and development, manufacturing, pre-clinical and clinical testing, obtaining regulatory approvals and marketing. Other smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These companies and institutions compete with us in recruiting and retaining qualified scientific and management personnel as well as in acquiring technologies complementary to our programs.

We will face competition with respect to product efficacy and safety, the timing and scope of regulatory approvals, availability of resources, reimbursement coverage, and price and patent position, including the potentially dominant patent positions of others. There can be no assurance that research and development by others will not render the products that we may develop obsolete or uneconomical, or result in treatments or cures superior to any therapy developed by us or that any therapy we develop will be preferred to any existing or newly-developed alternative products.

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Government Regulation

Regulation by governmental authorities in the United States and most foreign countries will be a significant factor in manufacturing and marketing our potential products and in our ongoing research and product development activities. Virtually all of our products and those of our partners will require regulatory approval by governmental agencies prior to commercialization. In particular, human therapeutic products are subject to rigorous pre-clinical and clinical testing and other approval requirements by the U.S. Food and Drug Administration, or FDA, and comparable agencies in foreign countries.

Pre-clinical studies are generally conducted in the laboratory to evaluate the potential efficacy and safety of a therapeutic product. The results of these studies are submitted to the FDA as part of an Investigational New Drug application, or IND, which must be reviewed by FDA personnel before clinical testing can begin. Typically, clinical evaluation involves three sequential phases, which may overlap. During Phase 1, clinical trials are conducted with a relatively small number of subjects to determine the early safety profile of a drug, as well as the pattern of drug distribution and drug metabolism. In Phase 2, trials are conducted with groups of patients afflicted by a specific target disease to determine preliminary efficacy, optimal dosages, and dosage tolerance and to gather additional safety data. In Phase 3, larger-scale, multi-center trials are conducted with patients afflicted with a specific target disease to provide data for the statistical proof of efficacy and safety as required by the FDA and foreign regulatory agencies. The FDA, the clinical trial sponsor or the investigator may suspend clinical trials at any time if they believe that clinical subjects are being exposed to an unacceptable health risk.

The results of pre-clinical and clinical testing are submitted to the FDA in the form of a Biologic License Application, or BLA, for biological products such as those we currently have in research and development programs. In responding to a BLA, the FDA may grant marketing approval, request additional information, or deny the application if the FDA determines that the application does not satisfy its regulatory approval criteria. Product approvals may subsequently be withdrawn if compliance with regulatory standards is not maintained or if problems are identified after the product reaches the market. The FDA may require testing and surveillance programs to monitor the effect of a new product and may prevent or limit future marketing of the product based on the results of these post-marketing programs.

Currently one of our product candidates, alfimeprase, qualifies as an orphan drug for the treatment of acute peripheral arterial occlusion in the United States and the European Union. Under the Orphan Drug Act in the United States and the Orphan Drug Regulation in the European Union, incentives are provided to manufacturers to undertake development and marketing of products to treat relatively rare diseases or those diseases that affect fewer than 200,000 persons annually in the United States or not more than 5 in 10,000 persons annually in the European Union. A drug that receives orphan drug designation by the FDA in the United States or by the European Medicines Evaluation Agency, or EMEA, in the European Union and is the first product to receive marketing approval for its product claim is entitled to various advantages, including an exclusive marketing period of seven years in the United States and ten years in Europe for that product claim. However, any drug that is considered by the FDA or the EMEA to be different from or clinically superior to a particular orphan drug, including any orphan drug of ours that has been so designated by the FDA or EMEA, will not be precluded from sale in the United States or Europe during the seven-year and ten year exclusive marketing period, respectively.

Whether or not FDA approval has been obtained, approval of a product by comparable foreign regulatory authorities is necessary prior to the commencement of marketing of a product in those countries. The approval procedures vary among countries and can involve additional testing. The time required to obtain approval may differ from that required for FDA approval. Although there are some centralized procedures for filings in the European Union countries, in general each country has its own procedures and requirements.

Even if regulatory approval for a product is obtained, the product and the facilities manufacturing the product are subject to continued review and periodic inspection. Each drug-manufacturing establishment in the United States must be registered with the FDA. Domestic and foreign manufacturing establishments are subject to inspections by the FDA and must comply with the FDA’s cGMP regulations, as well as regulatory agencies in

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other countries if products are sold outside the United States. The FDA stringently applies regulatory standards for manufacturing drugs, biologics, and medical devices. The FDA’s cGMP regulations require that drugs and medical devices be manufactured and records be maintained in a prescribed manner with respect to manufacturing, testing and control activities.

Our policy is to conduct research activities in compliance with the National Institutes of Health Guidelines for Research Involving Recombinant DNA Molecules. We also are subject to various federal, state and local laws, regulations and recommendations relating to safe working conditions, laboratory and manufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents, used in connection with our work. The extent and character of governmental regulation that might result from future legislation or administrative action cannot be accurately predicted.

Human Resources

As of December 31, 2005, we had 103 full-time equivalent employees, 46 of whom hold Ph.D., M.D., J.D., or other advanced degrees. Approximately 75 of these employees are engaged in research and development activities, and approximately 28 are engaged in finance, business development, commercial operations and administration. None of our employees is represented by a collective bargaining agreement, nor have we experienced work stoppages. We believe that relations with our employees are good.

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Item 1A. Risk Factors

We operate in a rapidly changing environment that involves a number of risks, some of which are beyond our control. The following discussion highlights some of these risks.

RISKS RELATED TO OUR BUSINESS

Our near-term success is dependent on the success of our lead product candidate, alfimeprase, and we cannot be certain that it will receive regulatory approval or be successfully commercialized.

Alfimeprase is currently being evaluated in Phase 3 clinical trials for the treatment of each of acute PAO and catheter occlusion and will require the successful completion of these or other planned Phase 3 clinical trials before we are able to submit a biologics license application, or BLA, to the FDA for approval. If our Phase 3 or other clinical trials fail to demonstrate that alfimeprase is safe and effective, it will not receive regulatory approval. Even if alfimeprase receives FDA approval, it may never be successfully commercialized. We may also have inadequate financial or other resources to pursue this product candidate through the clinical trial process or through commercialization. In addition, prior to initiating our current Phase 3 trials for alfimeprase, we had never conducted a Phase 3 clinical trial, and we may be unable to successfully complete clinical trials involving the number of clinical sites and patients as planned for our alfimeprase Phase 3 clinical trials. If we are unable to successfully commercialize or obtain regulatory approval for alfimeprase, we may not be able to generate revenue, become profitable or continue our operations. One of our Phase 3 trials of alfimeprase, NAPA-3, is the subject of a special protocol assessment agreement with the FDA. Under this agreement, the FDA provides guidance on the design of a trial prior to its initiation. We have also been granted fast track designation by the FDA for alfimeprase in acute PAO. The special protocol assessment agreement and the fast track designation do not offer any assurance that alfimeprase will receive FDA approval, and the FDA is in no way constrained by the agreement or the designation in its ability to deny approval for alfimeprase.

Development of our other products will take years, and our products require regulatory approval before they can be sold.

We currently have two clinical stage drug candidates. All of our other potential products currently are in research or pre-clinical development, and revenues from the sales of any products may not occur for several years, if at all. We cannot be certain that any of our products will be demonstrated to be safe and effective or that we will obtain regulatory approvals for any indication. We cannot predict whether we will be able to develop and commercialize any of our drug candidates successfully. If we are unable to obtain regulatory approval and successfully commercialize our potential products, our business, results of operations and financial condition will be affected in a materially adverse manner.

Our clinical trials may not yield results that will enable us to obtain regulatory approval for our products.

We, and our collaborators, will only receive regulatory approval for a drug candidate if we can demonstrate in carefully designed and conducted clinical trials that the drug candidate is safe and effective. We do not know whether our current or any future clinical trials will demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals or will result in marketable products. Clinical trials are lengthy, complex and expensive processes with uncertain results. It will take us several years to complete our testing, and failure can occur at any stage of testing. To date, we have not successfully completed any Phase 3 clinical trials, and we have not completed all planned pre-clinical and Phase 1 clinical trials for each of our product candidates. The results we obtain in pre-clinical testing and early clinical trials may not be predictive of results that are obtained in later studies. We may suffer significant setbacks in advanced clinical trials, even after promising results in earlier studies. Based on results at any stage of clinical trials, we may decide to repeat or redesign a trial or discontinue development of one or more of our drug candidates. If we fail to adequately demonstrate the safety and efficacy of our products under development, we will not be able to obtain the required regulatory approvals to commercialize our drug candidates, and our business, results of operations and financial condition will be materially adversely affected.

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Clinical trials are subject to continuing oversight by governmental regulatory authorities and institutional review boards, or IRBs, and must meet the requirements of these authorities in the United States and in foreign countries, including those for informed consent and good clinical practices. We may not be able to comply with these requirements and the FDA, a similar foreign authority, an IRB, or we may suspend or terminate clinical trials at any time.

Administering our drug candidates to humans may produce undesirable side effects. These side effects could interrupt, delay or halt clinical trials of our drug candidates and could result in the FDA or other regulatory authorities denying approval of our drug candidates for any or all targeted indications.

We rely on third parties, including contract research organizations and outside consultants, to assist us in managing and monitoring clinical trials. Our reliance on these third parties may result in delays in completing, or in failing to complete, these trials if they fail to perform with the speed and competency we expect.

If clinical trials for a drug candidate are unsuccessful, we will be unable to commercialize the drug candidate. If one or more of our clinical trials are delayed, we will be unable to meet our anticipated development or commercialization timelines. Either circumstance could cause the market price of our common stock to decline.

If we encounter difficulties enrolling patients in our clinical trials, our trials could be delayed or otherwise adversely affected.

Clinical trials for our drug candidates require that we identify and enroll a large number of patients with the disorder or condition under investigation. We, or our collaborators, may not be able to enroll a sufficient number of patients to complete our clinical trials in a timely manner.

Patient enrollment is affected by factors including:

• design of the protocol;

• the size of the patient population;

• eligibility criteria for the study in question;

• perceived risks and benefits of the drug under study;

• availability of competing therapies;

• efforts to facilitate timely enrollment in clinical trials;

• the success of our personnel in making the arrangements with potential clinical trial sites necessary for those sites to begin enrolling patients;

• patient referral practices of physicians; and

• availability of clinical trial sites.

If we have difficulty enrolling a sufficient number of patients to conduct our clinical trials as planned, we may need to delay or terminate ongoing or planned clinical trials, either of which would have a negative effect on our business. Delays in enrolling patients in our clinical trials would also adversely affect our ability to generate product, milestone and royalty revenues and could impose significant additional costs on us or on our collaborators.

We face heavy government regulation, and FDA and international regulatory approval of our products is uncertain.

The research, testing, manufacturing and marketing of drug products such as those proposed to be developed by us or our collaboration partners are subject to extensive regulation by federal, state and local governmental

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authorities, including the FDA, and comparable agencies in other countries. To obtain regulatory approval of a drug product, we or our collaboration partners must demonstrate to the satisfaction of the applicable regulatory agency, among other things, that the product is safe and effective for its intended uses. In addition, we must show that the manufacturing facilities used to produce the products are in compliance with current Good Manufacturing Practices, or cGMP, regulations, and that the process for manufacturing the product has been validated in accordance with the requirements of the FDA and comparable agencies in other countries.

The process of obtaining FDA and other required regulatory approvals and clearances typically takes several years and will require us to expend substantial capital and resources. Despite the time and expense expended, regulatory approval is never guaranteed. The number of pre-clinical and clinical tests that will be required for FDA and international regulatory approval varies depending on the drug candidate, the disease or condition that the drug candidate is in development for, and the regulations applicable to that particular drug candidate. The FDA or comparable international regulatory authorities can delay, limit or deny approval of a drug candidate for many reasons, including:

• a drug candidate may not be safe or effective;

• the FDA or comparable international regulatory authorities may interpret data from pre-clinical and clinical testing in different ways than we and our collaboration partners interpret them;

• the FDA or comparable international regulatory authorities may not approve our manufacturing processes or facilities or the processes or facilities of our collaboration partners; or

• the FDA or comparable international regulatory officials may change their approval polices or adopt new regulations.

In addition, in order to market any products outside of the United States, we and our collaborators must establish and comply with numerous and varying regulatory requirements of other jurisdictions, including the European Medicines Evaluation Agency, or EMEA, regarding safety and efficacy. Approval procedures vary among countries and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries differs from that required to obtain FDA approval. The regulatory approval process in other countries can include all of the risks detailed above regarding FDA approval in the United States as well as other risks. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. Failure to obtain regulatory approval in other countries or any delay or setback in obtaining such approval could have the same adverse effects detailed above regarding FDA approval in the United States.

If and when our products do obtain such approval or clearances, the marketing, distribution and manufacture of such products would remain subject to extensive ongoing regulatory requirements. Failure to comply with applicable regulatory requirements could result in:

• warning letters;

• fines;

• civil penalties;

• injunctions;

• recall or seizure of products;

• total or partial suspension of production;

• refusal of the government to grant approvals; or

• withdrawal of approvals and criminal prosecution.

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Any delay or failure by us, or our collaboration partners, to obtain regulatory approvals for our product candidates:

• would adversely affect our ability to generate product, milestone and royalty revenues;

• could impose significant additional costs on us or our collaboration partners;

• could diminish competitive advantages that we may attain;

• would adversely affect the marketing of our products; and

• could cause the price of our shares to decline.

Even if we do receive regulatory approval for our drug candidates, the FDA or international regulatory authorities may impose limitations on the indicated uses for which our products may be marketed, subsequently withdraw approval or take other actions against us, or our products, that are adverse to our business. The FDA and comparable international regulatory authorities generally approve products for particular indications. An approval for a limited indication reduces the size of the potential market for the product. Product approvals, once granted, may be withdrawn if problems occur after initial marketing.

We also are subject to numerous federal, state and local laws, regulations and recommendations relating to safe working conditions, laboratory and manufacturing practices, the experimental use of animals, the environment and the use and disposal of hazardous substances used in connection with our discovery, research and development work, including radioactive compounds and infectious disease agents. In addition, we cannot predict the extent of government regulations or the impact of new governmental regulations that might significantly harm the discovery, development, production and marketing of our products. We may be required to incur significant costs to comply with current or future laws or regulations, and we may be adversely affected by the cost of such compliance.

If we fail to maintain existing licenses and collaborations, or fail to develop new collaborations, our business will be harmed.

The success of our business is dependent, in significant part, upon our ability to maintain current licensing and collaborative relationships and enter into multiple new licenses and collaboration agreements. We also must manage effectively the numerous issues that arise from such arrangements and agreements. Management of our relationships with these third parties has required and will require:

• a significant amount of our management team’s time and effort;

• effective allocation of our and third-party resources to multiple projects;

• agreements with third parties as to ownership of proprietary rights and development plans, including clinical trials or regulatory approval strategy; and

• the recruitment and retention of management, scientific and other personnel.

In January 2006, we entered into a license and collaboration agreement with Bayer for the development and commercialization of alfimeprase internationally. Under the agreement, Bayer will commercialize alfimeprase in all territories outside the United States and will pay us tiered royalties ranging from a minimum of 15 percent to a maximum of 37.5 percent. We will retain all commercialization rights and profits from alfimeprase sales in the United States. We received an up-front cash payment from Bayer of $50.0 million upon entry into the agreement, and are eligible to receive up to an additional $335.0 million in milestone payments, including $165.0 million in development milestones and $170.0 million in sales and commercialization milestones, over the course of the agreement. In addition, Bayer will be responsible for 40 percent of the costs for global development programs. We will be responsible for 60 percent of the costs and will remain the lead for the design and conduct of the global development programs. Each party will solely bear the expense of any country-specific alfimeprase clinical trials conducted by it, where the country-specific clinical trials are not part of the agreed global

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development program. If we fail to maintain a successful collaboration with Bayer, Bayer could terminate our agreement, which could force us to expend additional amounts to obtain regulatory approval, delay the commercial launch of alfimeprase outside the United States, delay our ability to obtain regulatory approval for alfimeprase in the stroke and deep venous thrombosis indications, and have a negative impact on the success of alfimeprase’s commercial launch, all of which would have a material, adverse effect on our business.

In October 2004, we obtained worldwide rights to develop and commercialize alfimeprase from Amgen in exchange for payment to Amgen of future development milestones and royalties. Future milestone payments under the license agreement could total as much as $35.0 million. Under our agreement with Bayer, we retain sole responsibility for making these payments to Amgen. In accordance with the terms of the license agreement, Amgen has transferred the technology necessary for the manufacture of alfimeprase drug substance to our designated manufacturer, Avecia. In June 2005, we entered into a definitive agreement with Avecia for the scale up and validation of the manufacturing process for alfimeprase drug substance, in anticipation of the potential commencement of the manufacture of commercial quantities. We currently do not have an agreement in place for the manufacture of alfimeprase final drug product. While we currently believe we have enough supplies of alfimeprase for phase 3 trials for the treatment of acute PAO and catheter occlusion, additional supplies may be necessary for these trials and for anticipated trials in other indications, and we are not yet certain that Avecia and a final drug product manufacturer will succeed in manufacturing additional supplies of alfimeprase for such trials. We may need to conduct comparative studies or utilize other means to determine bioequivalence between alfimeprase manufactured by Avecia and a final drug product manufacturer and that previously manufactured by Amgen. If Avecia and a final drug product manufacturer are unable to produce alfimeprase in the quantities and with the quality we need, when we need it, we may incur significant additional expenses, and our and Bayer’s efforts to complete our clinical trials and obtain approval to market alfimeprase could be significantly delayed.

Pursuant to our licensing arrangement with Dendreon relating to rNAPc2, we are to make milestone payments, ranging from $2.0 million to $6.0 million, upon dosing of the first patient in a Phase 3 clinical trial, upon submission of an NDA and upon first commercial sale, for both the first and second indications of rNAPc2. If these and other milestones are all achieved, total milestone payments to Dendreon may reach as much as $23.5 million.

In March 2005, we entered into a collaboration agreement with the Pharmaceutical Division of Kirin for the development and commercialization of NU206. All operating expenses and profits related to the development and commercialization of NU206 will be shared 60 percent by us and 40 percent by Kirin. If this agreement is terminated, or we or Kirin elect under certain circumstances to no longer actively participate in the collaboration, the relationship with respect to NU206 will convert from an expense and profit sharing structure to a royalty-based structure. Our 2001 collaboration agreement with Kirin for research and development of secreted proteins expired on December 31, 2005 in accordance with its terms. We and Kirin are currently discussing the possibility of engaging in additional research and development with respect to certain secreted proteins to be selected by us and Kirin from the pool of candidates that were the subject of the 2001 collaboration. If we cannot reach agreement on a continuation of the research program with Kirin, we may need to find another partner to research and develop the compounds previously being researched in collaboration with Kirin, or we may have to delay or abandon further research and development of these compounds.

In our collaboration with Archemix for the research and development of a thrombin inhibiting aptamer, we share equally all research and development costs and revenues subsequent to our initial funding of these costs reaching $4.0 million in the third quarter of 2004. We are to make milestone payments of $10.0 million upon dosing of the first patient in a Phase 2 trial and $1.0 million upon the designation of any backup compound selected by both us and Archemix for pre-clinical studies. During the collaboration we are limited in our ability to influence Archemix’s conduct of clinical trials prior to the dosing of the first patient in a Phase 2 trial. The payment of $10.0 million upon reaching the Phase 2 milestone is payable even if Archemix voluntarily terminates the collaboration, or does not meet its obligations under the agreement and we terminate the collaboration for Archemix’s default, provided that in any of those cases we have rights to the compound when

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the Phase 2 trial is initiated. Archemix can terminate its collaboration with us on limited notice and for reasons outside our control. We lose significant rights if the collaboration is terminated because we fail to meet our obligations under it. In particular, if Archemix terminates the collaboration for our breach, all of our rights to collaboration products will become the property of Archemix, and we may not practice certain activities, including research and development, manufacturing and commercialization activities, in the field of modifying blood-clotting times in therapeutic applications through the use of aptamers.

Under our collaboration with Archemix, we have the option to lead commercialization in which both parties may participate if we establish certain commercialization capabilities; however, if we do not establish such commercialization capabilities, Archemix, or a third party selected by the parties’ joint steering committee, will have the option to lead commercialization. We do not currently have established commercialization experience or an internal trained sales force and we may not successfully develop such capabilities without incurring additional expenses. If we cannot develop an internal sales force, we will not be able to lead commercialization activities on our own. If we do not lead the commercialization efforts, we are dependent on Archemix or a third party’s experience in commercialization and ability to perform and we may also incur additional expenses for a third party to undertake commercialization efforts.

Our efforts to manage simultaneously a number of collaboration arrangements may not be successful, and our failure to manage effectively such collaborations would significantly harm our business, financial condition and results of operations.

Due to these factors and other possible disagreements with current or potential collaborative partners, we may be delayed or prevented from developing or commercializing alfimeprase, rNAPc2, NU206, a thrombin inhibiting aptamer or other pre-clinical product candidates, or we may become involved in litigation or arbitration, which would be time-consuming or expensive and could have a material adverse effect on our stock price.

In addition to our existing collaborations, we will focus on effecting new collaborative arrangements where we would share costs of identifying, developing and marketing drug candidates. We cannot assure you that we will be able to negotiate new collaboration arrangements of this type on acceptable terms, or at all.

We are currently dependent on third parties for a variety of functions and may enter into future arrangements for the manufacture and sale of our products. Our arrangements with these third parties may not provide us with the benefits we expect.

We currently rely upon third parties to perform administrative functions and functions related to the research, development, pre-clinical testing and clinical trials of our drug candidates. In addition, because we do not have the resources, facilities or experience to manufacture our drug candidates on our own, we currently rely, and will continue to rely, on third parties to manufacture, which includes manufacturing bulk compound, filling and finishing, and labeling and packaging, our drug candidates for clinical trials, and, if our products are approved, in quantities for commercial sales. We currently rely on a number of sole-source service providers and suppliers and do not have long-term supply agreements with our third-party manufacturers.

We do not currently have manufacturing facilities for clinical or commercial production of our drug candidates and depend on contract research and manufacturing organizations. We may not be able to finalize contractual arrangements, transfer technology or maintain relationships with such organizations in order to file an investigational new drug application, or IND, with the FDA, and proceed with clinical trials for any of our drug candidates. Until recently, we have relied on Amgen to manufacture our clinical drug product, alfimeprase. We have entered into a definitive development and validation agreement with Avecia for the scale up and validation of the alfimeprase drug substance manufacturing process and have transitioned the process of its manufacture from Amgen to Avecia, but do not yet have a definitive agreement with Avecia for the manufacture of commercial quantities of alfimeprase drug substance. Additionally, we do not have an agreement in place for the

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manufacture of alfimeprase final drug product. We may need to conduct comparative studies or utilize other means to determine bioequivalence between alfimeprase manufactured by Avecia and a final drug product manufacturer and that previously manufactured by Amgen. If Avecia and a final drug product manufacturer are unable to manufacture clinical or commercial grade alfimeprase for us, or we are unable to complete commercial arrangements with Avecia and a final drug product manufacturer, we may not have adequate supplies of alfimeprase to complete our clinical trials or to obtain regulatory approvals for alfimeprase on our anticipated schedule. Our drug candidates have never been manufactured on a commercial scale. We received a supply of rNAPc2 from Dendreon, which we have used in our research and development activities. When we deplete this existing supply, we will need to contract with a third party manufacturer to produce additional rNAPc2. Third-party manufacturers may not be able to manufacture these drug candidates at a cost or in quantities necessary to make them commercially viable.

In addition, if and when any of our other drug candidates, such as NU206, enter the clinical trial phase, we will initially depend on third-party contract manufacturers to develop the necessary production processes, and produce the volume of cGMP-grade material needed to complete such trials. We will need to enter into contractual relationships with these or other organizations in order to (i) complete the Good Laboratory Practices, or GLP, toxicology and other studies necessary to file an IND with the FDA, (ii) produce a sufficient volume of cGMP-grade material in order to conduct clinical trials of these other drug candidates, and (iii) fill and finish, and label and package our material. We cannot be certain that we will be able to complete these tasks on a timely basis or that we will be able to obtain sufficient quantities of material or other manufacturing services on commercially reasonable terms. In addition, the failure of any of these relationships with third-party contract organizations may delay our filing for an IND or impede our progress through the clinical trial phase. Any significant delay or interruption would have a material adverse effect on our ability to file an IND with the FDA and/or proceed with the clinical trial phase for any of our drug candidates.

Moreover, contract manufacturers that we may use must continually adhere to cGMP regulations enforced by the FDA through a facilities inspection program. If one of our contract manufacturers fails to maintain compliance, the production of our product candidates could be interrupted, resulting in delays, additional costs and potentially lost revenues. In addition, if the facilities of such manufacturers do not pass a pre-approval plant inspection, the FDA will not grant pre-market approval of our products.

We are dependent on third-party contract research organizations to conduct certain research, including GLP toxicology studies, in order to gather the data necessary to file INDs with the FDA for any of our drug candidates. These third parties may not conduct their research properly, or they may fail to complete their contract research on the anticipated schedule. In either case, the progress of our clinical programs may be delayed and our research and development costs may increase, which may in turn have a material adverse affect on our business.

Our reliance on these relationships poses a number of risks, including:

• delays in, or failures to achieve, scale-up to commercial quantities, or changes to current raw material suppliers or product manufacturers (whether the change is attributable to us or the supplier or manufacturer), resulting in delayed clinical studies, regulatory submissions and commercialization of our drug candidates;

• inability of third parties to manufacture, including filing and finishing, and labeling and packaging, our drug candidates in a cost-effective or timely manner or in quantities needed for clinical trials or commercial sales;

• our inability to effectively control the resources devoted by our partners to our programs or products;

• disagreements with third parties that could disrupt our operation or delay or terminate the research, development or manufacturing of drug candidates, or result in litigation or arbitration;

• inadequate contractual protection or difficulty in enforcing the contracts if one of our partners fails to perform;

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• failure of these third parties to comply with regulatory requirements;

• conflicts of interest between third parties’ work for us and their work for another entity, and the resulting loss of their services;

• failure to identify acceptable manufacturers or other suppliers or enter into favorable long-term agreements with them; and

• lack of all necessary intellectual property rights to manufacture and sell our drug candidates.

Given these risks, our current and future arrangements with third parties may not be successful. If these efforts fail, we would be required to devote additional internal resources to the activities currently performed, or to be performed, by third parties, to seek alternative third-party sources, or to delay our product development or commercialization.

We may not achieve our projected development goals in the time frames we announce and expect.

We set goals for and make public statements regarding the timing of certain accomplishments, such as the commencement and completion of clinical trials, anticipated regulatory approval dates and time of product launch, which we sometimes refer to as milestones. These milestones may not be achieved, and the actual timing of these events can vary dramatically due to a number of factors such as delays or failures in our clinical trials, disagreements with current or future clinical development collaborative partners, the uncertainties inherent in the regulatory approval process and manufacturing scale-up and delays in achieving manufacturing or marketing arrangements sufficient to commercialize our products. There can be no assurance that our clinical trials will be completed, that we will make regulatory submissions or receive regulatory approvals as planned or that we will be able to adhere to our current schedule for the launch of any of our products. If we fail to achieve one or more of these milestones as planned, our business will be materially adversely affected and the price of our shares will decline.

We are dependent on key personnel and we must attract and retain qualified employees, collaborators and consultants.

The success of our business is highly dependent on the principal members of our scientific and management staff, including our senior management team. The loss of the services of any such individual might seriously harm our product development and commercialization efforts. In addition, we will require additional skilled personnel in areas such as clinical development. Retaining and training personnel with the requisite skills is challenging and extremely competitive, particularly in Northern California, where we are located.

Our success will depend on our ability to attract and retain qualified employees to help develop our potential products and execute our research, development and commercialization strategy. We have programs in place to retain personnel, including programs to create a positive work environment and competitive compensation packages. Because competition for employees in our field is intense, however, we may be unable to retain our existing personnel or attract additional qualified employees. Our success also depends on the continued availability of outside scientific collaborators, including collaborators at research institutions, to perform research and develop processes to advance and augment our internal research efforts. Competition for collaborators is intense. We also rely on services provided by outside consultants. Attracting and retaining qualified outside consultants is competitive, and, generally, outside consultants can terminate their relationship with us at will. If we do not attract and retain qualified personnel, outside consultants and scientific collaborators, or if we experience turnover or difficulties recruiting new employees or outside consultants, our research, development and commercialization programs could be delayed and we could experience difficulties in generating sufficient revenue to maintain our business.

We currently have limited sales, marketing and distribution capability. As the potential commercialization of our products approaches, we intend to hire marketing and sales personnel to enable us to participate in the

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commercialization of our products in the United States. If we are unsuccessful in hiring and retaining sales and marketing personnel with appropriate qualifications and talent, our ability to generate product revenues will be adversely affected.

In September 2005, we relocated our corporate headquarters from Sunnyvale, California to San Carlos, California. This relocation has caused and could cause some of our employees to seek new employment with employers located closer to their homes. The loss of key employees could have a serious adverse effect on our operations.

The success of our potential products in pre-clinical studies does not guarantee that these results will be replicated in humans.

Although our clinical development-stage drug candidates have shown results in pre-clinical studies, these results may not be replicated in our clinical trials with humans. Consequently, there is no assurance that the results in our pre-clinical studies are predictive of the results that we will see in our clinical trials with humans or that they are predictive of whether the resulting products will be safe and effective in humans.

Because we have not yet commercialized any of our drug candidates, our ability to develop and subsequently commercialize products is unproven.

We have not yet commercialized any of our in-licensed therapeutic product candidates. Moreover, we have not developed any therapeutic products using proteins produced by the genes we have discovered in our internal research programs. Before we make any products available to the public from our internal research and development programs, we or our collaboration partners will need to conduct further research and development and complete laboratory testing and animal and human studies. We, or our collaboration partners, will need to obtain regulatory approval before releasing any drug products. We have spent, and expect to continue to spend, significant amounts of time and money in the clinical development of our in-licensed product candidates, and in our internal research programs in determining the function of genes and the proteins they produce, using our own capabilities and those of our collaboration partners. Such a determination process constitutes the first step in developing commercial products from our in-licensed product candidates and internal research programs. We also have spent and will continue to spend significant amounts of time and money in developing processes for manufacturing our in-licensed product candidates and our recombinant proteins under pre-clinical development. We may not be able to produce sufficient proteins for pre-clinical studies of our internally-generated product candidates. A commercially viable product may never be developed from our gene discoveries.

Our commercialization of products is subject to several risks, including but not limited to:

• the possibility that a product is toxic, ineffective or unreliable;

• failure to obtain regulatory approval for the product;

• difficulties in manufacturing the product on a large scale;

• difficulties in planning, coordinating and executing the commercial launch of the product;

• difficulties in marketing, distribution or sale of the product;

• competition from superior products; or

• third-party patents that preclude us from marketing a product.

Our internal drug development programs are currently in the research stage or in pre-clinical development. None of our potential therapeutic protein candidates from our own portfolio has advanced to Phase 1 clinical trials. Our programs may not move beyond their current stages of development. Even if our internal research does advance, we will need to engage in certain additional pre-clinical development efforts to determine whether a product is sufficiently safe and effective to enter clinical trials. We have little experience with these activities with respect to protein candidates and may not be successful in developing or commercializing such products.

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Under our license and collaboration agreement with Bayer, we share the costs of global development of alfimeprase, with Nuvelo responsible for 60 percent of these costs and Bayer responsible for 40 percent. We and Bayer will manage the design and conduct of the global development program jointly, but in the event of a disagreement, we retain the right to make any final decision.

Under our collaboration with Archemix, Archemix leads development until the first dosing of a patient in a Phase 2 clinical trial, and thereafter, a joint steering committee will designate one party to lead development until commercialization. With respect to these arrangements, we run the risk that Bayer or Archemix may not pursue clinical development in a timely or effective manner.

Any regulatory approvals that we or our collaboration partners receive for our product candidates may be subject to limitations on the intended uses for which the product candidates may be marketed or contain requirements for potentially costly post-marketing follow-up studies. In addition, if the FDA approves of our or our collaboration partners’ product candidates, the labeling, packaging, adverse event reporting, storage, advertising, promotion and record-keeping for the products will be subject to extensive regulatory requirements.

We, our collaborators and our suppliers, may also not be able to produce any products in commercial quantities at a reasonable cost or may not be able to successfully market such products. If we do not develop a commercially viable product, then we will suffer significant harm to our business, financial condition and operating results.

Finally, even if a product candidate such as alfimeprase or rNAPc2 were approved for commercial sale, significant strategic planning and resources will be necessary to effectively coordinate commercial launch of the product in the approved indication or indications, and to effectively market, distribute and sell the product for use in the approved indication or indications. In addition, the marketing, distribution, sale and reimbursement of pharmaceutical products is heavily regulated, and we must comply with all such applicable laws and regulations, or incur costs, fees and other liabilities associated with non-compliance. If our or a collaboration partner’s commercial launch of a product approved for commercial sale were to be unsuccessful, or if we or a collaboration partner were to fail in our or their efforts to properly market, distribute or sell any product approved for sale, our business, financial condition and operating results would suffer significant harm.

We lack marketing and commercialization experience for biopharmaceutical products and we may have to rely on third parties for these capabilities.

We currently have limited sales, marketing and distribution capability. As the potential commercialization of our products approaches, we intend to hire additional marketing and sales personnel to enable us to participate in the commercialization of our products in the United States. If we are unsuccessful in hiring and retaining sales and marketing personnel with appropriate technical and sales expertise or in developing an adequate distribution capability to support them, our ability to generate product revenues will be adversely affected. To the extent we cannot or choose not to use internal resources for the marketing, sales or distribution of any potential products in the United States or elsewhere, we intend to rely on collaboration partners or licensees. We may not be able to establish or maintain such relationships. To the extent that we depend on collaboration partners or other third parties for marketing, sales and distribution, any revenues we receive will depend upon their efforts. Such efforts may not be successful, and we will not be able to control the amount and timing of resources that collaboration partners or other third parties devote to our products.

Our products may not be accepted in the marketplace, and we may not be able to generate significant revenue, if any.

Even if they are approved for marketing, our products, if any, may never achieve market acceptance among physicians, patients and the medical community. Our products, if successfully developed, will compete with a number of traditional drugs and therapies manufactured and marketed by major pharmaceutical, medical device

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and biotechnology companies. Our products will also compete with new products currently under development by such companies and others. The degree of market acceptance of any products developed by us, alone, or in conjunction with our collaboration partners, will depend on a number of factors, including:

• the establishment and demonstration of the clinical efficacy and safety of the products;

• convenience and ease of administration;

• cost-effectiveness;

• our products’ potential advantages over alternative treatment methods;

• marketing, sales and distribution support of our products; and

• reimbursement policies of government and third-party payers.

Physicians, patients or the medical community in general may not accept and utilize any of the products that we alone, or in conjunction with our collaboration partners, develop. In practice, competitors may be more effective in marketing their drugs. The lack of such market acceptance would significantly harm our business, financial condition and results of operations.

Even if our product candidates are approved for marketing and are accepted by physicians, patients and the medical community, the size of the market for these products may be insufficient to sustain our business, or may not provide an acceptable return on our investment in the development of these products. For example, our lead product candidate, alfimeprase, is undergoing clinical trials for the treatment of acute PAO. There are currently no thrombolytic agents specifically approved for the treatment of acute PAO in the United States or overseas, and as a result there is currently limited market data available for us to use in judging the market size for a therapeutic product of this nature. The number of incidents of acute PAO that are treatable with an approved thrombolytic agent may not be sufficient to create a sustainable market for alfimeprase, if approved. As a result, the commercialization of alfimeprase for the treatment of acute PAO, or any of our other product candidates, could fail even if we receive marketing approval from the FDA or similar foreign authority, and acceptance by the medical and patient communities.

We are expanding our operations, and any difficulties managing this growth could disrupt our business.

The implementation of our business strategy requires us to expand our operations, which will place additional demands on our financial, administrative and information technology resources and increase the demands on our financial systems and controls. We have begun the process of hiring a commercial organization and putting the infrastructure in place to support a potential commercial launch of alfimeprase. Our strategy also calls for us to undertake increased research and development activities, and to manage an increasing number of relationships with collaborators and other third parties. As our operations grow, we must expand and enhance our financial, administrative and information technology infrastructures. If we are unable to effectively manage the growth of our operations, we may not be able to implement our business strategy, and our financial condition and results of operations may be adversely affected.

We face intense competition.

The biopharmaceutical industry is intensely competitive and is accentuated by the rapid pace of technological development. We expect to face increased competition in the future as new companies enter our markets. Research and discoveries by others may result in breakthroughs that render our potential products obsolete even before they begin to generate any revenue. Our competitors include major pharmaceutical, medical device and biotechnology firms, many of which have substantially greater research and product development capabilities and financial, scientific, marketing and human resources than we have. Our lead product candidate, alfimeprase, if approved, will face competition in the catheter occlusion indication from alteplase, an approved Genentech, Inc. product, and will potentially face competition in the acute PAO indication from product candidates being developed and/or marketed by PDL BioPharma, Inc. and Genentech.

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Our competitors may obtain patents and regulatory approvals for their competing products more rapidly than we, or our collaboration partners, or develop products that are more effective than those developed by us, or our collaboration partners. All of our products will face competition from companies developing similar products as well as from companies developing other forms of treatment for the same conditions.

Many of the companies developing competing products have significantly greater financial resources than we have. Many such companies also have greater expertise than we have, and may have greater expertise than our collaboration partners have, in discovery, research and development, manufacturing, pre-clinical and clinical testing, obtaining regulatory approvals and marketing. Other smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These companies and institutions compete with us in recruiting and retaining qualified scientific and management personnel as well as in acquiring technologies complementary to our programs. We will face competition with respect to:

• product efficacy and safety;

• the timing and scope of regulatory approvals;

• availability of resources;

• reimbursement coverage; and

• price and patent position, including the potentially dominant patent positions of others.

There can be no assurance that research and development by others will not render the products that we may develop obsolete or uneconomical, or result in treatments or cures superior to any therapy developed by us or that any therapy we develop will be preferred to any existing or newly-developed alternative products.

We face uncertainty with respect to coverage, pricing, third-party reimbursements and healthcare reform.

Our ability to collect significant revenues from our products may depend on our ability, and the ability of our collaboration partners or customers, to obtain adequate levels of coverage for our products and reimbursement from third-party payers such as:

• government health administration authorities;

• private health insurers;

• health maintenance organizations;

• pharmacy benefit management companies; and

• other healthcare-related organizations.

Third-party payers may deny coverage or offer inadequate levels of reimbursement if they determine that a prescribed product has not received appropriate clearances from the FDA or other government regulators, is not used in accordance with cost-effective treatment methods as determined by the third-party payer, or is experimental, unnecessary or inappropriate. If third-party payers deny coverage or offer inadequate levels of reimbursement, we may not be able to market our products effectively. We also face the risk that we will have to offer our products at prices lower than anticipated as a result of the current trend in the United States towards managed healthcare through health maintenance organizations. Currently, third-party payers are increasingly challenging the prices charged for medical products and services. Prices could be driven down by health maintenance organizations that control or significantly influence purchases of healthcare services and products. Existing U.S. laws, such as the Medicare Prescription Drug and Modernization Act of 2003, or future legislation to reform healthcare or reduce government insurance programs could also adversely affect prices of our approved products, if any. The cost-containment measures that healthcare providers are instituting and the results of potential healthcare reforms may prevent us from maintaining prices for our products that are sufficient for us to

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realize profits and may otherwise significantly harm our business, financial condition and operating results. In addition, to the extent that our products are marketed outside of the United States, foreign government pricing controls and other regulations may prevent us and our collaboration partners from maintaining prices for our products that are sufficient for us to realize profits and may otherwise significantly harm our business, financial condition and operating results.

We may merge with or acquire other companies, and our failure to receive the anticipated benefits in these transactions could harm our business.

In January 2003, we merged with Variagenics, and we may merge with or acquire other companies in the future. The success of any merger or acquisition depends, in part, on our ability to realize the anticipated synergies, cost savings and growth opportunities from integrating the business of the merged or acquired company with our business. The integration of two independent companies is a complex, costly and time-consuming process. The difficulties of combining the operations of the companies and/or our subsidiary include, among others:

• consolidating research and development operations;

• retaining key employees;

• consolidating corporate and administrative infrastructures;

• preserving the research and development and other important relationships of the companies;

• integrating and managing the technology of two companies;

• using the merged or acquired company’s liquid capital and other assets efficiently to develop the business of the combined company;

• minimizing the diversion of management’s attention from ongoing business concerns; and

• coordinating geographically separate organizations.

We cannot assure you that we will receive all of the anticipated benefits of any mergers or acquisitions, or that any of the risks described above will not occur. Our failure to receive anticipated benefits of, and our exposure to inherent risks in, any such merger or acquisition transaction could significantly harm our business, financial condition and operating results.

We are subject to the risk of natural disasters.

Our facilities are located in Northern California. If a fire, earthquake, or other natural disaster disrupts our research or development efforts, our business, financial condition and operating results could be materially adversely affected. Some of our landlords may maintain earthquake coverage for our facilities. Although we maintain personal property and business interruption coverage, we do not maintain earthquake coverage for personal property or resulting business interruption.

RISKS RELATED TO OUR CAPITAL STRUCTURE AND FINANCIAL RESULTS

We have not been profitable, anticipate continuing losses and may never become profitable.

We had net losses of $50.2 million in 2003, $52.5 million in 2004 and $71.6 million in 2005. As of December 31, 2005, we had an accumulated deficit of $327.7 million.

All of our product candidates are in various stages of product development, and some are still in research or in early development. None of them are approved for sale. The process of developing our drug products will require significant additional research and development, pre-clinical testing, clinical trials and regulatory approvals.

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These activities, together with general administrative and other expenses, are expected to result in operating losses for the foreseeable future. To date, we have not generated any revenues from product sales. We do not expect to achieve significant product sales or royalty revenue from product sales for several years, and we may never do so. We expect to incur additional operating losses in the future, and these losses may increase significantly as we continue pre-clinical research and clinical trials, apply for regulatory approvals, develop our drug candidates, expand our operations and develop systems that support commercialization of our potential products. These losses, among other things, have caused and may cause our stockholders’ equity and working capital to decrease. We may not be successful in developing our drug candidates, obtaining regulatory approvals and commercializing our products, and our operations may not be profitable even if any of our drug candidates are commercialized. We may never generate profits and, as a result, the market price of our common stock could decline.

Moreover, utilization of our net operating loss carry forwards and credits may be subject to an annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state law provisions. It is possible that certain transactions that we have entered into, including our merger with Variagenics in January 2003, when considered in connection with other transactions, may result in a “change in ownership” for purposes of these provisions.

In January 2005, we entered into a lease agreement for 61,826 square feet of industrial space in San Carlos, California. In connection with our lease of this new facility, we are examining the potential to sublease or otherwise exit our facility at 985 Almanor Avenue in Sunnyvale, California, which is currently primarily being used for storage and for which we have a lease through May 30, 2011. In accordance with Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” if we sublease or otherwise exit this facility, we could incur a significant charge to our earnings based on the remaining lease rental expense for this facility, reduced by the estimated income from sublease rental, if any. As of December 31, 2005, the remaining lease rental expense for this facility was $30.5 million. Similarly, in accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” if we sublease or otherwise exit this facility, we could also incur a significant charge to our earnings for the impairment of leasehold improvements related to this facility, based on the difference between their carrying value and fair value at the time of the sublease or exit. As of December 31, 2005, this difference was estimated to be $3.7 million.

We will need to raise additional capital, and such capital may be unavailable to us when we need it or not available on acceptable terms.

We will need to raise significant additional capital to finance the research and clinical development of our drug products. If future securities offerings are successful, they could dilute our current shareholders’ equity interests and reduce the market price of our common stock. Financing may be unavailable when we need it or may not be available on acceptable terms. The unavailability of financing may require us to delay, scale back or eliminate expenditures for our research, development and marketing activities necessary to commercialize our potential biopharmaceutical products. We may also be required to raise capital by granting rights to third parties to develop and market drug candidates that we would prefer to develop and market on our own, potentially reducing the ultimate value that we could realize from these drug candidates.

If we are unable to obtain additional financing when we need it, the capital markets may perceive that we are not able to raise the amount of financing we desire, or on the terms that we desire. This perception, if it occurs, may negatively affect the market price of our common stock. If sufficient capital is not available, we may be forced to delay, reduce the scope of, eliminate or divest one or more of our research or development programs. Any such action could significantly harm our business, financial condition and results of operations.

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Our future capital requirements and the adequacy of our currently available funds will depend on many factors, including, among others, the following:

• our ability to maintain, and the financial commitments involved in, our existing collaborative and licensing arrangements;

• the success of our collaborative relationship with Bayer, in accordance with the alfimeprase license and collaboration agreement we entered into in January 2006;

• progress in current and anticipated clinical studies of our products, including alfimeprase, rNAPc2, NU206 and a thrombin inhibiting aptamer;

• the cost of manufacturing our material for pre-clinical, clinical and commercial purposes;

• our ability to establish new collaborative relationships with other companies to share costs and expertise of identifying and developing drug candidates;

• the magnitude and scope of our research and development programs, including development of product candidates;

• continued scientific progress in our research and development programs, including progress in our research and pre-clinical studies;

• the cost involved in any facilities expansion to support research and development of our product candidates;

• the cost of prosecuting and enforcing our intellectual property rights;

• the time and cost involved in obtaining regulatory approvals;

• our need to develop, acquire or license new technologies or products;

• competing technological and market developments;

• our ability to use our common stock to repay an outstanding convertible promissory note to Affymetrix and our line of credit with Dr. George Rathmann;

• future funding commitments to our collaborators;

• general conditions in the financial markets and in the biotech sector;

• the uncertain condition of the capital markets and in the biotech sector; and

• other factors not within our control.

We may face fluctuations in operating results.

Our operating results may rise or fall significantly from period to period as a result of many factors, including:

• the amount of research and development we engage in;

• the number of product candidates we have and their progress in research, pre-clinical and clinical studies;

• our ability to expand our facilities to support our operations;

• our ability to maintain existing and enter into new strategic relationships;

• the scope, duration and effectiveness of our licensing and collaborative arrangements;

• the costs involved in prosecuting, maintaining and enforcing patent claims;

• the possibility that others may have or obtain patent rights that are superior to ours;

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• changes in government regulation;

• changes in accounting policies or principles; and

• release of successful products into the market by our competitors.

Excluding our two clinical stage drug candidates, our potential products currently are in research or pre-clinical development, and revenues from the sales of any products resulting from this research and development may not occur for several years, if at all. A high percentage of our expenses are fixed costs such as lease obligations. As a result, we may experience fluctuations in our operating results from quarter to quarter and continue to generate losses. Quarterly comparisons of our financial results may not necessarily be meaningful, and investors should not rely upon such results as an indication of our future performance. In addition, investors may react adversely if our reported operating results are less favorable than in a prior period or are less favorable than those anticipated by investors or the financial community, which may result in a drop in the market price of our common stock.

Our stock price has historically been and is likely to remain highly volatile, and an investment in our stock could suffer a decline in value.

Stock prices and trading volumes for many biopharmaceutical companies fluctuate widely for a number of reasons, including factors which may be unrelated to their businesses or results of operations, such as media coverage, legislative and regulatory measures and the activities of various interest groups or organizations. This market volatility, as well as general domestic or international economic, market and political conditions, could materially and adversely affect the market price of our common stock and the return on your investment.

Historically, our stock price has been extremely volatile. Between January 1, 2005 and December 31, 2005, the price ranged between a high of $10.35 per share and a low of $5.75 per share, and between January 1, 2006 and February 28, 2006, the price ranged between a high of $18.71 per share and a low of $8.16 per share. The significant market price fluctuations of our common stock can be due to a variety of factors, including:

• the depth of the market for the common stock;

• the experimental nature of our potential products;

• actual or anticipated fluctuations in our operating results;

• sales of our common stock by existing holders, or sales of shares issuable upon exercise of outstanding options and warrants, upon repayment of our outstanding convertible promissory note to Affymetrix, or upon repayment of our line of credit with Dr. George Rathmann;

• market conditions relating to the biopharmaceutical and pharmaceutical industries;

• any announcements of technological innovations, new commercial products, or clinical progress or lack thereof by us, our collaborative partners or our competitors;

• announcements concerning regulatory developments, developments with respect to proprietary rights and our collaborations;

• changes in or our failure to meet market or, to the extent securities analysts follow our common stock, securities analysts’ expectations;

• loss of key personnel;

• changes in accounting principles;

• general market conditions; and

• public concern with respect to our products.

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In addition, the stock market in general, and the market for biotechnology and other life science stocks in particular, has historically been subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market prices of securities issued by many companies for reasons unrelated to the operating performance of these companies. In the past, following periods of volatility in the market price of a company’s securities, class action securities litigation has often been instituted against such a company. Any such litigation instigated against us could result in substantial costs and a diversion of management’s attention and resources, which could significantly harm our business, financial condition and operating results.

Future sales or the possibility of future sales of our common stock may depress the market price of our common stock.

Sales in the public market of substantial amounts of our common stock could depress prevailing market prices of our common stock. As of February 28, 2006, we had 51,656,770 shares of our common stock outstanding. All of these shares are freely transferable without restriction or further registration under the Securities Act, except for shares held by our directors, officers and greater than five percent stockholders and unregistered shares held by non-affiliates. As of February 28, 2006, our directors, officers and greater than five percent stockholders held approximately 16.5 percent of the shares of our outstanding common stock. Although we do not believe that our directors, officers and greater than five percent stockholders have any present intentions to dispose of large amounts of any shares of common stock owned by them, there can be no assurance that such intentions will not change in the future. The sale of these additional shares could depress the market price of our common stock.

Under registration statements on Form S-8 under the Securities Act, as of February 28, 2006, we have also registered approximately 8,403,244 shares of our common stock which may be issued under our 2004 Equity Incentive Plan, 2002 Equity Incentive Plan, 1995 Stock Option Plan, Non-Employee Director Stock Option Plan, Scientific Advisory Board/Consultants Stock Option Plan, stock option agreements entered into outside of any of our stock option plans, and our Employee Stock Purchase Plan. Included in the 8,403,244 shares, as of February 28, 2006, are (i) 6,234,427 shares of our common stock issuable under outstanding options to purchase our common stock under the specified plans, (ii) 823,539 shares of our common stock issuable under stock option agreements entered into outside of any of our stock option plans, (iii) 1,120,796 shares of our common stock reserved for future option grants under our 2004 Equity Incentive Plan, and (iv) 224,482 shares of our common stock reserved for future issuance under our Employee Stock Purchase Plan. As of February 28, 2006, 3,026,040 of the shares issuable upon exercise of our outstanding options were exercisable. Once these shares are exercised, such shares are available for sale in the open market without further registration under the Securities Act. The existence of these outstanding options and share reserves may negatively affect our ability to complete future equity financings at acceptable prices and on acceptable terms. The exercise of those options, and the prompt resale of shares of our common stock received, may also result in downward pressure on the price of our common stock.

As of February 28, 2006, 1,786,685 shares of our common stock were issuable upon the exercise of outstanding warrants, which were all exercisable as of this date. Once a warrant is exercised, the holder can arrange for the resale of shares either by invoking any applicable registration rights, causing the shares to be registered under the Securities Act and thus freely transferable, or by relying an exemption to the Securities Act. If these registration rights, or similar registration rights that may apply to securities we may issue in the future, are exercised, it could result in additional sales of our common stock in the market, which may have an adverse effect on our stock price.

As of February 28, 2006, $5.3 million of our common stock was issuable, at our option, to repay our convertible promissory note held by Affymetrix, Inc., including accrued interest, at a conversion price based on 90 percent of the average price of our common stock over a ten-day period ending two days prior to conversion. Affymetrix has the ability to declare all outstanding principal and interest under the note immediately due and payable in the event that our market capitalization is under $50.0 million and Affymetrix reasonably determines

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that the loan evidenced by the note is impaired, and we have an obligation to prepay amounts owing under the note to the extent that the amounts outstanding exceed ten percent of our market capitalization. Pursuant to registration rights we granted to Affymetrix, we have registered for resale a portion of these shares on a registration statement that has been declared effective by the SEC. If we decide to repay this note with our common stock, whether pursuant to acceleration of the note or otherwise, the resale of shares of our common stock by Affymetrix may also result in significant downward pressure on the market price of our common stock.

As of February 28, 2006, $6.5 million of our common stock was issuable, upon mutual agreement, to convert the remaining amount due on the promissory note under our line of credit with Dr. George Rathmann, including accrued interest, at a conversion price equal to the average price of our common stock over a 20-day period, ending two days prior to conversion, or, if in connection with an equity financing, at the offering price. If we agree to repay this note with our common stock, whether pursuant to acceleration of the note or otherwise, the resale of shares of our common stock received by Dr. Rathmann may also result in significant downward pressure on the market price of our common stock.

Under the August 2005 committed equity financing facility, or CEFF, that we entered into with Kingsbridge Capital Ltd., and related stock purchase and registration rights agreements, we may periodically sell up to $75.0 million in shares of our common stock to Kingsbridge over a three-year period, subject to certain conditions and restrictions. In November 2005, under this CEFF, we sold 653,103 shares for gross proceeds of $5.0 million, and in December 2005 sold 1,186,297 shares for gross proceeds of $9.4 million. We may sell the balance of $60.6 million of shares of our common stock over the remainder of the three-year term of the CEFF. Should we sell further securities under the CEFF, it could have a dilutive effective on the holdings of our current stockholders, and may result in downward pressure on the market price of our common stock.

We will need to raise significant additional capital to finance the research, development and commercialization of our drug products. If future securities offerings are successful, they could dilute our current stockholders’ equity interests and reduce the market price of our common stock.

We do not intend to pay cash dividends on our common stock in the foreseeable future.

We do not anticipate paying cash dividends on our common stock in the foreseeable future. Any payment of cash dividends will depend upon our financial condition, results of operations, capital requirements and other factors and will be at the discretion of our board of directors. Under our August 31, 2004 Loan and Security Agreement with Silicon Valley Bank, as amended, we cannot pay dividends without Silicon Valley Bank’s prior written consent, except for dividends paid in shares of our capital stock. Furthermore, we may incur additional indebtedness that may severely restrict or prohibit the payment of dividends.

We face exposure to currency fluctuations for transactions denominated in foreign currencies, which may adversely affect our results of operations.

To mitigate the impact of currency exchange rate fluctuations on our cash outflows for certain foreign currency-denominated purchases, we have developed and implemented a foreign exchange risk management policy utilizing forward contracts to hedge against this exposure. For example, in the third quarter of 2005, we entered into $16.7 million of foreign exchange hedge contracts with Silicon Valley Bank in relation to our development and validation agreement with Avecia, pursuant to which we are required to make payments to Avecia in British pounds. Although we use forward contracts to reduce the impact of foreign currency fluctuations on our future results, these efforts may not be successful, and any such fluctuations could adversely affect our results of operations.

Recent accounting pronouncements may impact our future financial position and results of operations.

There may be potential new accounting pronouncements or regulatory rulings, which may have an impact on our future financial position and results of operations. On December 16, 2004, the Financial Accounting

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Standards Board, or FASB, issued Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” also known as SFAS 123(R), an amendment of Statements of Financial Accounting Standards No. 123 and 95, that addresses the accounting for share-based awards to employees. The standard requires companies to recognize the fair value of employee stock options and other stock-based compensation as an expense. The statement eliminates the ability to account for share-based employee compensation transactions using APB Opinion No. 25, “Accounting for Stock Issued to Employees,” also known as APB 25, and generally requires instead that such transactions be accounted for using a fair value-based method, such as Black-Scholes, to fairly value stock options and recognize that value as an expense over the requisite service period. The standard is effective for us beginning in the fiscal year commencing January 1, 2006. For all periods prior to January 1, 2006, we have accounted for our stock-based employee compensation plans in accordance with APB 25. We expect that the adoption of SFAS 123(R) will have a material adverse impact to our results of operations.

The committed equity financing facility with Kingsbridge may not be available to us when we desire to draw upon it, may require us to make additional “blackout” payments to Kingsbridge, and may result in dilution to our stockholders.

In August 2005, in connection with a committed equity financing facility, or CEFF, we entered into a stock purchase agreement and related registration rights agreement with Kingsbridge Capital Ltd. The CEFF entitles us to sell and obligates Kingsbridge to purchase, from time to time over a period of three years, shares of our common stock for cash consideration up to an aggregate of $75.0 million, subject to certain conditions and restrictions. In November 2005, under this stock purchase agreement, we sold 653,103 shares for gross proceeds of $5.0 million, and in December 2005 sold 1,186,297 shares for gross proceeds of $9.4 million. The balance of $60.6 million remains available for use by us over the remainder of the three-year period. Kingsbridge will not be obligated to purchase shares under the CEFF unless certain conditions are met, which include a minimum price for our common stock; the accuracy of representations and warranties made to Kingsbridge; compliance with laws; effectiveness of a registration statement to register such shares for resale by Kingsbridge; and the continued listing of our stock on the Nasdaq National Market. In addition, Kingsbridge is permitted to terminate the CEFF if it determines that a material and adverse event has occurred affecting our business, operations, properties or financial condition. If we are unable to access funds through the CEFF, or if the CEFF is terminated by Kingsbridge, we may be unable to access capital on favorable terms or at all.

We are entitled in certain circumstances, to deliver a blackout notice to Kingsbridge to suspend the use of the registration statement under which shares sold under the CEFF are registered for resale, thereby prohibiting Kingsbridge from selling shares. If we deliver a blackout notice in the 15 trading days following the settlement of a sale of shares under the CEFF, or if the registration statement is not effective in circumstances not permitted by our agreement with Kingsbridge, then we must make a payment to Kingsbridge, or issue Kingsbridge additional shares in lieu of this payment, calculated on the basis of the number of shares held by Kingsbridge and the change in the market price of our common stock during the period in which the use of the registration statement is suspended. If the market price of our common stock declines during a suspension of the registration statement, the blackout payment could be significant.

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

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We have implemented anti-takeover provisions that could discourage, prevent or delay a takeover, even if the acquisition would be beneficial to our stockholders.

The existence of our stockholder rights plan and provisions of our certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders. These provisions:

• establish a classified board of directors so that not all members of our board may be elected at one time;

• authorize the issuance of up to 5,000,000 shares of preferred stock that could be issued by our board of directors to increase the number of outstanding shares and hinder a takeover attempt;

• limit who may call a special meeting of stockholders;

• prohibit stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders; and

• establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon at a stockholder meeting.

Specifically, our certificate of incorporation provides that all stockholder action must be effected at a duly called meeting, and not by a written consent. The by-laws provide, however, that our stockholders may call a special meeting of stockholders only upon a request of stockholders owning at least 50 percent of our common stock. These provisions of our certificate of incorporation and our by-laws could discourage potential acquisition proposals and could delay or prevent a change in control. We designed these provisions to reduce our vulnerability to unsolicited acquisition proposals and to discourage certain tactics that may be used in proxy fights. These provisions, however, could also have the effect of discouraging others from making tender offers for our shares. As a consequence, they also may inhibit fluctuations in the market price of our shares that could result from actual or rumored takeover attempts. Such provisions also may have the effect of preventing changes in our management.

We are permitted to issue shares of our preferred stock without stockholder approval upon such terms as our board of directors determines. Therefore, the rights of the holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of our preferred stock that may be issued in the future. In addition, the issuance of preferred stock could have a dilutive effect on the holdings of our current stockholders.

On June 5, 1998, our board of directors adopted a rights plan and declared a dividend with respect to each share of our common stock then outstanding. This dividend took the form of a right, which entitles the holders to purchase one one-thousandth of a share of our Series A junior participating preferred stock at a purchase price that is subject to adjustment from time to time. These rights have also been issued in connection with each share of our common stock issued after June 15, 1998. The rights are exercisable only if a person or entity or affiliated group of persons or entities acquires, or has announced its intention to acquire, 15 percent (27.5 percent in the case of certain approved stockholders) or more of our outstanding common stock. The adoption of the rights plan makes it more difficult for a third party to acquire control of us without the approval of our board of directors. This rights agreement was amended on March 19, 2004, to reflect our reincorporation under Delaware law.

We are subject to the Delaware anti-takeover laws regulating corporate takeovers. These anti-takeover laws prevent a Delaware corporation from engaging in a merger or sale of more than ten percent of its assets with any stockholder, including all affiliates and associates of the stockholder, who owns 15 percent or more of the corporation’s outstanding voting stock, for three years following the date that the stockholder acquired 15 percent or more of the corporation’s stock unless:

• the board of directors approved the transaction where the stockholder acquired 15 percent or more of the corporation’s stock;

• after the transaction in which the stockholder acquired 15 percent or more of the corporation’s stock, the stockholder owned at least 85 percent of the corporation’s outstanding voting stock, excluding shares

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owned by directors, officers and employee stock plans in which employee participants do not have the right to determine confidentially whether shares held under the plan will be tendered in a tender or exchange offer; or

• on or after this date, the merger or sale is approved by the board of directors and the holders of at least two-thirds of the outstanding voting stock that is not owned by the stockholder.

The provisions of our governing documents, stockholder rights plan and current Delaware law may, collectively:

• lengthen the time required for a person or entity to acquire control of us through a proxy contest for the election of a majority of our board of directors;

• discourage bids for our common stock at a premium over market price; and

• generally deter efforts to obtain control of us.

We have adopted an Executive Change in Control and Severance Benefit Plan that could discourage, prevent or delay a takeover, even if the acquisition would be beneficial to our stockholders.

In December 2004, our board of directors approved an “Executive Change in Control and Severance Benefit Plan” for our executive officers and other eligible employees. The purpose of the plan is to provide for the payment of severance benefits and/or change in control benefits to certain of our eligible employees, and the plan supersedes and replaces any change in control and/or severance plans adopted by us previously. All of our executive employees at the level of Vice President or above have been designated as participants in the plan and our board of directors may designate other eligible individuals as participants. The plan provides that, upon a change in control of the company as defined under the plan, all Nuvelo stock options and stock awards held by a plan participant will become fully vested. Such shares held by a plan participant will also become fully vested if the participant is terminated without cause, or constructively terminated, within one month preceding our change in control. If a participant is terminated without cause or constructively terminated one month before or one year after our change in control, he or she will also be entitled to certain cash severance and continued medical benefits. The change in control and severance benefits for certain of our employees provided for under this plan could make it more difficult and expensive, or less desirable, for a third party to acquire us, even if doing so would benefit our stockholders.

RISKS RELATED TO INTELLECTUAL PROPERTY AND OTHER LEGAL MATTERS

The commercial success of our products will be dependent upon our ability to protect the intellectual property rights associated with our products and drug candidates.

Our competitive success will depend, in part, on our ability to obtain and maintain patent protection for our inventions, technologies and discoveries, including intellectual property that we license. The patent positions of biotechnology companies involve complex legal and factual questions, and we cannot assure you that our patents and licenses will successfully preclude others from using our technology. We could incur substantial costs in seeking enforcement of our proprietary rights against infringement.

We currently have, or have in-licensed, issued patents and pending patent applications that include claims to our in-licensed clinical products. We obtained exclusive worldwide rights to alfimeprase from Amgen in October 2004. We obtained exclusive worldwide rights for all indications of rNAPc2 and all of the rNAPc molecules owned by Dendreon in February 2004. The United States government may claim a non-exclusive right to use rNAPc2 with respect to the treatment of hemorrhagic fever. We also currently have patents that cover some of our technological discoveries and patent applications that we expect to protect some of our gene, protein and technological discoveries. We will continue to apply for patents for our discoveries. We cannot assure you that any of our applications, or our licensors’ applications, will issue as patents, or that any patent issued or licensed

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to us will not be challenged, invalidated, circumvented or held unenforceable by way of an interference proceeding or litigation.

The timing of the grant of a patent cannot be predicted. Patent applications describing and seeking patent protection of methods, compositions, or processes relating to proprietary inventions involving human therapeutics could require us to generate data, which may involve substantial costs. Our pending patent applications may lack priority over others’ applications or may not result in the issuance of patents. Even if issued, our patents may not be sufficiently broad to provide protection against competitors with similar technologies and may be challenged, invalidated or circumvented.

In addition to patents, we rely on a combination of trade secrets, copyright and trademark laws, nondisclosure agreements, licenses and other contractual provisions and technical measures to maintain and develop our competitive position with respect to intellectual property. Nevertheless, these measures may not be adequate to safeguard the technology underlying our products. For example, employees, consultants and others who participate in the development of our products may breach their agreements with us regarding our intellectual property and we may not have adequate remedies for the breach. Our trade secrets could become known through other unforeseen means. We depend on our collaborators and other third parties that license intellectual property to us to protect our licensed intellectual property. These collaborators and other third parties could fail to take a necessary step to protect our licensed intellectual property, which could seriously harm our intellectual property position.

We also may not be able to effectively protect our intellectual property rights in some foreign countries, as many countries do not offer the same level of legal protection for intellectual property as the United States. Furthermore, certain of the patent applications describing our proprietary methods are filed only in the United States. Even where we have filed our patent applications internationally, for some cases and in certain countries, we have chosen not to maintain foreign patent protection by opting not to enter national phase or opting not to pay maintenance annuities.

Notwithstanding our efforts to protect our intellectual property, our competitors may independently develop similar or alternative technologies or products that are equal or superior to our technology. Our competitors may also develop similar products without infringing on any of our intellectual property rights or design around our proprietary technologies.

If our products infringe on the intellectual property rights of others, we could face costly litigation, which could cause us to pay substantial damages or licensing fees and limit our ability to sell some or all of our products.

Extensive litigation regarding patents and other intellectual property rights has been common in the biopharmaceutical industry. Litigation may be necessary to assert infringement claims, enforce patent rights, protect trade secrets or know-how and determine the enforceability, scope and validity of certain proprietary rights. The defense and prosecution of intellectual property lawsuits, United States Patent and Trademark Office interference proceedings, and related legal and administrative proceedings in the United States and internationally involve complex legal and factual questions. As a result, such proceedings are costly and time-consuming to pursue and their outcome is uncertain.

Regardless of merit or outcome, our involvement in any litigation, interference or other administrative proceedings could cause us to incur substantial expense and could significantly divert the efforts of our technical and management personnel. An adverse determination may subject us to the loss of our proprietary position or to significant liabilities, or require us to seek licenses that may include substantial cost and ongoing royalties. Licenses may not be available from third parties, or may not be obtainable on satisfactory terms. An adverse determination or a failure to obtain necessary licenses may restrict or prevent us from manufacturing and selling our products, if any. These outcomes could materially harm our business, financial condition and results of operations.

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Our market success depends in part on us neither infringing valid, enforceable patents or proprietary rights of third parties, nor breaching any licenses that may relate to our technologies and products. We are aware of third-party patents that may relate to our technology. We may be required to obtain licenses to patents or other proprietary rights of others in order to conduct research, development or commercialization of some or all of our programs. We plan to seek licenses, as we deem appropriate, but it is possible that we may infringe upon these patents or proprietary rights of third parties. If we do not obtain these licenses, we may encounter delays in product market introductions, incur substantial costs while we attempt to design around existing patents or not be able to develop, manufacture or sell products. In response, third parties may assert infringement or other intellectual property claims against us. We may consequently be subjected to substantial damages for past infringement or be required to modify our products if it is ultimately determined that our products infringe a third party’s proprietary rights. Further, we may be prohibited from selling our products before we obtain a license, which, if available at all, may require us to pay substantial royalties, which could adversely impact our product costs and have an impact on our business. Further, if we do obtain these licenses, the agreed terms may necessitate reevaluation of the potential commercialization of any one of our programs. Failing to obtain a license could result in litigation. Even if these claims are without merit, defending a lawsuit takes significant time, may be expensive and may divert management attention from other business concerns. Any public announcements related to litigation or interference proceedings initiated or threatened against us could cause our stock price to decline.

We face product liability exposure and potential unavailability of insurance.

We risk financial exposure to product liability claims in the event that the use of products developed by us, or our collaboration partners, if any, result in personal injury.

We may experience losses due to product liability claims in the future. We have obtained limited product liability insurance coverage. Such coverage, however, may not be adequate or may not continue to be available to us in sufficient amounts or at an acceptable cost, or at all. We may not be able to obtain commercially reasonable product liability insurance for any product approved for marketing. A product liability claim or other claim, product recalls, as well as any claims for uninsured liabilities or in excess of insured liabilities, may significantly harm our business, financial condition and results of operations.

We use hazardous materials, chemicals and patient samples in our business and any disputes relating to improper handling, storage or disposal of these materials could be time consuming and costly.

Our research and development and production activities involve the controlled use of hazardous or radioactive materials, chemicals, including oxidizing and reducing reagents, patient tissue and blood samples. We, our collaborators and service providers, are subject to federal, state and local laws and regulations governing the use, storage, handling and disposal of these materials and certain waste products. We could be liable for accidental contamination or discharge or any resultant injury from hazardous materials, and conveyance, processing, and storage of and data on patient samples. If we, or our collaborators or service providers, fail to comply with applicable laws or regulations, we could be required to pay penalties or be held liable for any damages that result and this liability could exceed our financial resources. Further, future changes to environmental health and safety laws could cause us to incur additional expense or restrict our operations. In addition, our collaborators and service providers may be working with hazardous materials, including viruses and hazardous chemicals, in connection with our collaborations. In the event of a lawsuit or investigation, we could be held responsible for any injury caused to persons or property by exposure to, or release of, patient samples that may contain viruses and hazardous materials. The cost of this liability could exceed our resources.

Variagenics has been named as a defendant in a class action suit and defending this litigation could hurt our business.

Variagenics has been named as a defendant in a securities class action lawsuit alleging the failure to disclose additional and excessive commissions purportedly solicited by and paid to underwriters who are also named

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defendants in the lawsuit. Plaintiffs in the suit allege that underwriters took these commissions and in exchange allocated shares of Variagenics’ stock to their preferred customers through alleged agreements with these preferred customers that tied the allocation of initial public offering shares to agreements by the customers to make additional aftermarket purchases at pre-determined prices. As a result of our merger with Variagenics, we are obligated to continue to defend against this litigation. Currently we are in the process of approving a settlement by and between the issuers that are defendants in the lawsuit, the insurers of those issuers, and the plaintiffs. We believe that any loss or settlement amount will not be material to our financial position or results of operation, and that any settlement payment and attorneys’ fees accrued with respect to the suit will be paid by our insurance provider. However, we cannot assure you that this will be the case until a final settlement is executed. Failure to finalize a settlement could require us to pay substantial damages.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

In January 2005, we entered into a seven-year facility lease agreement with BMR-201 Industrial Road LLC for 61,826 square feet of industrial space at 201 Industrial Road in San Carlos, California, which became our primary headquarters in September 2005. The lease commenced on September 1, 2005 and contains an option to cancel the lease after five years upon payment of certain amounts specified in the lease, two options to extend the lease for five additional years at 95% of the then-current fair market rental rate (but not less than the existing rental rate), rights of first refusal over all vacant space in the building during the first two years of the lease, and an expansion option for a specified amount of space. On March 10, 2006, the lease was amended to provide for the exercise of our expansion option over 7,624 square feet of rentable space.

We also lease approximately 140,000 square feet of space at 985 Almanor Avenue in Sunnyvale, California, which is currently primarily being used for storage. The lease on this space extends through May 2011.

Item 3. Legal Proceeding

On or about December 6, 2001, Variagenics, Inc. was sued in a complaint filed in the United States District Court for the Southern District of New York naming it and certain of its officers and underwriters as defendants. The complaint purportedly is filed on behalf of persons purchasing Variagenics’ stock between July 21, 2000 and December 6, 2000, and alleges violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended and Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder.

The complaint alleges that, in connection with Variagenics’ July 21, 2000 initial public offering, or IPO, the defendants failed to disclose additional and excessive commissions purportedly solicited by and paid to the underwriter defendants in exchange for allocating shares of Variagenics’ stock to preferred customers and alleged agreements among the underwriter defendants and preferred customers tying the allocation of IPO shares to agreements to make additional aftermarket purchases at predetermined prices. Plaintiffs claim that the failure to disclose these alleged arrangements made Variagenics’ registration statement on Form S-1 filed with the SEC in July 2000 and the prospectus, a part of the registration statement, materially false and misleading. Plaintiffs seek unspecified damages. On or about April 19, 2002, an amended complaint was filed which makes essentially the same allegations. On or about July 15, 2002, Variagenics and the individuals filed a motion to dismiss. We are involved in this litigation as a result of our merger with Variagenics in January 2003.

On July 16, 2003, Nuvelo’s Board of Directors approved a settlement proposal initiated by the plaintiffs. The final terms of the settlement are still being negotiated. We believe that any loss or settlement amount will not be material to our financial position or results of operations, and that any settlement payment and attorneys’ fees

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accrued with respect to the suit will be paid by our insurance provider. However, it is possible that the parties may not reach agreement on the final settlement documents or that the Federal District Court may not approve the settlement in whole or part. We could be forced to incur material expenses in the litigation if the parties do not reach agreement of the final settlement documents, and in the event there is an adverse outcome, our business could be harmed.

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

No matters were submitted to the vote of stockholders through the solicitation of proxies or otherwise during the fourth quarter of the year ended December 31, 2005.

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PART II

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

Our common stock began trading on the Nasdaq Stock Market on August 8, 1997 as Hyseq, Inc. (HYSQ), and has traded under the symbol “NUVO” since January 31, 2003, (except for the period between June 19, 2003 and March 19, 2004, where we temporarily traded under the symbol “NUVOD”). On February 23, 2004, we completed a one-for-three reverse split of our common stock. Unless otherwise indicated, all per share amounts in this Form 10-K have been adjusted to reflect the reverse split. The following table sets forth, for the periods indicated, the high and low bid information for our common stock, as reported by the Nasdaq Stock Market under these symbols:

	High		Low
Year ended December 31, 2004
First quarter	$	16.50	$	10.36
Second quarter		13.20		7.57
Third quarter		10.44		6.77
Fourth quarter		11.23		8.36
Year ended December 31, 2005
First quarter	$	10.33	$	6.35
Second quarter		8.00		5.75
Third quarter		10.35		7.35
Fourth quarter		9.93		7.53

As of February 28, 2006, there were approximately 219 stockholders of record of our common stock, and the last sale price reported on The Nasdaq National Market for our common stock was $17.14 per share.

The holders of our common stock are entitled to dividends in such amounts and at such times, if any, as may be declared by our board of directors out of legally available funds. We have not paid any dividends on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future. Under our August 31, 2004 Loan and Security Agreement with Silicon Valley Bank, we cannot pay dividends without Silicon Valley Bank’s prior written consent, except for dividends paid in shares of our capital stock.

Information relating to compensation plans under which our equity securities are authorized for issuance is included in Item 12 of Part III of this Annual Report, which is incorporated by reference from our Definitive Proxy Statement to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, relating to our 2006 Annual Meeting of Stockholders.

Recent Sales of Unregistered Securities

On August 4, 2005, we entered into a Committed Equity Financing Facility, or CEFF, with Kingsbridge Capital Ltd. In connection with the CEFF, we issued a warrant to Kingsbridge to purchase 350,000 shares of our common stock at a price of $12.0718 per share. The warrant is exercisable beginning six months after the date of grant and for a period of five years thereafter. Subject to certain conditions and limitations, from time to time under the CEFF, we may require Kingsbridge to purchase newly-issued shares of our common stock at a price that is between 90% and 94% of the volume weighted average price on each trading day during a 8 day pricing period. The value of the maximum number of shares we may issue in any pricing period shall be the lesser of 2.5% of our market capitalization immediately prior to the commencement of the pricing period, or $10.0 million. The minimum acceptable volume weighted average price for determining the purchase price at which our stock may be sold in any pricing period is determined by the greater of $2.50, or 85% of the closing price for our common stock on the day prior to the commencement of the pricing period. Under the terms of the CEFF, the maximum number of shares we may sell is 8,075,000 shares (exclusive of the shares underlying the warrant).

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Under the CEFF, in November 2005 we sold 653,103 shares for gross proceeds of $5.0 million, and in December 2005 we sold 1,186,297 shares for gross proceeds of $9.4 million. Nuvelo is not obligated to sell any of the remaining $60.6 million of common stock available under the CEFF and there are no minimum commitments or minimum use penalties.

We relied on the exemption from registration contained in Section 4(2) of the Securities Act, and Regulation D, Rule 506 thereunder, in connection with obtaining Kingsbridge’s commitment under the CEFF, and for the issuance of the warrant in consideration of such commitment.

Item 6. Selected Consolidated Financial Data

	Year Ended December 31,
	2005			2004			2003			2002			2001
	(In thousands, except per share amounts)
Statement of Operations Data:
Contract revenues	$	545		$	195		$	1,024		$	25,554		$	24.550
Loss from continuing operations		(71,611	)		(48,942	)		(46,229	)		(39,512	)		(33,836	)
Loss from discontinued operations, including loss on disposal		—			(3,547	)		(3,958	)		(5,466	)		(2,636	)
Net loss	$	(71,611	)	$	(52,489	)	$	(50,187	)	$	(44,978	)	$	(36,472	)
Basic and diluted net loss per share:
Continuing operations		(1.73	)		(1.59	)		(2.19	)		(5.48	)		(6.29	)
Discontinued operations		—			(0.11	)		(0. 18	)		(0.76	)		(0.49	)
Total basic and diluted net loss per share	$	(1.73	)	$	(1.70	)	$	(2.37	)	$	(6.24	)	$	(6.78	)
Weighted average shares used in computing basic and diluted net loss per share		41,279			30,874			21,054			7,220			5,386
	December 31,
	2005			2004			2003			2002			2001
	(In thousands)
Balance Sheet Data:
Cash, cash equivalents and short-term investments	$	70,336		$	50,625		$	34,189		$	2,225		$	12,329
Working capital		40,850			45,261			25,772			(20,728	)		(1,717	)
Total assets		108,046			79,264			57,809			27,072			39,904
Bank loans		3,032			2,600			—			—			—
Notes payable		4,000			4,000			6,600			6,600			4,000
Capital lease obligations		22			1,079			3,070			2,242			4,734
Related party line of credit		5,042			7,792			10,542			10,000			—
Accumulated deficit		(327,659	)		(256,048	)		(203,559	)		(153,372	)		(108,394	)
Total stockholders equity (deficit)		56,764			45,589			22,701			(4,564	)		15,421

A factor affecting the comparability of information between 2004 and 2005 was our public offering in February 2005, in which an aggregate of approximately 9.8 million shares of common stock were sold for net proceeds of approximately $68.4 million.

A factor affecting the comparability of information between 2003 and 2004 was our public offering in March 2004, in which an aggregate of approximately 5.8 million shares of common stock were sold for net proceeds of approximately $69.5 million.

Two factors affecting the comparability of information between 2002 and 2003 was our merger with Variagenics, Inc. on January 31, 2003, in which approximately 13.3 million shares of common stock were issued

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to Variagenics shareholders for an approximate net purchase price of $48.6 million. In addition, in October 2003, an aggregate of approximately 3.8 million shares of common stock were sold in an underwritten public offering for net proceeds of approximately $26.3 million.

A factor affecting the comparability of information between 2001 and 2002 was our private placement offering in April 2002, in which an aggregate of approximately 1.2 million shares of common stock and warrants to purchase an aggregate of approximately 0.3 million shares of common stock were sold for net proceeds of approximately $14.3 million.

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

We have included or incorporated by reference into this Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Annual Report on Form 10-K, and from time to time our management may make statements that constitute “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words including “anticipate,” “believe,” “intends,” “estimates,” “expect,” “should,” “may,” “potential” and similar expressions. Such statements are based on our management’s current expectations and involve risks and uncertainties. Although we believe that the expectations reflected in the forward-looking statements are reasonable, our actual results and performance could differ materially from those projected in the forward-looking statements as a result of many factors discussed in this Annual Report, including those set forth in this Item 7 as well as under “Item 1. Business” and “Item 1A. Risk Factors.” We do not intend to update any of the forward-looking statements after the date of this Annual Report to conform these statements to actual results unless required by law.

Overview

We are a biopharmaceutical company dedicated to improving the lives of patients through the discovery, development and commercialization of novel acute cardiovascular and cancer therapies. Our development pipeline includes three acute cardiovascular programs focused on alfimeprase, a direct-acting thrombolytic in Phase 3 clinical trials for the treatment of thrombotic-related disorders; rNAPc2, an anticoagulant that inhibits the factor VIIa and tissue factor protease complex that is currently in Phase 2 clinical development for acute coronary syndrome, and a thrombin inhibiting aptamer for anticoagulation during medical procedures. We are also progressing an emerging oncology pipeline, which includes preclinical candidate NU206, for the potential treatment of chemotherapy/radiation therapy-induced mucositis and rNAPc2 for potential use in a variety of cancers based on its apparent role in the cellular signaling of both metastasis and angiogenesis. In addition, we expect to leverage our expertise in secreted proteins and cancer antibody discovery to further expand our pipeline and create additional partnering and licensing opportunities.

Alfimeprase

Our lead product candidate, alfimeprase, is a thrombolytic agent with a novel mechanism of action. It is a modified and recombinant version of fibrolase, a naturally occurring enzyme that directly and rapidly degrades fibrin, the protein that provides the structural scaffold of blood clots. Currently, we have two Phase 3 programs in progress for alfimeprase, one in patients with acute PAO and one in patients with occluded central venous catheters. In April 2005, we commenced the first of two trials in the alfimeprase Phase 3 acute PAO program, known as NAPA (Novel Arterial Perfusion with Alfimeprase). This program consists of two overlapping trials that will include a total of 600 patients between the two trials. The first trial in this program, NAPA-2, is a randomized, double-blind study comparing 0.3 mg/kg of alfimeprase versus placebo in 300 patients. The trial will be conducted in approximately 100 centers worldwide. The study’s primary endpoint is avoidance of open vascular surgery within 30 days of treatment. Open vascular surgery includes procedures such as surgical embolectomy, peripheral arterial bypass graft surgery and amputation, but does not include catheter-based procedures such as percutaneous angioplasty or stenting. A variety of secondary endpoints are also being evaluated, including safety endpoints such as the incidence of bleeding, as well as pharmacoeconomic endpoints such as length of hospital and intensive care unit stay. We expect to complete enrollment in the NAPA-2 trial in the second half of 2006. The second Phase 3 trial, NAPA-3, is under a special protocol assessment (SPA) agreement with the U.S. Food and Drug Administration (FDA), and will essentially replicate the NAPA-2 trial. Under an SPA, the FDA provides guidance on the design of a trial prior to its initiation. We expect to begin enrollment in the NAPA-3 trial in early 2006. We have been granted fast track designation by the FDA for alfimeprase in acute PAO. Fast track designation can potentially facilitate development and expedite review of biologics license applications. Fast track designation is reserved for new drugs that demonstrate the potential to address an unmet medical need and are intended for treatment of a serious or life-threatening condition. In addition, we have obtained orphan drug status for alfimeprase in the United States and Europe for the treatment

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of acute PAO, which may provide us with up to seven and ten years of market exclusivity in the United States and Europe, respectively, following market authorization.

In September 2005, we commenced the first of two multi-national trials in the alfimeprase Phase 3 catheter occlusion program, known as SONOMA (Speedy Opening of Non-functional and Occluded catheters with Mini-dose Alfimeprase). The first trial is an efficacy study called SONOMA-2, which is a randomized, double-blind trial, comparing 3.0 mg of alfimeprase with placebo in 300 patients with occluded central venous catheters. Two-thirds of the patients will receive alfimeprase and the remainder will receive placebo. The study’s primary endpoint is restoration of function to occluded central venous catheters at 15 minutes. We expect to complete enrollment in the SONOMA-2 trial in the second half of 2006. The second study, known as SONOMA-3, is an open label, single-arm trial evaluating alfimeprase in 800 patients. This study’s primary endpoint is safety, although we will be evaluating efficacy in these patients as well. We began enrolling patients in this trial in February 2006.

We also intend to expand our alfimeprase pipeline by initiating a Phase 2 clinical trial in the second half of 2006 to evaluate the potential of alfimeprase for the treatment of ischemic stroke and another Phase 2 clinical trial in 2007 to evaluate the potential of alfimeprase to treat deep venous thrombosis (DVT).

In January 2006, we entered into a license and collaboration agreement with Bayer for the global development and commercialization of alfimeprase. Under this agreement, Bayer will commercialize alfimeprase in all territories outside the United States and will pay us tiered royalties ranging from a minimum of 15 percent to a maximum of 37.5 percent. We retain all commercialization rights and profits from alfimeprase sales in the United States. We are eligible to receive up to $385.0 million in milestone payments from Bayer, including a $50.0 million up-front cash payment that we received in January 2006, up to $165.0 million in development milestones and $170.0 million in sales and commercialization milestones over the course of the agreement. We expect to receive a $10.0 million development milestone fee in the second half of 2006 upon the initiation of a phase 2 trial for alfimeprase in ischemic stroke. In addition, Bayer will be responsible for 40 percent of the costs for global development programs. We will be responsible for 60 percent of the costs and will remain the lead for the design and conduct of the global development programs. Each party will bear its own expenses for any country-specific alfimeprase clinical trials it conducts, where the country-specific clinical trials are not part of the agreed global development program.

In October 2004, we obtained worldwide rights to develop and commercialize alfimeprase from Amgen, in exchange for the future payment to Amgen of previously negotiated milestone payments and royalties. As a result of dosing the first patient in the first Phase 3 clinical trial for alfimeprase in April 2005, we paid a $5.0 million milestone fee to Amgen in May 2005. Future milestone payments under the license agreement could total as much as $35.0 million, although we currently cannot predict if or when any of these additional milestones will be achieved. Under our agreement with Bayer, we will continue to bear sole responsibility for these milestone payments and royalties owed to Amgen.

In June 2005, we entered into a development and validation agreement with Avecia Limited for the scaled-up manufacturing process of alfimeprase. In accordance with the terms of this agreement, Avecia will conduct process development and validation work for the manufacture of alfimeprase drug substance, in accordance with FDA regulations. Under the terms of our license agreement with Amgen, Amgen has transferred the technology necessary for the manufacture of alfimeprase drug substance to Avecia. We are to pay Avecia fees totaling £12.9 million for completion of this work, payable upon completion by Avecia of pre-negotiated milestones, including £2.9 million as a result of an amendment to the work program in December 2005 to provide for additional process development and validation work. Of the £12.9 million total commitment, £7.7 million ($13.6 million) had yet to be paid as of December 31, 2005.

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rNAPc2

Our second drug candidate, rNAPc2, is a recombinant version of a naturally occurring protein that has anticoagulant properties. Specifically, rNAPc2 has been shown to block the factor VIIa and tissue factor protease complex, which is responsible for the initiation of the process leading to blood clot formation and has also been shown to play a role in both metastasis, or the secondary growth of cancer cells, and angiogenesis, or the formation of new blood vessels, as they relate to tumor growth. In May 2005, we completed a Phase 2a double-blind, placebo-controlled clinical trial showing that rNAPc2 has an acceptable safety profile and is well tolerated in doses up to ten micrograms/kg in patients being treated for ACS, including unstable angina, and non-ST segment elevation myocardial infarction. Additional data is now being generated from this Phase 2a trial based on surrogate endpoints, and we expect to present efficacy data sometime in 2006. Based on these encouraging results, we initiated a Phase 2 heparin-replacement trial with rNAPc2 in August 2005. This trial is expected to complete enrollment in the first half of 2006. In addition, we are investigating the potential of rNAPc2 as a cancer therapy.

We have obtained exclusive worldwide rights to all indications of rNAPc2 and all other rNAPc molecules owned by Dendreon Corporation, as a result of a licensing agreement entered into with them in February 2004. Under the terms of the agreement, we paid Dendreon an upfront fee of $4.0 million ($0.5 million in cash and $3.5 million in Nuvelo common stock), and incurred $5.6 million in expenses for this and related development costs in 2004 and $1.5 million for related development costs in 2005. Future milestone payments to Dendreon could reach as much as $23.5 million if all development and commercialization milestones are achieved. A $2.0 million milestone for dosing of the first patient in a Phase 3 clinical trial may be achieved within the next 12 months, although we currently cannot predict if or when this or any other milestones will be achieved. If rNAPc2 is commercialized, we will also be responsible for paying future royalties to Dendreon depending on sales of rNAPc2.

Thrombin Inhibiting Aptamer

We continue to pursue the development of a thrombin inhibiting aptamer under a collaboration agreement entered into with Archemix Corporation, a privately held biotechnology company located in Cambridge, Massachusetts, in January 2004. In September 2005, we concluded a Phase 1 clinical study for the first target molecule from this program, ARC183. This study evaluated the safety, tolerability, anticoagulation activity and titratability of ARC183 for potential use in acute cardiovascular settings such as CABG surgery. Preliminary results from the trial showed that administration of ARC183 resulted in a rapid onset of anticoagulation and demonstrated stable, dose-related anticoagulation activity and rapid self-reversal of drug effects after administration of the drug infusion ceased. However, the amount of drug needed to achieve the desired anticoagulation for use in CABG surgery resulted in a sub-optimal dosing profile. For that reason, we decided jointly with Archemix not to pursue further development of ARC183 and instead are pursuing optimized thrombin inhibiting aptamers.

In accordance with the terms of the agreement, we paid Archemix an upfront fee of $3.0 million and paid the first $4.0 million of costs associated with development. We and Archemix will equally share all development and commercialization costs in excess of $4.0 million. We incurred $7.7 million in expenses for the upfront fee and related development costs in 2004 and $2.6 million for related development costs in 2005. Archemix is initially responsible for leading development and for all clinical development activities through the dosing of the first patient in a Phase 2 study. Thereafter, we and Archemix will agree on leadership of clinical development and commercialization activities. We are required to pay Archemix total development milestone payments of up to $11.0 million, consisting of $10.0 million upon dosing of the first patient in a Phase 2 trial and $1.0 million upon the designation of any backup compound selected by both Archemix and us for IND-enabling studies. The milestone for designation of a backup compound may be achieved within the next 12 months, although we currently cannot predict if or when this or the $10.0 million milestone will be achieved.

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NU206

Preclinical candidate, NU206, is a highly specific and potent gastrointestinal epithelial growth factor. We plan to initially pursue NU206 as a supportive cancer therapy, specifically to treat radiation and chemotherapy-induced mucositis in the gastrointestinal tract and expect to initiate a Phase 1 clinical program with NU206 in the second half of 2006.

In March 2005, we entered into a collaboration agreement with the Pharmaceutical Division of Kirin Brewery Company, Ltd., for the development and commercialization of NU206. Under this agreement, we received a $2.0 million upfront cash payment from Kirin in April 2005, and we will lead worldwide development, manufacturing and commercialization of the compound. All operating expenses and profits related to the development and commercialization of NU206 will be shared 60 percent by us and 40 percent by Kirin. If this agreement is terminated, or Kirin or we elect under certain circumstances to no longer actively participate in the collaboration, the relationship with respect to NU206 will convert from an expense and profit-sharing structure to a royalty-based structure.

Financing and Facilities

In February 2006, we raised approximately $111.9 million in a public offering, after deducting underwriters’ fees and stock issuance costs of approximately $7.7 million, from the sale of 7,475,000 shares of our common stock, including 975,000 shares from the exercise of an over-allotment option granted to the underwriters, at a public offering price of $16.00 per share. We intend to use the net proceeds from this offering for the advancement of our drug candidates in clinical trials, the development of a commercialization infrastructure, capital expenditures, and to meet working capital needs. The amounts and timing of the expenditures will depend on numerous factors, such as the timing and progress of our clinical trials and research and development efforts, technological advances and the competitive environment for our drug candidates. We expect from time to time to evaluate the acquisition of businesses, products and technologies for which a portion of the net proceeds may be used, although we currently are not planning or negotiating any such transactions. In addition, under our lease agreement for our facilities at 985 Almanor Avenue, Sunnyvale, California, as amended, in February 2006 we paid The Irvine Company approximately $3.7 million from these proceeds, being ten percent of the net amount raised in excess of $75.0 million.

In August 2005, we entered into a Committed Equity Financing Facility (CEFF) with Kingsbridge Capital Ltd., under which Kingsbridge has committed to purchase up to a total of $75.0 million of our common stock within a three-year period, subject to certain conditions and limitations. We plan to use the net proceeds from any securities issued under this agreement for general corporate purposes, including the advancement of our drug candidates in clinical trials, capital spending and working capital. As part of the arrangement, we issued a warrant to Kingsbridge to purchase 350,000 shares of our common stock at a price of $12.07 per share. Under this facility, we sold 653,103 shares for gross proceeds of $5.0 million in November 2005 and 1,186,297 shares for gross proceeds of $9.4 million in December 2005.

In February 2005, we raised $68.4 million in a public offering, after deducting underwriters’ fees and stock issuance costs of $4.9 million, from the sale of 9,775,000 shares of our common stock, including 1,275,000 shares from the exercise of an over-allotment option granted to the underwriters, at a public offering price of $7.50 per share.

In January 2005, we entered into a seven-year facility lease agreement with BMR-201 Industrial Road LLC for 61,826 square feet of industrial space at 201 Industrial Road in San Carlos, California, which became our primary headquarters in September 2005. The lease commenced on September 1, 2005 and contains an option to cancel the lease after five years upon payment of certain amounts specified in the lease, two options to extend the lease for five additional years at 95% of the then-current fair market rental rate (but not less than the existing rental rate), rights of first refusal over all vacant space in the building during the first two years of the lease, and an expansion option for a specified amount of space. The lease contains a tenant improvement allowance of $8.9

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million, which was fully utilized in 2005. On March 10, 2006, the lease was amended to provide for the exercise of our expansion option over 7,624 square feet of rentable space. The amendment allows for a tenant improvement allowance of $1.0 million.

Results of Operations

Nuvelo’s core business is to discover, develop and commercialize novel acute cardiovascular and cancer therapies. The following results of operations include those of both Nuvelo and Callida Genomics, Inc. (Callida), through its disposal on December 3, 2004. The results of Callida have been reclassified to discontinued operations for all periods presented.

Contract Revenues

Contract revenues were $0.5 million in 2005, compared to $0.2 million in 2004 and $1.0 million in 2003. The $0.3 million increase in 2005 from 2004 was primarily due to the recognition of revenue from the one-time upfront fee of $2.0 million received from Kirin under the NU206 collaboration agreement, which was deferred and is being recognized on a straight-line basis over the related performance period. The $0.8 million decrease in 2004 from 2003 was primarily due to $0.5 million of deferred revenues recognized in 2003 from the $4.0 million license payment received from Affymetrix as part of the October 2001 settlement of all our outstanding litigation with Affymetrix, with no corresponding amount in 2004.

We expect revenues to increase significantly during 2006, due to the recognition of revenue from the upfront license fee of $50.0 million received from Bayer in January 2006. This amount will be recognized on a straight-line basis over the related performance period. In addition, we expect to record revenues following the receipt of a $10.0 million milestone fee due from Bayer if we initiate a trial for alfimeprase in ischemic stroke in the second half of 2006. Our revenues may vary significantly from quarter to quarter as a result of this and other licensing or collaboration activities. In the future, we may not be able to maintain existing collaborations, obtain additional collaboration partners or obtain revenue from other sources, which could have a material adverse effect on our revenues, operating results and cash flows.

Research and Development Expenses

	Years Ended December 31,						% Change in 2005		% Change in 2004
	2005		2004		2003
	(In thousands)
Research and development	$	57,778	$	39,970	$	30,014	45	%	33	%

Research and development (R&D) expenses, primarily consist of R&D personnel costs, clinical trial and drug manufacturing costs, license, collaboration and royalty fees and allocated facilities expenses. The expense for 2005 includes an adjustment of $0.6 million that was recorded subsequent to our earnings release dated February 27, 2006.

The $17.8 million increase in R&D expense in 2005 as compared to 2004 was primarily due to a $12.1 million increase in consulting and outside service expenses related to clinical trials, a $6.7 million increase in clinical trial supplies expense, largely from the use of alfimeprase drug product in clinical trials and from a $2.0 million write-off for drug product in excess of anticipated requirements, and a $3.8 million increase in R&D personnel expenses in support of these activities. These increases were partially offset by a $2.2 million decrease in license fees, primarily as a result of the difference between the $5.0 million milestone payment to Amgen in 2005 and the $7.0 million of license fees paid to Archemix and Dendreon in 2004.

The $10.0 million increase in R&D expense in 2004 as compared to 2003 was primarily due to $7.0 million in upfront fees related to our license and collaboration agreements signed with Dendreon and Archemix,

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respectively, in the first quarter of 2004, and an increase of $4.7 million in overall clinical trial and research-related costs to continue supporting development of our current drug candidates in 2004, partially offset by $2.7 million in R&D savings realized during 2004 from completion of the shut-down of our Variagenics research operations in Cambridge, Massachusetts in 2003.

R&D expenses included in the statement of operations for 2005 and since inception for our significant programs are as follows (including license and collaboration fees):

Program	2005		Since Inception
	(In millions)
Alfimeprase	$	34.8	$	61.6
rNAPc2	$	1.5	$	7.1
Thrombin inhibiting aptamer	$	2.6	$	10.3
NU206	$	2.7	$	2.7

We expect gross R&D expenses to increase significantly during 2006, as we intensify our alfimeprase Phase 3 clinical trial activity and increase alfimeprase manufacturing expenditures under our agreement with Avecia and future agreements with any other drug manufacturers. The increase will be partially offset by cost-sharing reimbursements from Bayer for 40 percent of alfimeprase-related global development spending.

The timing, cost of completing the clinical development of any product candidate, and any potential future product revenues will depend on a number of factors, including the disease or medical condition to be treated, clinical trial design and endpoints, availability of patients to participate in trials and the relative efficacy of the product versus treatments already approved. Due to these uncertainties, we are unable to estimate the length of time or the costs that will be required to complete the development of these product candidates. We do not expect to generate any product revenue until we reach the commercialization stage for any of our drug products, if this ever occurs.

General and Administrative Expenses

	Years Ended December 31,						% Change in 2005		% Change in 2004
	2005		2004		2003
	(In thousands)
General and administrative	$	15,801	$	8,702	$	15,069	82	%	(42	)%

General and administrative (G&A) expenses primarily consist of G&A personnel and consulting costs, including those related to pre-commercialization activities, professional fees, insurance, facilities and depreciation expenses, and various other administrative costs.

The $7.1 million increase in G&A expense in 2005 as compared to 2004 was primarily due a $2.4 million increase in G&A personnel costs and a $2.1 million increase in consulting and outside service expenses, as we build the infrastructure necessary to support our growth and begin preparations for the planned commercial launch of alfimeprase.

The $6.4 million decrease in G&A expense in 2004 as compared to 2003 was primarily due to a $4.6 million decrease from rent and option termination expenses in 2003 related to the Humboldt Court facility lease, and $3.6 million in G&A savings realized during 2004 from completion of the shut-down of our Variagenics’ operations in 2003, offset by increases in consulting and professional fees associated with the internal controls documentation, testing and auditing required under the Sarbanes-Oxley Act of 2002.

We expect G&A expenses to continue to increase in 2006 in order to support growth in our general operating activities and as we continue preparations for the planned commercial launch of alfimeprase.

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Loss on Sale of Assets

Losses on sales of assets were $4,000 in 2005, compared to $0.2 million in 2004 and $1.2 million in 2003. The $1.0 million decrease in 2004 was primarily due to the $1.2 million write-off in 2003 of Humboldt Court leasehold improvements in connection with our decision not to exercise a purchase option in April 2003 related to an early lease termination agreement executed in November 2002.

Interest and Other Income (Expense), net

We had net interest and other income of $1.4 million in 2005, compared to net interest and other expense of $0.3 million in 2004 and $0.9 million in 2003. The $1.7 million increase in the net amount for 2005 as compared to 2004 was primarily due to decreased amortization of premiums/discounts related to our investment balances. The $0.6 million decrease in net expense for 2004 as compared to 2003 was primarily due to the increase in interest income resulting from higher average cash and investment balances due to public offerings completed in October 2003 and March 2004, partially offset by increased amortization of premiums/discounts related to our investment balances.

Loss from Continuing Operations

Since our inception, we have incurred significant net losses, and as of December 31, 2005, our accumulated deficit was $327.7 million. During 2005, we incurred a net loss from continuing operations of $71.6 million as compared to $48.9 million in 2004 and $46.2 million in 2003. The $22.7 million increase in the loss from continuing operations in 2005 as compared to 2004 resulted primarily from increases in R&D expenses related to clinical trials and drug manufacturing for alfimeprase, the use of alfimeprase drug product as we progress our late-stage clinical trials and personnel costs in support of these activities, and higher general and administrative expenses incurred to build the infrastructure to support the company’s growth and begin preparations for the planned commercial launch of alfimeprase.

We expect to continue to incur significant losses from continuing operations for the foreseeable future, which may increase substantially as we continue development of our clinical stage drug candidates, alfimeprase and rNAPc2, our thrombin inhibiting aptamer program, and our preclinical stage drug candidate, NU206. In addition, we expect to incur significant costs as we continue preparations for the planned commercial launch of alfimeprase, further expand research and development of potential biopharmaceutical product candidates, potentially in-license other drug candidates, and continue to prosecute and enforce our intellectual property rights.

Loss from Discontinued Operations

On December 3, 2004, we sold our subsidiary, Callida Genomics, Inc. (Callida). In accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the operating results of Callida have been reclassified to discontinued operations for all periods presented, with the related net losses being $3.5 million and $4.0 million in 2004 and 2003, respectively. The loss in 2004 includes a charge to our earnings of $1.6 million resulting from the sale of Callida, primarily representing the difference between the value of the convertible promissory notes received and the carrying value of Callida’s assets and liabilities on our balance sheet.

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Liquidity and Capital Resources

Cash, cash equivalents and short-term investment balances at the end of 2005 and 2004 were as follows:

	December 31, 2005		December 31, 2004
	(In thousands)
Cash and cash equivalents	$	37,764	$	16,811
Short-term investments		32,572		33,814
Cash, cash equivalents and short-term investments	$	70,336	$	50,625

Cash flows from operating, investing and financing activities in 2005, 2004 and 2003, including those from discontinued operations, were as follows:

	Years Ended December 31,
	2005			2004			2003
	(In thousands)
Net cash used in operating activities	$	(59,035	)	$	(50,112	)	$	(45,066	)
Net cash (used in) provided by investing activities		(1,175	)		(13,576	)		28,393
Net cash provided by financing activities		81,163			67,358			27,589
Net increase in cash and cash equivalents	$	20,953		$	3,670		$	10,916

Cash, Cash Equivalents and Short-Term Investments

As of December 31, 2005, we had total cash, cash equivalents and short-term investments of $70.3 million, as compared to $50.6 million as of December 31, 2004. The increase of $19.7 million resulted primarily from net cash proceeds of $68.4 million from a public offering in February 2005 and $14.2 million from two draw-downs under the Kingsbridge CEFF in the fourth quarter of 2005, being offset by $59.0 million of cash used in operating activities and $4.9 million of payments on debt obligations in 2005.

In January 2006, we received a $50.0 million up-front cash payment from Bayer upon entry into the license and collaboration agreement for alfimeprase, and in February 2006, we raised approximately $111.9 million in a public offering, after deducting underwriters’ fees and stock issuance costs of approximately $7.7 million, from the sale of 7,475,000 shares of our common stock, including 975,000 shares related to the exercise of an over-allotment option granted to the underwriters, at a public offering price of $16.00 per share.

As of December 31, 2005, all of our short-term investments in marketable securities have maturities of less than one year, and have been classified as available-for-sale securities, as defined by Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (SFAS 115). These securities are recorded at their fair value and consist of U.S. government agency and corporate debt, and asset-backed securities. We make our investments in accordance with our investment policy. The primary objectives of our investment policy are liquidity, safety of principal and diversity of investments.

Sources and Uses of Capital

Our primary sources of liquidity to date have been cash from financing activities, collaboration receipts and our merger with Variagenics in January 2003. We plan to continue to raise funds through additional public and/or private offerings and collaboration activities in the future.

In February 2005, we raised $68.4 million in a public offering, after deducting underwriters’ fees and stock issuance costs of $4.9 million, from the sale of 9,775,000 shares of our common stock, including 1,275,000 shares from the exercise of an over-allotment option granted to the underwriters, at a public offering price of $7.50 per share.

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In August 2005, we entered into a Committed Equity Financing Facility (CEFF) with Kingsbridge, under which Kingsbridge has committed to purchase up to a total of $75.0 million of our common stock within a three-year period, subject to certain conditions and limitations. As of December 31, 2005, we had $60.6 million remaining available under the CEFF, having sold 653,103 shares for gross proceeds of $5.0 million in November 2005 and 1,186,297 shares for gross proceeds of $9.4 million in December 2005 under this facility.

In August 2004, we entered into a Loan and Security Agreement (Loan Agreement), with Silicon Valley Bank (SVB) that originally provided a $6.0 million term loan facility and a $4.0 million revolving credit line, and grants SVB a security interest over certain of our assets, excluding intellectual property. The Loan Agreement contains certain covenants and reporting requirements, which we were in full compliance with as of December 31, 2005. Proceeds may be used solely for working capital or other general business needs. In December 2004, we completed a $2.6 million initial draw-down from the term loan facility, the proceeds of which were used to repay a note for the same amount that was owed to AMB Property, LP in relation to the termination of a lease agreement for facilities at Humboldt Court in Sunnyvale, California. In March 2005, we completed a $1.5 million second draw-down from the term loan facility, with $0.6 million of these proceeds being used to pay off certain capital leases. On June 30, 2005, the remaining $1.9 million of the term loan facility expired unused. The $2.6 million draw-down is being repaid in 30 equal monthly installments, plus accrued interest of 6.43% per annum, starting from May 1, 2005; the $1.5 million draw-down is being repaid in 36 equal monthly installments, plus accrued interest of 6.78% per annum, starting from April 1, 2005.

In July 2005, the Loan Agreement was amended to increase the revolving credit line facility from $4.0 million to $8.0 million and extend the facility through August 29, 2006. We have yet to draw-down any of the funds available under this revolving credit line. Of the $8.0 million total facility, $6.0 million is currently being used to collateralize a letter of credit issued to The Irvine Company related to the lease for the facility at 985 Almanor Avenue in Sunnyvale, California. This letter of credit was increased from $4.0 million to $6.0 million in July 2005 in order to replace the guarantee provided by Dr. Rathmann to The Irvine Company. The remaining $2.0 million is being used partly as collateral for foreign exchange hedging contracts with SVB, and partly being available for working capital or other general business needs. Any borrowings under this line shall bear interest at SVB’s prime rate, and would cause replacement collateral to be required for the items above.

Dr. Rathmann, a member of our board of directors and chairman emeritus, provided us with a $20.0 million line of credit in August 2001, of which we have drawn down $11.0 million, with the remaining $9.0 million having expired unused. The related promissory note bears interest at the prime rate plus 1%. In November 2003, we began repaying the outstanding balance over 48 months with equal principal payments of $0.2 million. Accrued interest will be paid with the final payment in October 2007, unless both are repaid before then. As of December 31, 2005, the remaining principal and accrued interest to date totaled $6.9 million, and the interest rate on the note on this date was 8.25%. The outstanding principal and interest under the note may be repaid at any time upon mutual agreement, by conversion into shares of our common stock at a price based upon the average price of our common stock over a 20-day period ending 2 days prior to the conversion or, if in connection with an equity financing, at the offering price. As of December 31, 2005, 818,347 shares would be issuable to fully repay the principal and interest outstanding upon conversion.

We issued Affymetrix a five-year promissory note for $4.0 million in November 2001, bearing a fixed annual interest rate of 7.5%. Accrued interest will be paid with the final principal payment on November 13, 2006, unless both are repaid before then. As of December 31, 2005, the remaining principal and accrued interest to date totaled $5.2 million. The outstanding principal and interest under the note may be repaid in whole or in part at any time, at our option, by conversion into shares of our common stock at a price based upon 90% of the average price of our common stock over a 10-day period ending 2 days prior to the conversion. As of December 31, 2005, 700,011 shares would be issuable to fully repay the principal and interest outstanding upon conversion. Affymetrix has the ability to declare all outstanding principal and interest under the note immediately due and payable if our market capitalization is under $50.0 million and Affymetrix reasonably determines that the loan evidenced by the note is impaired, and we have an obligation to prepay amounts owing under the note to the extent that the amounts outstanding exceed 10% of our market capitalization.

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Our primary uses of capital resources to date have been to fund operating activities, including research, clinical development and drug manufacturing expenses, license payments, and spending on capital items.

Cash Used in Operating Activities

Net cash used in operating activities was $59.0 million in 2005, compared to $50.1 million in 2004 and $45.1 million in 2003. The increase of $8.9 million in 2005 as compared to 2004 was primarily due to an increase in spending related to clinical trials and drug manufacturing for alfimeprase. The increase of $5.0 million in 2004 as compared to 2003 was primarily due to payments to Amgen of $8.5 million in relation to the termination of the collaboration agreement in October 2004, as well as total license and collaboration agreement fees of $3.5 million paid to Dendreon and Archemix, partially offset by the elimination of $6.3 million of expenses incurred in 2003 resulting from our merger with Variagenics in January 2003.

We expect gross operating spending to increase significantly during 2006, as we advance our alfimeprase Phase 3 clinical trial activity and increase alfimeprase manufacturing expenditures under our agreement with Avecia and future agreements with any other drug manufacturers, and incur additional general corporate expenses, including those for continued preparations for the planned commercial launch of alfimeprase. This increase in spending is expected to be offset by the $50.0 million up-front payment received from Bayer in January 2006 upon entry into our license and collaboration agreement for alfimeprase, the related 40 percent cost sharing reimbursements for global development spending, and a potential $10.0 million milestone fee due from Bayer if we initiate a trial for a stroke indication. Our future milestone payments under current agreements with Amgen, Dendreon and Archemix could total $69.5 million, although we currently cannot predict with any certainty if or when any of these milestones will be achieved.

Cash Used in / Provided by Investing Activities

Net cash used in investing activities was $1.2 million in 2005, compared to $13.6 million in 2004 and $28.4 million provided by investing activities in 2003. The net decrease of $12.4 million in 2005 as compared to 2004 was primarily due to an increase in cash provided by sales or maturities of investments. The net increase of $42.0 million in 2004 as compared to 2003 was primarily due to $25.7 million of cash received from the acquisition of Variagenics in 2003, and increased purchases of short-term investments as a result of cash raised from the public offering completed in March 2004, partially offset by an increase in proceeds from the subsequent sales or maturities of those investments.

Cash Provided by Financing Activities

Net cash provided by financing activities was $81.2 million in 2005, compared to $67.4 million in 2004 and $27.6 million in 2003. The amounts are primarily comprised of the net proceeds from public offerings of $68.4 million, $69.5 million and $26.5 million in 2005, 2004 and 2003, respectively, plus additional net cash proceeds of $14.2 million from two draw-downs under the Kingsbridge CEFF in 2005.

Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth under “Item 1A. Risk Factors.” We may not be able to secure additional financing to meet our funding requirements on acceptable terms, if at all. If we raise additional funds by issuing equity securities, substantial dilution to our existing stockholders may result. If we are unable to obtain additional funds, we will have to reduce our operating costs and delay our research and development programs. We believe that we have adequate cash reserves to fund our operations for at least the next twelve months.

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Contractual Obligations

The following table summarizes our significant contractual obligations as of December 31, 2005, and the effect such obligations are expected to have on our liquidity and cash flow in future periods (in thousands):

	2006		2007		2008		2009		2010		2011 and Thereafter		Total
Contractual obligations:
Operating lease obligations	$	9,021	$	9,292	$	9,572	$	8,822	$	8,379	$	8,984	$	54,070
Bank loans (a)		1,695		1,420		126		—		—		—		3,241
Note payable (b)		5,239		—		—		—		—		—		5,239
Capital lease obligations (a)		12		14		—		—		—		—		26
Related party line of credit (c)		2,750		4,145		—		—		—		—		6,895
Facility restoration obligation (d)		—		—		—		—		—		509		509
Total contractual obligations	$	18,717	$	14,871	$	9,698	$	8,822	$	8,379	$	9,493	$	69,980

(a) Includes interest payments at fixed rates of interest.

(b) Fixed interest of 7.5% per annum is accrued and due with the final loan payment in November 2006. Includes $1.2 million interest accrued as of December 31, 2005. The outstanding principal and interest may be repaid in whole or in part at any time, at our option, by conversion into shares of our common stock.

(c) Interest is accrued at a variable rate based on the current prime rate plus 1% and is due with the final line of credit payment in October 2007. Includes $1.9 million interest accrued as of December 31, 2005. The outstanding principal and interest may be repaid at any time upon mutual agreement, by conversion into shares of our common stock.

(d) Includes estimated interest accretion at 7.25% per annum.

The foregoing table does not include milestone payments potentially payable by us under our collaboration agreements and licenses. Such milestone payments are dependent upon the occurrence of specific milestones events and not the passage of time.

Critical Accounting Policies and Estimates

Our discussion and analysis of our operating results and financial condition is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of the financial statements requires us to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent amounts. While we believe our estimates, judgments and assumptions are reasonable, the inherent nature of estimates is that actual results will likely differ from the estimates made.

We believe the following critical accounting policies, among others, affect the more significant judgments and estimates used in the preparation of our consolidated financial statements.

Clinical Trial Drug Manufacturing Expense and Clinical Trial Supplies Asset

In accordance with Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. 2, “Accounting for Research and Development Costs” (SFAS 2), we capitalize clinical trial drug manufacturing costs as “clinical trial supplies”, a current asset on our balance sheet, as long as there are alternative future uses for the related clinical trial drug material in other indications not currently being studied, (e.g., for alfimeprase, these include deep-vein thrombosis and stroke). We recognize clinical trial drug manufacturing expense when completed drug material is shipped from the manufacturing or storage facility for use in a clinical trial or for testing, or is otherwise consumed. On a quarterly basis, we evaluate whether there continues to be alternative future use for any capitalized drug material, and if the material is obsolete or in excess

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of anticipated requirements. Any capitalized drug material will be written-off to research and development expense in the quarter in which there ceases to exist an alternative future use, or if the material is obsolete or in excess of anticipated requirements, which may result in a significant adverse impact to our financial condition and results of operations. In the fourth quarter of 2005, a non-cash write-off of $2.0 million was charged to research and development expense for drug product in excess of anticipated requirements.

Impairment or Disposal of Long-Lived Assets

Periodically, we determine whether any long-lived asset or related asset group has been impaired based on the criteria established in Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144). SFAS 144 requires, among other things, that impairment losses be recognized whenever the carrying amount of the asset or asset group exceeds its fair value. Intangibles with determinable useful lives and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, and we perform an annual impairment review regardless of any such events or changes. Our judgments regarding the existence of impairment indicators are based on historical and projected future operating results, changes in the manner of our use of the acquired assets, our overall business strategy or market and economic trends. Events may occur that could cause us to conclude that impairment indicators exist and that certain long-lived assets or related asset groups are impaired, which may result in a significant adverse impact to our financial condition and results of operations. There were assessed to be no impairments to long-lived assets as of December 31, 2005.

Goodwill

We applied the provisions of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS 142) upon the completion of the merger with Variagenics in January 2003. SFAS 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually in accordance with provisions of SFAS 142. SFAS 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives, and these assets will be reviewed for impairment in accordance with SFAS 144 as noted above.

The SFAS 142 goodwill impairment model involves a two-step process. First, we compare the fair value of the reporting unit with its carrying value, including goodwill. The estimated fair value of the reporting unit, in this case the Nuvelo business segment, being the only business segment in the company, is computed by multiplying the quoted market price of the company’s common stock on the Nasdaq National Market by the outstanding common stock of the company at that time.

If the fair value of the reporting unit is determined to be more than its carrying value, including goodwill, no goodwill impairment is recognized. If the fair value of the reporting unit is determined to be less than its carrying value, goodwill impairment, if any, is computed using the second step. The second step requires the fair value of the reporting unit to be allocated to all the assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination at the date of the impairment test and the fair value of the reporting unit was the price paid to acquire it. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied value of goodwill, which is used to determine the impairment amount.

We have designated October 31 as the annual impairment testing date for goodwill, although additional testing may be performed if circumstances warrant a re-evaluation. If it is determined that the carrying value of goodwill has been impaired, the value would be reduced by a charge to operations in the amount of the impairment, which may result in a significant adverse impact to our financial condition and results of operations. There was assessed to be no goodwill impairment based on the testing performed on October 31, 2005.

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Clinical Trial and Drug Manufacturing Accruals

We accrue costs for clinical trial and drug manufacturing activities based upon estimates of the services received and related expenses incurred that have yet to be invoiced by the contract research organizations (CROs), clinical study sites, drug manufacturers, collaboration partners, laboratories, consultants, or otherwise. Related contracts vary significantly in length, and may be for a fixed amount, a variable amount based on actual costs incurred, capped at a certain limit, or for a combination of these elements. Activity levels are monitored through close communication with the CROs and other vendors, including detailed invoice and task completion review, analysis of expenses against budgeted amounts, and pre-approval of any changes in scope of the services to be performed. Each CRO or significant vendor provides an estimate of costs incurred but not invoiced at the end of each period for each individual trial or project. The estimates are reviewed and discussed with the CRO or vendor as necessary, and are included in research and development expenses for the related period or capitalized as clinical trial supplies, as necessary. For clinical study sites, which are paid at least quarterly on a per-patient basis to the institutions performing the clinical study, we accrue an estimated amount based on patient enrollment in each period. All estimates may differ significantly from the actual amounts subsequently invoiced. No adjustments for material changes in estimates have been recognized in any period presented.

Revenue Recognition

We recognize revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price is fixed and determinable, and (iv) collectibility is reasonably assured. We defer upfront refundable fees and recognize revenues upon the later of when they become non-refundable or when performance obligations are completed or considered perfunctory or inconsequential. In situations where we have no continuing performance obligations, or our continuing obligations are perfunctory or inconsequential, we recognize upfront non-refundable fees as revenues on the effective date of the related agreement. Upfront non-refundable licensing fees that require continuing involvement in the form of development, manufacturing or other commercialization efforts by us are recognized as revenue ratably over the period until our performance obligations in relation to these fees become inconsequential. Revenues related to collaborative research agreements and government grants are generally recognized ratably over the term of the related agreement as the services are performed.

Stock-Based Compensation

In accordance with the provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123), as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure” (SFAS 148), we have elected to account for stock-based employee compensation under the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related interpretations, and to adopt the “disclosure only” alternative described in SFAS 123, as amended by SFAS 148. Stock options granted to non-employees are accounted for in accordance with SFAS 123 and Emerging Issues Task Force No. 96-18, “Accounting for Equity Instruments that Are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.” Effective from the beginning of our 2006 fiscal year, we will be subject to Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” which will have a material adverse effect on our consolidated results of operations (see Recent Accounting Pronouncements below).

Income Taxes

Income taxes are accounted for under the asset and liability method pursuant to Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (SFAS 109). Under SFAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates

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expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

We record a valuation allowance to reduce deferred income tax assets to an amount that is more likely than not to be realized. Assessment of the realization of deferred income tax assets requires that estimates and assumptions be made as to the taxable income of future periods. Our deferred tax assets have been reduced to zero, as management believes that it is more likely than not that the deferred tax assets will not be realized. Projection of future period earnings is inherently difficult as it involves consideration of numerous factors such as our overall strategies and estimates of new product development and acceptance, product lifecycles, selling prices and volumes, responses by competitors, manufacturing costs and assumptions as to operating expenses and other industry specific and macro and micro economic factors. In addition, consideration is also given to ongoing and constantly evolving global tax laws and our own tax minimization strategies.

Foreign Currency Transactions and Contracts

We use foreign exchange forward contracts, and similar instruments, to mitigate the currency risk associated with the acquisition of goods and services under agreements with vendors that are denominated in foreign currency. Contracts for anticipated transactions are designated and documented as cash flow hedges under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133) at hedge inception, and are evaluated for effectiveness at least quarterly. We only hedge exposures that can be confidently identified and quantified, and do not enter into speculative foreign currency transactions. All contracts have maturities of one year or less. In accordance with SFAS 133, all derivatives, such as foreign currency forward contracts, are recognized as either assets or liabilities in the balance sheet and measured at fair value. The effective component of the hedge gains and losses are recorded in other comprehensive income (loss) within stockholders’ equity in the balance sheet and reclassified to research and development expenses in the statement of operations when the forecasted transaction itself is recorded to the statement of operations. Any residual change in the fair value of the hedge contracts, such as ineffectiveness or time value excluded from effectiveness testing is recognized immediately as a general and administrative expense.

Recent Accounting Pronouncements

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (SFAS 123(R)), an amendment of Statement of Financial Accounting Standards No. 123, that addresses the accounting for share-based awards to employees. The standard requires companies to recognize the fair value of employee stock options and other stock-based compensation as an expense. The statement eliminates the ability to account for share-based employee compensation transactions using APB Opinion No. 25, “Accounting for Stock Issued to Employees,” (APB 25), and generally requires instead that companies account for such transactions using a fair value based method, such as the Black-Scholes option pricing model, to fairly value stock options and recognize that value as an expense over the requisite service period. The standard is effective for us as of the beginning of the fiscal year commencing January 1, 2006. For all periods prior to January 1, 2006, we have accounted for our stock-based employee compensation plans in accordance with APB 25. SFAS 123(R) offers companies alternative methods of adopting this standard. We intend to adopt SFAS 123(R) using the modified prospective method. The adoption of SFAS 123(R) is expected to have a material adverse effect on our results of operations.

In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections — a Replacement of APB Opinion No. 20 and FASB Statement No. 3” (SFAS 154). This statement changes the requirements for the accounting for and reporting of a change in accounting principle and applies to all voluntary changes in accounting principle and to changes required by an accounting pronouncement in the instance that the pronouncement does not include specific transition provisions. SFAS 154

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requires retrospective application to prior periods’ financial statements of the direct effects caused by a change in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. Further, changes in depreciation, amortization or depletion methods for long-lived, non-financial assets are to be accounted for as a change in accounting estimate affected by a change in accounting principle. SFAS 154 is effective for accounting changes and corrections made in fiscal years beginning after December 15, 2005. The adoption of this standard, beginning in fiscal year 2006, is not expected to have any material effect on our results of operations or financial condition.

Off-Balance Sheet Arrangements

We have not participated in any transactions with unconsolidated entities, such as special purpose entities (SPEs), which would have been established for the purpose of facilitating off-balance sheet arrangements.

Indemnifications

In the ordinary course of business, we enter into contractual arrangements under which we may agree to indemnify certain parties from any losses incurred relating to the services they perform on our behalf or for losses arising from certain events as defined within the particular contract. Such indemnification obligations may not be subject to maximum loss clauses. Historically, payments made related to these indemnifications have been immaterial. In addition, we have entered into indemnity agreements with each of our directors and executive officers. Such indemnity agreements contain provisions, which are in some respects broader than the specific indemnification provisions contained in Delaware law. We also maintain an insurance policy for our directors and executive officers insuring against certain liabilities arising in their capacities as such.

Item 7A. Qualitative and Quantitative Disclosures About Market Risk

Interest Rate Risk

We place our investments with high quality issuers and, by policy, limit the amount of credit exposure with any one issuer. We do not use derivative financial instruments in our investment portfolio. We are averse to principal loss, and strive to ensure the safety and preservation of our invested funds by limiting default, market and reinvestment risk.

• We have exposure to changes in interest rates on our cash equivalents, which are held primarily in money market funds and debt securities with original maturities of 90 days or less, and that earn interest at variable rates.

• Changes in interest rates do not affect interest income on our short-term investments as they are maintained in U.S. government agency and corporate debt and asset-backed securities with fixed rates and original maturities of less than 24 months.

• Changes in interest rates do not affect interest income on any restricted cash we may hold, as it is generally maintained in commercial paper with fixed rates and original maturities of less than 90 days.

Changes in interest rates do not affect interest expense on our outstanding bank loans, note payable and capital leases, as they bear fixed rates of interest.

We have exposure to changes in interest rates on our revolving bank line of credit with Silicon Valley Bank, which bears interest at their prime rate. No draw-downs have been made on this line of credit to date.

We have exposure to changes in interest rates on our line of credit with Dr. George Rathmann, which bears interest at the prime rate plus 1%. Our interest rate exposure is mitigated by our ability to repay amounts outstanding under the line of credit with our common stock.

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A hypothetical 10% change in market interest rates is not expected to have a material effect on our near-term financial condition or results of operations.

The table below summarizes the carrying amounts as of December 31, 2005 and 2004 and related average annual interest rates of our various financial instruments:

	2005 Average Rate		2005 Carrying Amount		2004 Average Rate		2004 Carrying Amount
			(In thousands)				(In thousands)
Cash equivalents	3.24	%	$	37,764	0.97	%	$	16,811
Short-term investments	2.71	%	$	32,572	1.49	%	$	13,814
Restricted cash	—	%	$	—	1.37	%	$	191
Bank loans	6.56	%	$	3,032	6.43	%	$	2,600
Notes payable	7.50	%	$	4,000	7.50	%	$	4,000
Capital lease obligations	12.59	%	$	22	10.18	%	$	1,079
Related party line of credit	7.19	%	$	5,042	5.38	%	$	7,792

Foreign Exchange Risk

Some payments to overseas suppliers of goods or services may be denominated in foreign currencies. Accordingly, as part of our corporate risk management strategy, we have implemented a policy of hedging significant foreign currency exposures that can be confidently identified and quantified, in order to mitigate the impact of currency rate fluctuations on our cash outflows. We do not enter into speculative foreign currency transactions. In July 2005, we entered into a development and validation with Avecia Ltd. under which payments for their services are denominated in British pounds. As a result, our financial results could be adversely affected by future increases in the British pound exchange rate. In order to reduce our exposure to fluctuations in the British pound prior to any payment made under this contract, we entered into a number of foreign currency forward hedging contracts in 2005, all maturing within one year and being designated as cash flow hedges under SFAS 133. The table below provides information about the open derivative contracts at December 31, 2005, with amounts in U.S. dollar equivalents (in thousands, except for average contract rate):

	December 31, 2005
	Notional Amount		Average Contract Rate	Fair Value - Gain (Loss)
British pounds	$	9,959	0.57	$	(150	)

We have no investments denominated in foreign currencies, and therefore our investments are not subject to foreign currency exchange risk. However, at each quarter end, we may have liabilities for costs incurred by overseas providers that are denominated in foreign currencies that are not hedged because of their small size and/or short time until settlement. An increase or decrease in exchange rates on these unhedged exposures may affect our operating results.

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Item 8. Financial Statements and Supplementary Data

Nuvelo, Inc.’s financial statements and notes thereto appear on pages 61 to 90 of this Annual Report on Form 10-K.

	Page
Reports of Independent Registered Public Accounting Firm	61
Consolidated Balance Sheets as of December 31, 2005 and 2004	63
Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003	64
Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2005, 2004 and 2003	65
Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003	66
Notes to Consolidated Financial Statements	67

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of Nuvelo, Inc.:

We have audited the accompanying consolidated balance sheets of Nuvelo, Inc. and subsidiary as of December 31, 2005 and 2004, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2005. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Nuvelo, Inc. and subsidiary as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Nuvelo, Inc.’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 15, 2006 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

/s/    KPMG LLP

San Francisco, California

March 15, 2006

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of Nuvelo, Inc.:

We have audited management’s assessment, included in Management’s Report on Internal Control over Financial Reporting, that Nuvelo, Inc. maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Nuvelo, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Nuvelo, Inc. maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, Nuvelo, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Nuvelo, Inc. and subsidiary as of December 31, 2005 and 2004, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2005, and our report dated March 15, 2006 expressed an unqualified opinion on those consolidated financial statements.

/s/    KPMG LLP

San Francisco, California

March 15, 2006

62

NUVELO, INC.

CONSOLIDATED BALANCE SHEETS

	As of December 31,
	2005			2004
	(In thousands, except share information)
ASSETS
Cash and cash equivalents	$	37,764		$	16,811
Short-term investments		32,572			33,814
Accounts receivable		72			271
Clinical trial supplies		12,261			12,637
Other current assets		3,096			2,462
Total current assets		85,765			65,995
Equipment, leasehold improvements and capitalized software, at cost		29,615			25,866
Accumulated depreciation and amortization		(14,450	)		(19,818	)
Equipment, leasehold improvements and capitalized software, net		15,165			6,048
Restricted cash		—			191
Goodwill		4,671			4,671
Patents, licenses and other assets, net		2,445			2,359
Total assets	$	108,046		$	79,264
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	4,919		$	3,107
Accrued employee liabilities		2,272			1,337
Accrued clinical trial and drug manufacturing costs		4,482			931
Deferred revenue		1,813			—
Current portion of deferred rent		17,105			8,259
Accrued interest		3,092			2,341
Current portion of bank loans		1,540			693
Current portion of notes payable		4,000			—
Current portion of capital lease obligations		9			966
Current portion of related party line of credit		2,750			2,750
Other current liabilities		2,933			350
Total current liabilities		44,915			20,734
Non-current portion of deferred rent		2,224			1,879
Non-current portion of bank loans		1,492			1,907
Non-current portion of notes payable		—			4,000
Non-current portion of capital lease obligations		13			113
Non-current portion of related party line of credit		2,292			5,042
Other non-current liabilities		346			—
Total liabilities		51,282			33,675
Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred stock, par value $0.001; 5,000,000 shares authorized; none issued and outstanding as of December 31, 2005 and 2004		—			—
Common stock, par value $0.001; 100,000,000 shares authorized; 44,149,456 and 32,228,732 issued and outstanding as of December 31, 2005 and 2004, respectively		44			32
Additional paid-in capital		384,629			301,811
Accumulated other comprehensive loss		(250	)		(206	)
Accumulated deficit		(327,659	)		(256,048	)
Total stockholders’ equity		56,764			45,589
Total liabilities and stockholders’ equity	$	108,046		$	79,264

See accompanying Notes to Consolidated Financial Statements.

63

NUVELO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended December 31,
	2005			2004			2003
	(In thousands, except per share data)
Contract revenues	$	545		$	195		$	1,024
Operating expenses:
Research and development		57,778			39,970			30,014
General and administrative		15,801			8,702			15,069
Loss on sale or disposal of assets		4			167			1,225
Total operating expenses		73,583			48,839			46,308
Operating loss		(73,038	)		(48,644	)		(45,284	)
Interest expense — related party		(450	)		(481	)		(557	)
Interest expense — other		(554	)		(880	)		(846	)
Interest income		2,158			2,893			747
Other income (expense), net		273			(1,830	)		(289	)
Loss from continuing operations		(71,611	)		(48,942	)		(46,229	)
Loss from discontinued operations (including loss on disposal of $1,641 in 2004, net of tax of $0)		—			(3,547	)		(3,958	)
Net loss	$	(71,611	)	$	(52,489	)	$	(50,187	)
Basic and diluted net loss per share:
Continuing operations	$	(1.73	)	$	(1.59	)	$	(2.19	)
Discontinued operations		—			(0.11	)		(0.18	)
Total basic and diluted net loss per share	$	(1.73	)	$	(1.70	)	$	(2.37	)
Weighted average shares used in computing basic and diluted net loss per share		41,279			30,874			21,054

See accompanying Notes to Consolidated Financial Statements.

64

NUVELO, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

For the Years Ended December 31, 2005, 2004 and 2003

	Common Stock			Additional Paid-in Capital			Deferred Compen- sation			Accumu- lated Other Compre- hensive Loss			Accumu- lated Deficit			Total Stock- holders’ Equity (Deficit)
	Shares	Amount
	(In thousands)
Balance at December 31, 2002	7,700	$	8	$	148,806		$	(6	)	$	—		$	(153,372	)	$	(4,564	)
Components of comprehensive loss:
Net loss	—		—		—			—			—			(50,187	)		(50,187	)
Unrealized loss on available-for-sale securities	—		—		—			—			(15	)		—			(15	)
Comprehensive loss																	(50,202	)
Issuance of common stock upon exercise of stock options and under employee stock purchase plan	700		1		1,524			—			—			—			1,525
Issuance of common stock in connection with Variagenics merger	13,262		13		48,755			—			—			—			48,768
Warrants issued	—		—		192			—			—			—			192
Issuance of common stock upon cashless exercise of warrants	126		—		—			—			—			—			—
Issuance of common stock through a public offering in October 2003, net of issuance cost of $1,846	3,833		4		26,326			—			—			—			26,330
Deferred stock compensation in connection with Variagenics merger	—		—		322			(160	)		—			—			162
Compensation expense related to stock option modifications	—		—		415			—			—			—			415
Amortization of deferred stock compensation	—		—		—			75			—			—			75
Market value adjustment of deferred stock compensation	—		—		(61	)		61			—			—			—
Balance at December 31, 2003	25,621	$	26	$	226,279		$	(30	)	$	(15	)	$	(203,559	)	$	22,701
Components of comprehensive loss:
Net loss	—		—		—			—			—			(52,489	)		(52,489	)
Unrealized loss on available-for-sale securities	—		—		—			—			(191	)		—			(191	)
Comprehensive loss																	(52,680	)
Issuance of common stock upon exercise of stock options and under employee stock purchase plan	267		—		1,148			—			—			—			1,148
Issuance of common stock upon exercise of warrants	241		—		1,199			—			—			—			1,199
Issuance of common stock upon cashless exercise of warrants	87		—		—			—			—			—			—
Issuance of common stock through a public offering in March 2004, net of issuance cost of $5,308	5,750		6		69,436			—			—			—			69,442
Issuance of common stock in connection with Dendreon license agreement	263		—		3,500			—			—			—			3,500
Compensation expense related to stock option modification	—		—		152			—			—			—			152
Consultant stock compensation expense	—		—		127			—			—			—			127
Market value adjustment of deferred stock compensation	—		—		(30	)		30			—			—			—
Balance at December 31, 2004	32,229	$	32	$	301,811		$	—		$	(206	)	$	(256,048	)	$	45,589
Components of comprehensive loss:
Net loss	—		—		—			—			—			(71,611	)		(71,611	)
Unrealized loss on hedging instruments	—		—		—			—			(197	)		—			(197	)
Unrealized gain on available-for-sale securities	—		—		—			—			153			—			153
Comprehensive loss																	(71,655	)
Issuance of common stock upon exercise of stock options and under employee stock purchase plan	307		—		1,717			—			—			—			1,717
Issuance of common stock through a public offering in February 2005, net of issuance cost of $4,865	9,775		10		68,438			—			—			—			68,448
Issuance of common stock under Kingsbridge CEFF, net of issuance cost of $220	1,839		2		14,180			—			—			—			14,182
Fair value of warrant granted in connection with Kingsbridge CEFF	—		—		(2,078	)		—			—			—			(2,078	)
Compensation expense related to stock option modification	—		—		394			—			—			—			394
Consultant stock compensation expense	—		—		167			—			—			—			167
Balance at December 31, 2005	44,150	$	44	$	384,629		$	—		$	(250	)	$	(327,659	)	$	56,764

See accompanying Notes to Consolidated Financial Statements.

65

NUVELO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2005			2004			2003
	(In thousands)
Cash flows from operating activities:
Net loss	$	(71,611	)	$	(52,489	)	$	(50,187	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,668			4,117			5,529
Loss on disposal of assets		4			167			1,225
Write-off of clinical trial supplies		1,984			—			—
Stock compensation expense		561			279			490
License expense		—			3,500			—
Change in deferred revenue		(187	)		—			(565	)
Change in fair value of warrant		(567	)		—			—
Other non-cash items		(31	)		—			192
Loss on disposal of discontinued operations		—			1,641			—
Changes in operating assets and liabilities:
Accounts receivable		199			70			2,210
Clinical trial supplies		(1,624	)		(8,611	)		(4,026	)
Other current assets		(634	)		(1,161	)		650
Other non-current assets		(103	)		(559	)		2,010
Accounts payable		1,812			997			(1,976	)
Accrued employee liabilities		935			574			(1,542	)
Accrued clinical trial and drug manufacturing costs		3,551			(4,717	)		5,646
Deferred revenue		2,000			—			40
Deferred rent		335			5,391			759
Accrued interest		751			781			856
Accrued license fee		—			—			(1,775	)
Other current liabilities		922			(92	)		(4,602	)
Net cash used in operating activities		(59,035	)		(50,112	)		(45,066	)
Cash flows from investing activities:
Sales or maturities of short-term investments		64,161			50,866			22,480
Purchases of short-term investments		(62,766	)		(63,823	)		(20,227	)
Purchases of equipment, leasehold improvements and software capitalization		(2,570	)		(664	)		(320	)
Proceeds from sale of assets		—			45			745
Cash received in conjunction with the acquisition of Variagenics, net of merger costs		—			—			25,715
Net cash (used in) provided by investing activities		(1,175	)		(13,576	)		28,393
Cash flows from financing activities:
Proceeds from release of restricted cash		191			310			1,355
Payment of promissory note		—			(2,600	)		—
Proceeds from bank loans		1,500			2,600			—
Payments on bank loans		(1,068	)		—			—
Payments on capital lease obligations		(1,057	)		(1,991	)		(2,318	)
Proceeds from related party line of credit		—			—			1,000
Payments on related party line of credit		(2,750	)		(2,750	)		(458	)
Proceeds from issuance of common stock from public offerings, net		82,630			69,442			26,485
Proceeds from issuance of common stock upon the exercise of options, warrants and under the employee stock purchase plan		1,717			2,347			1,525
Net cash provided by financing activities		81,163			67,358			27,589
Net increase in cash and cash equivalents		20,953			3,670			10,916
Cash and cash equivalents at beginning of year		16,811			13,141			2,225
Cash and cash equivalents at end of year	$	37,764		$	16,811		$	13,141
Supplemental disclosures of cash flow information:
Interest paid	$	250		$	436		$	535
Income taxes paid	$	3		$	7		$	5
Non-cash investing and financing activities:
Acquisition of leasehold improvements under tenant improvement allowance	$	8,856		$	—		$	—
Capitalization of estimated future building restoration costs	$	346		$	—		$	—
Fair value of warrant granted as deferred equity financing facility costs	$	2,078		$	—		$	—
Cashless exercise of warrants	$	—		$	646		$	1,208
Fair value of common stock, stock options and warrants issued and exchanged in connection with the acquisition of Variagenics	$	—		$	—		$	48,768

See accompanying Notes to Consolidated Financial Statements.

66

NUVELO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Organization and Summary of Significant Accounting Policies

Organization

Nuvelo, Inc. (“Nuvelo,” or the “Company”) was incorporated as “Hyseq, Inc.” in Illinois in 1992 and reincorporated in Nevada in 1993. On January 31, 2003, the Company merged with Variagenics, Inc., a publicly traded Delaware corporation based in Massachusetts, and, in connection with the merger, changed its name to “Nuvelo, Inc.” On March 25, 2004, the Company was reincorporated from Nevada to Delaware. The Company’s wholly owned subsidiary, Hyseq Diagnostics, Inc., is inactive.

The Company is engaged in the discovery, development and commercialization of novel acute cardiovascular and cancer therapies. The Company’s development pipeline includes three acute cardiovascular programs focused on alfimeprase, rNAPc2 and a thrombin inhibiting aptamer, as well as an emerging oncology pipeline.

Basis of Presentation and Principles of Consolidation

The consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (GAAP). Certain prior period items have been reclassified to conform to the current year presentation. Conformity with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for the judgments made about the carrying values of assets and liabilities that are not readily apparent from other sources. Future results may differ from these estimates. The Company believes significant judgment is involved in evaluating if there continues to be alternative future use or the need for reserves for alfimeprase clinical drug material, and in estimating goodwill and long-lived asset impairment, clinical trial accruals, stock-based compensation and in determining revenue recognition.

The consolidated financial statements include the accounts of Nuvelo, Inc., Hyseq Diagnostics, Inc. and Callida Genomics, Inc. (Callida), through its disposal on December 3, 2004. The results of operations of Callida have been reclassified to discontinued operations for all periods presented. All significant inter-company transactions and accounts have been eliminated on consolidation.

Liquidity and Concentration Risk

To date, the Company’s primary sources of liquidity have been cash from financing activities, collaboration receipts and the merger with Variagenics in January 2003. The Company plans to continue to raise funds through additional public and/or private offerings and collaboration activities in the future. The primary use of capital has been to fund operating activities, including research, clinical development and drug manufacturing expenses, license payments and spending on capital items.

The Company currently relies on a sole source, Avecia Ltd., for the manufacture of alfimeprase drug substance, and did not have a manufacturing agreement in place for alfimeprase final drug product as of December 31, 2005. If Avecia and a final drug product manufacturer are unable to produce alfimeprase in the quantities and with the quality required, the Company may incur significant additional expenses, and efforts to complete clinical trials and obtain approval to market alfimeprase could be significantly delayed.

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Cash Equivalents and Short-term Investments

Cash equivalents consist of money market funds and debt securities with original maturities of 90 days or less. Short-term investments consist of U.S. government agency and corporate debt and asset-backed securities with maturities of less than one year from the balance sheet date. The Company invests its excess cash in securities with strong ratings and has established guidelines relative to diversification and their maturity with the objective of maintaining safety of principal and liquidity. These guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates.

The Company classifies all cash equivalents and short-term investments as available-for-sale securities, as defined by Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and records investments at fair value, based on quoted market prices. Unrealized holding gains and losses, net of the related tax effect, if any, on available-for-sale securities are excluded from earnings and are reported in accumulated other comprehensive loss, a separate component of stockholders’ equity, until realized. The specific identification basis is utilized to calculate the cost to determine realized gains and losses from the sale of available-for-sale securities. Realized gains and losses and declines in value judged to be other than temporary are included in other income or expense in the statements of operations. Gross realized losses on available-for-sale investments were $3,000, $4,000 and $0, and gross realized gains were $0, $0 and $40,000, in 2005, 2004 and 2003, respectively.

Clinical Trial Drug Manufacturing Expense and Clinical Trial Supplies Asset

In accordance with Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. 2, “Accounting for Research and Development Costs” (SFAS 2), the Company capitalizes clinical trial drug manufacturing costs as “clinical trial supplies”, a current asset on the balance sheet, as long as there are alternative future uses for the related clinical trial drug material in other indications not currently being studied, (e.g., for alfimeprase, these include deep-vein thrombosis and stroke). The Company recognizes clinical trial drug manufacturing expense when completed drug material is shipped from the manufacturing or storage facility for use in a clinical trial or for testing, or is otherwise consumed. On a quarterly basis, the Company evaluates whether there continues to be alternative future use for any capitalized drug material, and if the material is obsolete or in excess of anticipated requirements. Any capitalized drug material will be written-off to research and development expense in the quarter in which there ceases to exist an alternative future use, or if the material is obsolete or in excess of anticipated requirements. In the fourth quarter of 2005, a non-cash write-off of $2.0 million was charged to research and development expense for material in excess of anticipated requirements.

Equipment, Leasehold Improvements and Capitalized Software

Equipment, leasehold improvements and capitalized software are recorded at cost. Equipment under capital leases is recorded at the lower of the net present value of the minimum lease payments required over the term of the lease or the fair value of the assets at the inception of the lease. Additions, renewals and betterments that significantly extend the life of an asset are capitalized. Minor replacements, maintenance, and repairs are charged to operations as incurred. Equipment is depreciated over the estimated useful lives of the related assets, ranging from three to five years, using the straight-line method. Equipment under capital leases and leasehold improvements are amortized over the shorter of their estimated useful life or the term of the lease, using the straight-line method. Capitalized software is amortized over the shorter of the estimated useful life or two years, using the straight-line method. When assets are retired or otherwise disposed of, the assets and related accumulated depreciation or amortization are eliminated from the accounts and any resulting gain or loss is reflected in the statements of operations.

Impairment or Disposal of Long-Lived Assets

Periodically, management determines whether any long-lived asset or related asset group has been impaired based on the criteria established in Statement of Financial Accounting Standards No. 144, “Accounting for the

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Impairment or Disposal of Long-Lived Assets” (SFAS 144). SFAS 144 requires, among other things, that impairment losses be recognized whenever the carrying amount of the asset or asset group exceeds its fair value. Intangibles with determinable useful lives and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, and the Company performs an annual impairment review regardless of any such events or changes. There were assessed to be no impairments to long-lived assets as of December 31, 2005.

The results of operations of components of the Company that have been sold or otherwise disposed are reclassified to discontinued operations for all periods presented, and any loss or gain related to the disposal of the component is included in discontinued operations in the period of the disposal.

Goodwill

The Company applied the provisions of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS 142) upon the completion of the merger with Variagenics in January 2003. SFAS 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually in accordance with provisions of SFAS 142. SFAS 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives, and reviewed for impairment in accordance with SFAS 144.

The SFAS 142 goodwill impairment model involves a two-step process. During the first step, the fair value of the reporting unit is compared to its carrying value, including goodwill. The estimated fair value of the reporting unit, in this case the Nuvelo business segment, being the only business segment in the Company, is computed by multiplying the quoted market price of the Company’s common stock on the Nasdaq National Market by the outstanding common stock of the Company at that time. If the fair value of the reporting unit is determined to be more than its carrying value, including goodwill, no goodwill impairment is recognized. If the fair value of the reporting unit is determined to be less than its carrying value, goodwill impairment, if any, is computed using the second step. The second step requires the fair value of the reporting unit to be allocated to all the assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination at the date of the impairment test and the fair value of the reporting unit was the price paid to acquire it. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied value of goodwill, which is used to determine the impairment amount.

The Company has designated October 31 as the annual impairment testing date for goodwill, although additional testing may be performed if circumstances warrant a re-evaluation. If it is determined that the carrying value of goodwill has been impaired, the value would be reduced by a charge to operations in the amount of the impairment. There was assessed to be no goodwill impairment based on the testing performed on October 31, 2005.

Revenue Recognition

The Company recognizes revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price is fixed and determinable, and (iv) collectibility is reasonably assured. Upfront refundable fees are deferred and recognized as revenue upon the later of when they become non-refundable or when performance obligations are completed or considered perfunctory or inconsequential. In situations where the Company has no continuing performance obligations, or the continuing obligations are perfunctory or inconsequential, upfront non-refundable fees are recognized as revenues on the effective date of the related agreement. Upfront non-refundable licensing fees that require continuing involvement in the form of development, manufacturing or other commercialization efforts by the Company are recognized as revenue ratably over the period until the performance obligations in relation to these fees become inconsequential. Revenues related to collaborative research agreements and government grants are generally recognized ratably over the term of the related agreement as the services are performed.

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Stock-Based Compensation

In accordance with the provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123), as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure” (SFAS 148), the Company has elected to account for stock-based compensation to employees under the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related interpretations, and to adopt the “disclosure only” alternative described in SFAS 123, as amended by SFAS 148. Stock options granted to non-employees are accounted for in accordance with SFAS 123 and Emerging Issues Task Force No. 96-18, “Accounting for Equity Instruments that Are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.”

The Company’s pro forma information for employee stock options, net of any related tax effects, is as follows (in thousands, except for per share data):

	Year Ended December 31,
	2005			2004			2003
Net loss, as reported	$	(71,611	)	$	(52,489	)	$	(50,187	)
Add: Stock-based employee compensation expense included in reported net loss		394			152			440
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards		(10,899	)		(7,843	)		(4,353	)
Pro forma net loss	$	(82,116	)	$	(60,180	)	$	(54,100	)
Total basic and diluted net loss per share, as reported	$	(1.73	)	$	(1.70	)	$	(2.37	)
Pro forma basic and diluted net loss per share	$	(1.99	)	$	(1.95	)	$	(2.58	)

The fair value of employee stock options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

	Year Ended December 31,
	2005		2004		2003
Expected volatility	0.71		0.94		0.95
Risk-free interest rate	4.11	%	3.68	%	2.53	%
Dividend yield	—		—		—
Expected term of option	5.6 years		5.4 years		5.7 years

The fair value of employee purchase rights under the Company’s employee stock purchase plan was estimated using the Black-Scholes model with the following assumptions:

	Year Ended December 31,
	2005		2004		2003
Expected volatility	0.34		0.53		0.79
Risk-free interest rate	3.95	%	2.75	%	1.31	%
Dividend yield	—		—		—
Expected term of option	0.25 years		1.0 years		1.0 years

Income Taxes

Income taxes are accounted for under the asset and liability method pursuant to Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (SFAS 109). Under SFAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates

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expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded to reduce deferred income tax assets to an amount that is more likely than not to be realized.

Foreign Currency Transactions and Contracts

The Company has authorized the use of foreign exchange forward contracts, and similar instruments, to mitigate the currency risk associated with the acquisition of goods and services under agreements with vendors that are denominated in a foreign currency. Contracts for anticipated transactions are designated and documented as cash flow hedges under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133) at hedge inception, and are evaluated for effectiveness at least quarterly. The Company only hedges exposures that can be confidently identified and quantified, and does not enter into speculative foreign currency transactions. All contracts have maturities of one year or less. In accordance with SFAS 133, all derivatives, such as foreign currency forward contracts, are recognized as either assets or liabilities in the balance sheet and measured at fair value. The effective component of the hedge gains and losses are recorded in other comprehensive income (loss) within stockholders’ equity in the balance sheet and reclassified to research and development expenses in the statement of operations when the forecasted transaction itself is recorded to the statement of operations. Any residual change in the fair value of the hedge contracts, such as ineffectiveness or time value excluded from effectiveness testing is recognized immediately as a general and administrative expense.

Net Loss per Share

Basic and diluted net loss per share are presented in conformity with Statement of Financial Accounting Standards No. 128, “Earnings Per Share” (SFAS 128) for all periods presented. In accordance with SFAS 128, basic and diluted net loss per share has been computed using the weighted average number of shares of common stock outstanding during the period. In 2005, 2004 and 2003, outstanding options and warrants for 8,800,208, 6,283,461 and 4,567,501 shares of common stock, respectively, as determined using the treasury stock method, were not included in weighted average shares outstanding, as they were anti-dilutive.

Recent Accounting Pronouncements

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (SFAS 123(R)), an amendment of Statement of Financial Accounting Standards No. 123, that addresses the accounting for share-based awards to employees. The standard requires companies to recognize the fair value of employee stock options and other stock-based compensation as an expense. The statement eliminates the ability to account for share-based employee compensation transactions using APB Opinion No. 25, “Accounting for Stock Issued to Employees,” (APB 25), and generally requires instead that companies account for such transactions using a fair value based method, such as the Black-Scholes option pricing model, to fairly value stock options and recognize that value as an expense over the requisite service period. The standard is effective for the Company as of the beginning of the fiscal year commencing January 1, 2006. For all periods prior to January 1, 2006, the Company has accounted for stock-based employee compensation plans in accordance with APB 25. SFAS 123(R) offers companies alternative methods of adopting this standard. The Company intends to adopt SFAS 123(R) using the modified prospective method. The adoption of SFAS 123(R) is expected to have a material adverse effect on the Company’s results of operations.

In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections — a Replacement of APB Opinion No. 20 and FASB Statement No. 3” (SFAS 154). This statement changes the requirements for the accounting for and reporting of a change in accounting principle and applies to all voluntary changes in accounting principle and to changes required by an accounting pronouncement in the instance that the pronouncement does not include specific transition provisions. SFAS 154

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requires retrospective application to prior periods’ financial statements of the direct effects caused by a change in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. Further, changes in depreciation, amortization or depletion methods for long-lived, non-financial assets are to be accounted for as a change in accounting estimate affected by a change in accounting principle. SFAS 154 is effective for accounting changes and corrections made in fiscal years beginning after December 15, 2005. The adoption of this standard, beginning in fiscal year 2006, is not expected to have any material effect on the Company’s results of operations or financial condition.

2.    Stock Split

On February 23, 2004, the Company implemented a one-for-three reverse stock split and reduced the number of outstanding shares of common stock accordingly. On the effective date of February 23, 2004, each holder of record was deemed to hold one share of common stock for every three shares held immediately prior to the effective date, with cash payments being made for fractional shares. All share and per-share amounts, with the exception of par value, have been retroactively adjusted for all periods presented. The number of common shares authorized for issuance remained at 100,000,000 shares.

3.    Sale of Callida Segment

On December 3, 2004, the Company sold its subsidiary, Callida Genomics, Inc. (Callida), to SBH Genomics, Inc., a privately held Delaware corporation. This transaction is part of the Company’s strategy to monetize assets outside of its core business. Prior to the sale, the Company owned approximately 90% of Callida’s issued and outstanding capital stock. Affymetrix, Inc., a minority stockholder in Callida, also sold its Callida shares to SBH Genomics as part of the same negotiated transaction. SBH Genomics is controlled by Radoje and Snezana Drmanac, who were employees of Callida prior to the sale. Radoje Drmanac was also an officer and director of Callida.

The Company and Affymetrix sold the Callida stock in exchange for convertible promissory notes in the principal amount of $1.0 million, being $0.9 million for the Company, and $0.1 million for Affymetrix, and potential additional earn-out payments as described below. The notes are convertible into SBH Genomics’ preferred shares if SBH Genomics raises at least $2.0 million in venture capital financing within 4 years after the date of the closing. This preferred stock will be converted at the same price per share at which it is sold to the venture capital investors, and will be granted the same rights and preferences as those provided to the venture capital investors. If SBH Genomics fails to raise at least $2.0 million in venture capital financing within this period, the notes will become due and payable. No interest or principal are payable on the notes for two years from the closing date. Simple interest of prime plus 1% per annum will be payable in years three and four on a quarterly basis. Prime will be set as of the second anniversary of the sale and adjusted on the third anniversary. The patents and patent applications owned by Callida are collateral for the notes. As additional consideration for the sale of Callida to SBH Genomics, SBH Genomics will make earn-out payments equal to 2.5% of its net annual revenues in excess of $5.0 million from the sale of, or license under, certain Callida patents for a period of 10 years. The earn-out will initially be paid to Affymetrix, until the $4.0 million promissory note owed by the Company to Affymetrix has been fully paid (see Note 13), and thereafter will be split in the same ratio as the original ownership of Callida by the two entities.

The sale of Callida’s net assets resulted in a net non-cash charge to earnings of approximately $1.1 million, representing the carrying value of Callida’s assets and liabilities at the time of sale. The value of the $0.9 million convertible promissory note received from SBH Genomics was assessed to be zero, due to the improbability of any collection. This note serves as collateral for the $4.0 million promissory note owed by the Company to Affymetrix. Any interest income will be credited to income in the period received. In addition, various cash and non-cash charges of $0.5 million were associated with the sale. The sale of the Callida business segment meets the criteria for presentation as a discontinued operation under the provisions of SFAS 144, “Accounting for the

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Impairment or Disposal of Long-Lived Assets”. Therefore, the historical results of operations of Callida for all periods presented and the charges related to the disposal are reported under discontinued operations.

4.    Merger with Variagenics, Inc.

On January 31, 2003, the Company completed its merger with Variagenics, Inc., a publicly traded company incorporated in Delaware. Variagenics developed molecular diagnostic tests by identifying genetic markers associated with response to cancer therapies, with the goal of optimizing patient care. Nuvelo and Variagenics merged because they believed the merger would benefit the stockholders of both companies by leveraging the companies’ assets and management to develop biotherapeutic, pharmacogenomic and molecular diagnostic products and accelerate revenue generation. As a result of the merger, Variagenics’ shareholders received approximately 13.2 million Company shares, at a purchase price of $48.6 million, net of transaction costs of $1.6 million.

Each employee stock option to purchase Variagenics’ common stock outstanding at January 31, 2003 was assumed by Nuvelo and converted into an option to purchase Nuvelo common stock based on the terms specified in the merger agreement. As a result, approximately 1.6 million options to purchase Nuvelo common stock were assumed, on an as converted basis. In addition, each warrant to purchase Variagenics’ common stock outstanding at January 31, 2003 was assumed by Nuvelo and converted into warrants to purchase Nuvelo common stock based on the terms specified in the merger agreement. As a result, warrants to purchase approximately 0.7 million shares of Nuvelo common stock were assumed, on an as converted basis.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition. The allocation of the purchase price was based on the fair value of identifiable assets and liabilities (in thousands):

	At January 31, 2003
Assets:
Cash, cash equivalents and short-term investments	$	50,867
Restricted cash		750
Other current assets		846
Property and equipment		1,522
Intangible assets		300
Total assets acquired		54,285
Liabilities:
Accounts payable and accrued liabilities		(5,586	)
Capital lease obligations		(3,146	)
Total liabilities assumed		(8,732	)
Fair value of net assets acquired	$	45,553

The purchase price of $50.2 million exceeded the fair value of net assets acquired of $45.5 million, resulting in goodwill of $4.7 million reported in the Company’s balance sheet. The Company evaluates its goodwill for impairment on an annual basis under the guidance of SFAS No. 142, “Goodwill and Other Intangible Assets”. The Company has accounted for this merger under the purchase method of accounting for business combinations in accordance with the provisions of SFAS No. 141, “Business Combinations”. The accompanying financial statements include the results of operations of Variagenics commencing from February 1, 2003.

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The following unaudited pro forma financial information presents the combined results of the operations of Variagenics and the Company as if the merger had occurred on January 1, 2003 (in thousands, except per share data):

	Year Ended December 31, 2003
Contract revenues	$	1,063
Net loss		(50,236	)
Total basic and diluted net loss per share		(2.39	)

5.    Financial Instruments

Available-For-Sale Investments

The cost and fair value of the Company’s available-for-sale investments as of December 31, 2005 and 2004 is as follows (in thousands):

	December 31, 2005
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Money market funds	$	12,639	$	—	$	—		$	12,639
U.S. government agencies		14,269		1		(21	)		14,249
Corporate debt securities		32,805		4		(26	)		32,783
Asset-backed securities		5,319		—		(11	)		5,308
	$	65,032	$	5	$	(58	)	$	64,979
Reported as:
Cash equivalents								$	32,407
Short-term investments									32,572
								$	64,979
	December 31, 2004
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Money market funds	$	11,940	$	—	$	—		$	11,940
U.S. government agencies		4,141		—		—			4,141
Corporate debt securities		29,712		—		(181	)		29,531
Asset-backed securities		4,308		—		(15	)		4,283
	$	50,101	$	—	$	(206	)	$	49,895
Reported as:
Cash equivalents								$	16,081
Short-term investments									33,814
								$	49,895

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The following is a summary of amortized cost and estimated fair value of available-for-sale investments by contract maturity (in thousands):

	December 31, 2005
	Amortized Cost		Estimated Fair Value
Due in less than one year	$	65,032	$	64,979

The following is a summary of available-for-sale investments with unrealized losses and their related fair value by the period of time each investment has been in an unrealized loss position (in thousands):

	December 31, 2005
	Unrealized Losses		Estimated Fair Value
Unrealized loss position for less than one year	$	58	$	30,022

Due to the short maturities of investments, the type and quality of security held, the relatively small size of unrealized losses compared to fair value, and the short duration of such unrealized losses, the Company believes these unrealized losses to be temporary in nature.

Fair Value of Other Financial Instruments

The carrying amount of other financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to the short maturities of these instruments. The carrying amount of the Company’s debt instruments approximate fair value as their fixed interest rates approximate current market lending rates offered for similar debt instruments proposed by the Company’s current banking institution as of December 31, 2005. The carrying amount of the Company’s foreign exchange forward contracts approximate fair value as they are calculated based on quoted market prices as of December 31, 2005.

6.    Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss for each period presented, net of any related tax effects, are as follows (in thousands):

	December 31,
	2005			2004
Unrealized loss on hedging instruments	$	(197	)	$	—
Unrealized loss on available-for-sale securities		(53	)		(206	)
Accumulated other comprehensive loss	$	(250	)	$	(206	)

7.    Equipment, Leasehold Improvements and Capitalized Software

Equipment, leasehold improvements and capitalized software, net, consist of the following (in thousands):

	December 31,
	2005			2004
Machinery, equipment and furniture	$	7,847		$	7,513
Computers and capitalized software		6,009			7,295
Leasehold improvements		15,759			11,058
		29,615			25,866
Less: accumulated depreciation		(14,450	)		(19,818	)
Equipment, leasehold improvements and capitalized software, net	$	15,165		$	6,048

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Depreciation expense, including expense from discontinued operations, totaled $2.7 million, $3.7 million and $5.1 million for the years ended December 31, 2005, 2004 and 2003, respectively. Equipment as of both December 31, 2005 and 2004 includes items under capital leases in the amount of $0.2 million, and related accumulated depreciation of $0.1 million. These leases are secured by the equipment leased thereunder.

8.    Patents and Licenses

Patent and license costs are incurred in connection with obtaining or licensing certain patents and the filing of patent applications, and are capitalized and amortized on a straight-line basis over each patent’s estimated useful life, which approximates 17 years. As of December 31, 2005 and 2004, the gross carrying amounts were $0.3 million and $0.7 million, respectively, and accumulated amortization of patent costs was $50,000 and $0.4 million, respectively. Patent and license amortization expense, including expense from discontinued operations, was $17,000, $0.4 million and $0.5 million for the years ended December 31, 2005, 2004 and 2003, respectively. Additionally, impairment charges for patents of $0.2 million were recorded to loss on disposal of discontinued operations in the consolidated statement of operations for 2004, related to the disposal of Callida. Annual amortization expense for the next five years on existing balances as of December 31, 2005 is estimated to be $17,000 in each year.

9.    Borrowing Arrangements

In August 2004, the Company entered into a Loan and Security Agreement (Loan Agreement), with Silicon Valley Bank (SVB) that originally provided a $6.0 million term loan facility and a $4.0 million revolving credit line, and grants SVB a security interest over certain of the Company’s assets, excluding intellectual property. The Loan Agreement contains certain covenants and reporting requirements, with which the Company was in compliance as of December 31, 2005. Proceeds may be used solely for working capital or other general business needs.

In December 2004, the Company completed a $2.6 million initial draw-down from the term loan facility, the proceeds of which were used to repay a note for the same amount that was owed to AMB Property, LP in relation to the termination of a lease agreement for facilities at Humboldt Court in Sunnyvale, California. In March 2005, the Company completed a $1.5 million second draw-down from the term loan facility, with $0.6 million of these proceeds being used to pay off certain capital leases. On June 30, 2005, the remaining $1.9 million of the term loan facility expired unused. The $2.6 million draw-down is being repaid in 30 equal monthly installments, plus accrued interest of 6.43% per annum, starting from May 1, 2005. The $1.5 million draw-down is being repaid in 36 equal monthly installments, plus accrued interest of 6.78% per annum, starting from April 1, 2005.

In July 2005, the Loan Agreement was amended to increase the revolving credit line facility from $4.0 million to $8.0 million and extend the facility through August 29, 2006. As of December 31, 2005, the Company has yet to draw-down any of the funds available under this revolving credit line. Of the $8.0 million total facility, $6.0 million is currently being used to collateralize a letter of credit issued to The Irvine Company related to the lease for the facility at 985 Almanor Avenue in Sunnyvale, California. This letter of credit was increased from $4.0 million to $6.0 million in July 2005 in order to replace the guarantee provided by Dr. Rathmann to The Irvine Company (see Note 11). The remaining $2.0 million is being used partly as collateral for foreign exchange hedging contracts with SVB (see Note 14), and partly being available for working capital or other general business needs. Any borrowings under this line shall bear interest at SVB’s prime rate, being 7.25% as of December 31, 2005, and would cause replacement collateral to be required for the items above.

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Aggregate debt repayments for the next five years under long-term borrowings as of December 31, 2005 are as follows (in thousands):

	2006		2007		2008		2009		2010
Bank loans	$	1,540	$	1,367	$	125	$	—	$	—
Note payable (Note 13)		4,000		—		—		—		—
Related party line of credit (Note 16)		2,750		2,292		—		—		—
Aggregate debt repayments	$	8,290	$	3,659	$	125	$	—	$	—

10.    Capital Lease Obligations

The Company has financed equipment purchases through capital lease agreements. The capital lease obligations are to be repaid over a term of 60 months at interest rates ranging from 13.46% to 13.95% and are secured by the related equipment.

Minimum future payments under the capital lease agreements as of December 31, 2005 are as follows (in thousands):

Years Ending December 31,
2006	$	12
2007		14
2008		—
2009		—
2010		—
Total capital lease payments		26
Less: Amount representing interest		(4	)
Present value of future capital lease payments		22
Less: Current portion		(9	)
Non-current portion	$	13

11.    Commitments and Contingencies

Operating Leases

As of December 31, 2005, the Company had leases for two facilities under operating lease agreements, one expiring in May 2011 and one in August 2012. The related rent is being recognized as expense on a straight-line basis. Rent expense, including expense from discontinued operations, was $6.9 million, $7.3 million and $8.0 million in 2005, 2004 and 2003 respectively.

Minimum future rental commitments under non-cancelable operating leases as of December 31, 2005 are as follows (in thousands):

Years Ending December 31,
2006	$	9,021
2007		9,292
2008		9,572
2009		8,822
2010		8,379
2011 and thereafter		8,984
Minimum rental commitments	$	54,070

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In January 2005, the Company entered into a seven-year facility lease agreement with BMR-201 Industrial Road LLC for 61,826 square feet of industrial space at 201 Industrial Road in San Carlos, California at $2.35 per square foot per month, subject to annual increases of $0.07 per square foot per month. The lease commenced on September 1, 2005 and contains an option to cancel the lease after five years upon payment of certain amounts specified in the lease, two options to extend the lease for five additional years at 95% of the then-current fair market rental rate (but not less than the existing rental rate), rights of first refusal over all vacant space in the building during the first two years of the lease, and an expansion option for a specified amount of space (see Note 19). The lease contains a tenant improvement allowance of $8.9 million, which was fully utilized in 2005, and has been recorded to leasehold improvements and deferred rent, with the respective balances being charged to depreciation and credited to rent expense over the lease term. In the event of the Company’s default under the lease, the landlord has the right to recover any damages to compensate for such default.

As a result of the entry into this lease, a review for impairment of leasehold improvements at 985 Almanor Avenue in Sunnyvale, California took place in January 2005. As identifiable cash flows related to these assets are not independent of those of the Company as a whole, these assets were grouped with all the assets and liabilities of the Company for the purposes of the impairment review, and as a result, no impairment of these assets was identified, as the fair value of the net assets of the Company exceeds its carrying value. In accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” if the Company subleases or otherwise exits this facility, an impairment charge will be recorded based on the difference between the carrying value and fair value of the leasehold improvements at the time of the sublease or exit.

The Company has estimated that it will incur future restoration costs for the premises at 985 Almanor Avenue with a current fair value of $0.3 million. Under Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations,” this amount has been recorded as an increase to both leasehold improvements and other non-current liabilities in the balance sheet. Depreciation and interest accretion expense charged during the year was immaterial.

In August 2002, the lease on the property at 985 Almanor Avenue was amended to provide for a rent deferral of $4.9 million over the subsequent three years, retroactive to June 1, 2002. The Company is currently repaying the deferred rent liability, plus interest, over a four-year period beginning June 1, 2005 in equal monthly installments of $0.1 million. In October 2003, the lease was amended for a second time, to provide for an additional rent deferral of $2.9 million, to be repaid on May 30, 2011, the end of the lease term. In order to receive this rent deferral, the Company pre-paid $2.7 million of base rental payments in October 2003 to cover the nine-month period beginning October 1, 2003 and ending June 30, 2004, with no base rent being due for the period July 1, 2004 through March 30, 2005. Other agreement terms included the early reinstatement of the original rental rates if the Company successfully raised $75.0 million in a single public or private offering, with the remaining amount of rent deferred under both lease amendments up to that date becoming due immediately. In September 2005, a third amendment to the lease was entered into, which amended this provision so that if the Company raises $75.0 million or more in cash as a result of a single public or private offering, The Irvine Company will be paid the lesser of (i) 10% of any amount raised in excess of $75.0 million, or (ii) any remaining deferred rent obligation (see Note 19). The third amendment also required the Company to increase the letter of credit related to this lease from $4.0 million to $6.0 million (see Note 9), and released Dr. Rathmann from further obligations as a guarantor under the lease (see Note 16).

12.    Stockholders’ Equity

Preferred Stock

Since reincorporation as a Delaware corporation on March 25, 2004, the Company is authorized to issue 5,000,000 shares of preferred stock. The Company’s Board of Directors may set the rights and privileges of any preferred stock issued. As of December 31, 2005 and 2004, there were no issued and outstanding shares of preferred stock.

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In June 5, 1998, the Company’s Board of Directors adopted a rights plan and declared a dividend with respect to each share of common stock then outstanding. This dividend took the form of a right that entitles the holders to purchase one one-thousandth of a share of our Series A junior participating preferred stock at a purchase price that is subject to adjustment from time to time. These rights have also been issued in connection with each share of common stock issued after June 5, 1998. The rights are exercisable only if a person or entity or affiliated group of persons or entities acquires, or has announced its intention to acquire, 15% (27.5% in the case of certain approved stockholders) or more of the Company’s outstanding common stock. The adoption of the rights plan makes it more difficult for a third party to acquire control of the Company without the approval of the Board of Directors. This rights agreement was amended on March 19, 2004, to reflect the Company’s reincorporation under Delaware law.

Common Stock

In February 2005, the Company raised $68.4 million in a public offering, after deducting underwriters’ fees and stock issuance costs of $4.9 million, from the sale of 9,775,000 shares of common stock, including 1,275,000 shares from the exercise of an over-allotment option granted to the underwriters, at a public offering price of $7.50 per share. The Company intends to use the net proceeds from this offering for general corporate purposes, including the advancement of our drug candidates in clinical trials, capital spending and working capital.

In August 2005, the Company entered into a Committed Equity Financing Facility (CEFF) with Kingsbridge Capital Ltd., under which Kingsbridge has committed to purchase up to $75.0 million of the Company’s common stock within a three-year period, subject to certain conditions and limitations. As part of the arrangement, the Company issued a warrant to Kingsbridge to purchase 350,000 shares of the Company’s common stock at a price of approximately $12.07 per share, which is exercisable beginning six months after the date of grant and for a period of five years thereafter. The warrant’s fair value on the date of grant of $2.1 million, being $5.94 per share, was recorded as a deferred financing cost to additional paid-in capital. The fair value was established using the Black-Scholes option-pricing model with the following assumptions: expected dividend yield of 0.0%; risk free interest rate of 4.15%; contractual life of 5.5 years, and volatility of 82%. The opposing current liability has and will continue to be marked-to-market each quarter, with the change being recorded to general and administrative expenses. The fair value of the warrant as of December 31, 2005 was $1.5 million, and is included in other current liabilities in the balance sheet. Under the CEFF, the Company may require Kingsbridge to purchase newly-issued shares of common stock at prices between 90% and 94% of the volume weighted average price (VWAP) on each trading day during an 8-day pricing period. The value of the maximum number of shares the Company may issue in any pricing period is the lesser of 2.5% of the Company’s market capitalization immediately prior to the commencement of the pricing period, or $10.0 million. The minimum VWAP for determining the purchase price at which the Company’s stock may be sold in any pricing period is the greater of $2.50, or 85% of the closing price of the Company’s common stock on the day prior to the commencement of the pricing period. The CEFF also requires the Company to file a resale registration statement with respect to the resale of shares issued pursuant to the CEFF and underlying the warrant, to use commercially reasonable efforts to have the registration statement declared effective by the SEC, and to maintain its effectiveness. The registration statement was declared effective on October 13, 2005. The Company may sell a maximum of 8,075,000 shares under the CEFF (exclusive of the shares underlying the warrant), which may further limit the potential proceeds from the CEFF. The Company is not obligated to sell any of the $75.0 million of common stock available under the CEFF and there are no minimum commitments or minimum use penalties. The Company sold 653,103 shares for gross proceeds of $5.0 million in November 2005 and 1,186,297 shares for gross proceeds of $9.4 million in December 2005 under the CEFF, and may sell the balance of $60.6 million of common stock over the remainder of the three-year term of the CEFF.

Warrants

As of December 31, 2005, warrants to purchase 1,786,685 shares of common stock were outstanding at exercise prices ranging from $4.05 to $24.87, with a weighted average exercise price per share of $19.15. These

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warrants, which were granted as part of various financing and business agreements, expire at various times between August 2006 and February 2011. Warrants are recorded at their estimated fair market value at the date of grant using the Black-Scholes option-pricing model. Any warrants recorded as liabilities as opposed to equity will be marked-to-market each quarter, as with the Kingsbridge warrants above.

Stock Option Plans

In May 2004, the Company adopted the 2004 Equity Incentive Plan, (2004 Plan), to authorize the grant of stock options (including indexed options), stock appreciation rights, restricted stock purchase rights, restricted stock bonuses, restricted stock units, performance shares, performance units and deferred stock units. Under the 2004 Plan, all awards may be granted to employees, directors and consultants of the Company, except for incentive stock options, which may be granted only to employees. The 2004 Plan replaces all prior option plans (detailed below), which were terminated upon its adoption, with no new awards to be granted thereunder. A total of 7,204,085 common shares were initially reserved for issuance under the 2004 Plan, including up to 2,454,085 shares previously reserved for issuance under prior plans, and as of December 31, 2005 there were 1,198,843 shares reserved for future option grants. For stock options, the 2004 Plan requires that the exercise price of each option may not be less than the fair market value of a share of common stock on the date of grant, and in the case of incentive stock options granted to an owner of more than 10% of the total combined voting power of all classes of the Company’s stock (10% Owners), must have an exercise price equal to at least 110% of the fair market value on the date of grant. Options granted to employees generally vest over a four-year period and are exercisable in installments beginning one year after the grant date and expire after 10 years if not exercised. As of December 31, 2005, 5,380,435 options were outstanding under the 2004 Plan. The maximum term of any option granted under the 2004 Plan is ten years, provided that incentive stock options granted to 10% Owners must have a term not exceeding five years.

In 1995, the Company’s stockholders adopted the 1995 Employee Stock Option Plan (Employee Plan). Options granted under the Employee Plan were either incentive stock options or non-statutory stock options. Incentive stock options were granted to employees with exercise prices of not less than fair market value and non-statutory options were granted to employees at exercise prices of not less than par value of the common stock on the date of grant as determined by the Board of Directors. Options vest as determined by the Board of Directors (generally in four equal annual installments commencing one year after the date of grant), and expire 10 years from the date of grant. As a result of the adoption of the 2004 Plan, all shares previously reserved for issuance under this plan and remaining for grant are now reserved for issuance under the 2004 Plan. As of December 31, 2005, options to purchase 397,967 shares were outstanding under the Employee Plan.

In 1997, the Company’s stockholders adopted the Non-Employee Director Stock Option Plan (Directors Plan), providing for periodic stock option grants to non-employee directors of the Company. Under the Directors Plan, each new, non-employee director received a one-time grant of options to purchase 7,680 shares of common stock, of which options to purchase 3,840 shares vest immediately, with the balance vesting in two equal allotments on the first and second anniversaries of joining the Board. All non-employee directors automatically received options to purchase up to 1,920 shares each year (such that the amount received under the Directors Plan when added to all prior options granted to a director which vest in that year totaled 1,920) on the date of the annual meeting of the stockholders. Options under the Directors Plan were granted at the fair market value of the Company’s common stock on the date of the grant. In 2000, the Company’s stockholders approved an amendment to the Directors Plan that changed the method for determining the number of shares granted under the plan, and lengthened the vesting date for the new director’s initial and first annual grants of options. Under the amendment, the number of shares granted were equal to the lesser of the number determined by dividing $200,000 by the fair market value of the Company’s common stock on the date of grant, or 3,333 shares. The amendment also revised the vesting date for initial options that were granted when a new director joined the Company’s Board such that 50% of a new director’s option vest one year after the grant date and the other 50% vest two years after the grant date. As a result of the adoption of the 2004 Plan, all shares previously reserved for issuance under this plan and remaining for grant are now reserved for issuance under the 2004 Plan. As of December 31, 2005, options to purchase 90,713 shares were outstanding under the Directors Plan.

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In 1999, the Company adopted a Scientific Advisory Board/Consultants Stock Option Plan (SAB/Consultant Plan) that provided for periodic grants of non-qualified stock options to members of the Company’s scientific advisory board and allowed the Board of Directors to approve grants of stock options to consultants. As a result of the adoption of the 2004 Plan, all shares previously reserved for issuance under this plan and remaining for grant are now reserved for issuance under the 2004 Plan. At December 31, 2005, options to purchase 1,666 shares were outstanding under the SAB/Consultant Plan.

In August 2002, the Company adopted the 2002 Equity Incentive Plan (2002 Plan), to grant stock options or make restricted stock awards to employees (including officers or employee directors) and consultants. The 2002 Plan authorized the grant of incentive stock options and restricted stock awards to employees and of non-qualified stock options and restricted stock awards to employees and consultants. The 2002 Plan required that the exercise price of options be not less than the fair value of the common shares at the grant date for those options intended to qualify as performance-based compensation and be not less than 110% of the fair value in the case of incentive stock options granted to 10% Owners. Options generally vest over a four-year period and are exercisable in installments beginning one year after the grant date and expire after 10 years if not exercised. As a result of the adoption of the 2004 Plan, all shares previously reserved for issuance under this plan and remaining for grant are now reserved for issuance under the 2004 Plan. As of December 31, 2005, options to purchase 319,203 shares were outstanding under the 2002 Plan.

On January 31, 2003, in connection with the merger of Variagenics, Inc., the Company assumed Variagenics’ existing stock option plan, the Amended 1997 Employee, Director and Consultant Stock Option Plan (1997 Plan), by reserving and registering an additional 2,269,666 shares of common stock. The 1997 Plan authorized the grant of incentive and non-qualified stock options to employees, directors and consultants of the Company. Options generally vest ratably over three- to five-year periods and expire after 10 years if not exercised. As a result of the adoption of the 2004 Plan, all shares previously reserved for issuance under this plan and remaining for grant are now reserved for issuance under the 2004 Plan. As of December 31, 2005, no options to purchase shares were outstanding under the 1997 Plan.

In 1998, the Company granted options outside of any of the Company’s stock option plans to purchase a total of 3,806 shares of common stock to three non-employee directors and a scientific advisory board member at prices between $14.25 and $30.19 per share. The options vest over periods of up to four years. In February 2000, a director who was previously an officer of the Company was granted an option to purchase 333,333 shares of common stock at $95.06 per share, the closing price on the day prior to the grant, as an inducement to become an employee of the Company. This option became exercisable one-third upon the date of grant, one-third on the one-year anniversary and one third on the two-year anniversary of the date of grant. In 2001, the Company granted options outside of any of the Company’s stock option plans to purchase a total of 422,720 shares to five employee officers at prices between $29.87 and $37.69 per share as inducements to become employees of the Company. In August 2001, a director of the Company was granted an option to purchase 333,333 shares of common stock at $25.91 per share, the closing price on the day prior to the grant. As of December 31, 2005, 823,539 options issued outside of any of the Company’s stock option plans were outstanding.

The Directors Plan, the Employee Plan, the 2002 Plan, the 2004 Plan and the options granted to a director to purchase 666,666 shares (as described above) provide for the acceleration of vesting of options upon certain specified events.

In December 2004, the Company’s Board of Directors approved an “Executive Change in Control and Severance Benefit Plan” for executive officers and other eligible employees. The purpose of the plan is to provide for the payment of severance benefits and/or change in control benefits to certain eligible employees, and the plan supersedes and replaces any change in control and/or severance plans adopted previously. The plan provides that, upon a change in control of the Company as defined under the plan, all Nuvelo stock options and stock awards held by a plan participant will become fully vested. Such shares held by a plan participant will also become fully vested if the participant is terminated without cause or constructively terminated within one month

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preceding a change in control. In addition, if a participant is terminated without cause or constructively terminated outside the context of change in control, he or she shall be credited with an additional year of vesting with respect to Nuvelo stock options and stock awards held. If a change in control occurs in the future, it is possible that material additional stock-based compensation expense could be incurred.

A summary of the Company’s stock option activity, and related information follows:

	Year Ended December 31,
	2005				2004				2003
	Number of Shares		Weighted- Average Exercise Price		Number of Shares		Weighted- Average Exercise Price		Number of Shares		Weighted- Average Exercise Price
Options outstanding at beginning of period	4,766,669		$	18.77	2,680,170		$	26.52	1,968,373		$	36.33
Options assumed from Variagenics acquisition	—		$	—	—		$	—	1,576,356		$	5.64
Options granted	3,232,000		$	8.69	2,773,980		$	9.76	755,873		$	4.89
Options exercised	(243,065	)	$	5.34	(234,534	)	$	3.79	(641,918	)	$	2.07
Options canceled	(742,081	)	$	13.76	(452,947	)	$	17.23	(978,514	)	$	12.00
Options outstanding at end of period	7,013,523		$	15.11	4,766,669		$	18.77	2,680,170		$	26.52

The following table summarizes information about stock options outstanding and exercisable as of December 31, 2005:

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number of Shares	Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price		Number of Shares	Weighted- Average Exercise Price
$    2.34 – $    6.63	806,780	7.78	$	5.78	507,366	$	5.70
6.73 –       8.41	830,479	9.18		7.67	204,062		7.32
8.46 –       8.96	270,166	9.28		8.67	42,313		8.75
9.04 –       9.17	1,643,085	9.57		9.16	144,004		9.16
9.21 –       9.67	738,222	8.57		9.52	412,070		9.57
9.68 –       9.88	709,296	8.96		9.83	147,251		9.83
9.90 –     10.18	821,043	8.45		10.15	302,056		10.16
10.19 –     37.04	709,685	6.19		22.80	611,044		24.67
37.50 –   132.38	483,767	4.35		80.15	483,767		80.15
285.56 –   285.56	1,000	4.16		285.56	1,000		285.56
	7,013,523	8.31	$	15.11	2,854,933	$	24.05

The weighted-average grant date fair values of options granted during the years ended December 31, 2005, 2004 and 2003 were $5.58, $7.17 and $3.69, respectively.

Employee Stock Purchase Plan

The Company’s stockholders have approved an employee stock purchase plan, covering an aggregate of 250,000 shares of the Company’s common stock. Each quarter, an eligible employee may elect to purchase shares of the Company’s stock through payroll deductions at a price equal to the lower of 85% of the fair market value of the stock as of the first business day of the quarter or the last business day. In the year ended December 31, 2005, 63,332 shares of the Company’s stock were sold under the employee stock purchase plan at

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a weighted-average price of $6.64 per share. The weighted-average grant date fair values of the purchase rights granted during the years ended December 31, 2005, 2004 and 2003 were $7.81, $9.77 and $1.71 per share, respectively.

13.    Collaborative and Manufacturing Agreements

Amgen

In October 2004, Nuvelo obtained worldwide rights to develop and commercialize alfimeprase from Amgen, in exchange for the future payment to Amgen of previously negotiated milestone payments and royalties. In accordance with the terms of the license agreement, Amgen has transferred the technology necessary for the manufacture of alfimeprase drug substance to Nuvelo’s designated manufacturer, Avecia. Between January 2002 and October 2004, Nuvelo had been operating under a 50/50 cost/profit sharing collaboration agreement with Amgen, and recorded related expenses of $6.7 million in 2004 and $7.5 million in 2003. In connection with the termination of this agreement, the Company entered into an opt-out, termination, settlement and release agreement with Amgen, whereby the Company made a payment of $8.5 million to Amgen, of which $8.3 million was related to the remaining reimbursement of its manufacturing costs incurred under the agreement and was capitalized accordingly. As a result of dosing the first patient in the first Phase 3 clinical trial for alfimeprase in April 2005, Nuvelo paid a $5.0 million milestone fee to Amgen in May 2005, which was charged to research and development expense. Future milestone payments under the license agreement could total as much as $35.0 million. The Company recognizes clinical trial drug manufacturing expense when completed drug material is shipped from the manufacturing or storage facility for use in a clinical trial or for testing, or is otherwise consumed. Prior to shipment of alfimeprase from the drug manufacturing or storage facility, the Company reflects the manufacturing work in process as clinical trial supplies, a current asset on the balance sheet, which totaled $12.3 million and $12.6 million as of December 31, 2005 and 2004, respectively.

Avecia

In June 2005, Nuvelo entered into a development and validation agreement with Avecia Limited for the scaled-up manufacturing process of alfimeprase. In accordance with the terms of this agreement, Avecia will conduct process development and validation work for the manufacture of alfimeprase drug substance, in accordance with FDA regulations. Nuvelo is to pay Avecia fees totaling £12.9 million for completion of this work, payable upon completion by Avecia of pre-negotiated milestones, including £2.9 million as a result of an amendment to the work program in December 2005 to provide for additional process development and validation work. The milestone fees paid to date have been recorded as either research and development expenses in the income statement or clinical trial supplies in the balance sheet, depending on the nature of the expense. The Company is also paying certain related fees and expenses including the cost of supplies, materials, specified subcontracted work and equipment. The agreement does not cover the commercial manufacture of alfimeprase drug substance, but the Company and Avecia have agreed to negotiate in good faith towards the completion of a commercial supply agreement once Avecia has commenced the validation campaign. The agreement remains in force until the completion of the work contemplated under it, but may be terminated early by Avecia if the Company breaches the agreement, and by the Company for any reason, subject in some cases to cancellation fees and penalties.

Dendreon

Nuvelo obtained exclusive worldwide rights to all indications of rNAPc2 and all other rNAPc molecules owned by Dendreon Corporation, as a result of a licensing agreement entered into with them in February 2004. Under the terms of the agreement, the Company paid Dendreon an upfront fee of $4.0 million ($0.5 million in cash and $3.5 million in Nuvelo common stock), and incurred $5.6 million in expenses for this and related development costs in 2004 and $1.5 million for related development costs in 2005. Future milestone payments to Dendreon could reach as much as $23.5 million if all development and commercialization milestones are

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achieved. If rNAPc2 is commercialized, Nuvelo will also be responsible for paying future royalties to Dendreon depending on sales of rNAPc2.

Archemix

The Company continues to pursue the development of a thrombin inhibiting aptamer under a collaboration agreement entered into with Archemix Corporation, a privately held biotechnology company located in Cambridge, Massachusetts, in January 2004. In accordance with the terms of the agreement, Nuvelo paid Archemix an upfront fee of $3.0 million and paid the first $4.0 million of costs associated with development. Nuvelo and Archemix will equally share all development and commercialization costs in excess of $4.0 million. The Company incurred $7.7 million in expenses for the upfront fee and related development costs in 2004 and $2.6 million for related development costs in 2005. Archemix is initially responsible for leading development and for all clinical development activities through the dosing of the first patient in a Phase 2 study. Thereafter, Nuvelo and Archemix will agree on leadership of clinical development and commercialization activities. Nuvelo is required to pay Archemix total development milestone payments of up to $11.0 million, consisting of $10.0 million upon dosing of the first patient in a Phase 2 trial and $1.0 million upon the designation of any backup compound selected by both Archemix and the Company for IND-enabling studies.

Pharmaceutical Division of Kirin Brewery Company, Ltd.

In March 2005, Nuvelo entered into a collaboration agreement with the Pharmaceutical Division of Kirin Brewery Company, Ltd., for the development and commercialization of NU206. Under this agreement, the Company received a $2.0 million upfront cash payment from Kirin in April 2005, which was deferred and is being recognized on a straight-line basis over the related performance period. Nuvelo will lead worldwide development, manufacturing and commercialization of the compound. All operating expenses and profits related to the development and commercialization of NU206 will be shared 60 percent by Nuvelo and 40 percent by Kirin. If this agreement is terminated, or Kirin or Nuvelo elects under certain circumstances to no longer actively participate in the collaboration, the relationship with respect to NU206 will convert from an expense and profit-sharing structure to a royalty-based structure. Research and development expenses of $2.7 million were recorded in 2005 in relation to this collaboration.

The 2001 collaboration agreement with Kirin for the research and development of secreted proteins expired December 31, 2005, in accordance with its terms. Nuvelo and Kirin are currently discussing the possibility of engaging in additional research and development of certain secreted proteins to be selected by both parties. The Company recorded research and development expenses of $0.3 million in 2005, $3.0 million in 2004, and $0.2 million in 2003, in relation to this collaboration.

Affymetrix

In October 2001, the Company and Affymetrix Inc. resolved all outstanding litigation and entered into a collaboration to accelerate development and commercialization of a high speed universal DNA sequencing chip. This collaboration with Affymetrix was through N-Mer, Inc., a wholly-owned subsidiary of Callida, which in turn was a majority-owned subsidiary of the Company until its sale on December 3, 2004. The Company contributed cash and certain assets consisting primarily of equipment, capitalized software, and intellectual property to Callida upon its formation in exchange for a 90% interest in Callida. Affymetrix received a 10% equity interest in Callida in exchange for a contribution of certain intellectual property to Callida. The Company accounted for the Affymetrix 10% ownership share as minority interest in Callida in the statement of operations until Affymetrix’ initial minority interest investment was depleted. Beyond that point, which occurred in 2002, the Company absorbed 100% of Callida’s net losses until December 3, 2004, when the Company and Affymetrix sold all Callida stock respectively owned (see Note 3).

Affymetrix paid a total of $8.0 million in cash to the Company at the close of the settlement. The $8.0 million payment comprised of two pieces. Firstly, Affymetrix made a license payment of $4.0 million in return

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for a non-exclusive license, without the right to grant sublicenses, under 11 U.S. patents and 30 U.S. patent applications and counterpart foreign patents and applications to make, use, sell, and import products in the non-universal array field. The remaining deferred revenues of $0.5 million from the original $4.0 million license payment was recognized in 2003.

Secondly, Affymetrix made a loan to the Company of $4.0 million in the form of a 5-year promissory note bearing annual interest of 7.5%, for the Company’s cash investment in Callida. Consequent to the sale of Callida, the note is collateralized by the $0.9 million promissory note issued by SBH Genomics to the Company, patents and patent applications transferred to SBH Genomics and any royalties payable by SBH Genomics related to them. Accrued interest will be paid with the final principal payment on November 13, 2006, unless both are repaid before then. As of December 31, 2005, the remaining principal and accrued interest to date totaled $5.2 million. The outstanding principal and interest under the note may be repaid in whole or in part at any time, at the Company’s option, by conversion into shares of Nuvelo’s common stock at a price based upon 90% of the average price of Nuvelo’s common stock over a 10-day period ending 2 days prior to the conversion. As of December 31, 2005, 700,011 shares would be issuable to fully repay the principal and interest outstanding upon conversion.

14.    Foreign Currency Derivatives

In July 2005, the Company entered into a development and validation agreement with Avecia Ltd. under which payments for their services are denominated in British pounds. In order to reduce exposure to fluctuations in the British pound prior to any payment made under this contract, the Company entered into a number of foreign currency forward hedging contracts in 2005, all maturing within one year and being designated as cash flow hedges under SFAS 133. In accordance with SFAS 133, all derivatives, such as foreign currency forward contracts, are recognized as either assets or liabilities in the balance sheet and measured at fair value. The contract currencies and duration reflect the anticipated foreign currency-denominated transaction details at inception, and effectiveness is calculated by affirming the probability of the transaction and comparing, on a spot-to-spot basis, the change in fair value of the hedge contract to the change in fair value of the forecasted transaction (the underlying hedged item). The effective component of hedge gains and losses is recorded in other comprehensive income (loss) within stockholders’ equity in the balance sheet and reclassified to research and development expenses in the statement of operations when the forecasted transaction itself is recorded to the statement of operations. Any residual change in the fair value of the hedge contracts, such as ineffectiveness or time value excluded from effectiveness testing is recognized immediately as a general and administrative expense. In 2005, an immaterial amount was recorded to general and administrative expense associated with the time value excluded from effectiveness testing. Should a hedge be de-designated or the hedge instrument terminated prior to recognition of the forecasted transaction, amounts accumulated in other comprehensive income (loss) will remain there until the hedged item impacts earnings. In the event the forecasted transaction is considered unlikely to occur or does not occur in the appropriate time frame, all gains and losses on the related hedge will be recognized immediately as a general and administrative expense.

As of December 31, 2005, the Company had notional amounts outstanding of £5.7 million ($10.0 million) on these contracts and the outstanding contracts had a negative fair value of $150,000, which is recorded in current liabilities in the balance sheet. The following table summarizes the activity in accumulated other comprehensive loss related to derivatives classified as cash flow hedges held by the Company during the period presented (in thousands):

	Year Ended December 31, 2005
Balance at beginning of period	$	—
Changes in fair value of derivatives, net		(191	)
Reclasses to research and development expense from other comprehensive loss		(6	)
Balance at end of period	$	(197	)

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All of the $197,000 unrealized loss reported in accumulated other comprehensive loss at December 31, 2005 is expected to be reclassified to the income statement within 12 months.

15.    Income Taxes

The Company had no current state or federal income taxes for the years ended December 31, 2005, 2004, and 2003. The reconciliations between the amounts computed by applying the U.S. federal statutory tax rate of 34% to loss from continuing operations and the actual provision for income taxes for the years ended December 31, 2005, 2004 and 2003 are as follows (in thousands):

	2005			2004			2003
Loss from continuing operations	$	(71,611	)	$	(48,942	)	$	(46,229	)
Federal tax benefit at statutory rate		(24,348	)		(16,640	)		(15,718	)
Current year net operating losses and temporary differences, for which a full valuation allowance is recorded		24,556			16,655			15,978
State taxes, net of federal benefit		3			16			4
Other permanent differences		(211	)		(31	)		(264	)
Provision for income taxes	$	—		$	—		$	—

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets for financial reporting and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets for federal and state income taxes are as follows (in thousands):

	December 31,
	2005			2004			2003
Deferred tax assets:
Property and equipment	$	2,337		$	3,843		$	2,535
Accruals and reserves		4,741			4,361			4,292
Net operating loss carryforwards		136,814			110,093			96,272
Research and other tax credit carryforwards		23,469			18,065			16,158
Capital loss carryforward — discontinued operations		3,152			3,152			—
Capitalized research and development costs		9,002			6,858			5,250
Stock-based compensation		3,492			3,485			5,070
Other		792			—			—
State taxes		1			8			2
Total deferred tax assets		183,800			149,865			129,579
Valuation allowance		(183,800	)		(149,865	)		(129,579	)
Deferred tax assets, net of valuation allowance	$	—		$	—		$	—

Deferred tax assets are reduced by a valuation allowance, as management believes that it is more likely than not that the deferred tax assets will not be realized. The net valuation allowance increased by $33.9 million, $20.3 million and $55.3 million for the years ended December 31, 2005, 2004 and 2003, respectively.

As of December 31, 2005, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $385.5 million and $98.5 million, respectively. The Company also had federal and California research and development tax credit carryforwards of approximately $12.0 million and $9.9 million, respectively. The federal net operating loss and credit carryforwards will expire at various dates beginning in the year 2008 through 2025, if not utilized. The State of California net operating losses will expire at various dates beginning in 2006 through 2015, if not utilized.

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On December 3, 2004, the Company sold its subsidiaries, Callida Genomics and N-Mer. The related capital loss carryforward is $7.9 million. The federal and California capital loss carryforwards will expire in 2009.

Utilization of the Company’s net operating loss carryforwards and credits may be subject to an annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.

Approximately $13.3 million of the federal net operating losses and $7.2 million of the state net operating losses relate to deductions from stock-based compensation. No income statement benefit will result from the realization of these losses.

The tax benefit of approximately $5.0 million in deferred tax assets related to the merger with Variagenics will be treated as a reduction to goodwill and other intangible assets under the provisions of SFAS 109 when realized.

16.    Transactions with Related Parties

Dr. Rathmann, a member of the Company’s board of directors and chairman emeritus, provided a $20.0 million line of credit to the Company in August 2001, of which $11.0 million has been drawn down, with the remaining $9.0 million having expired unused. The related promissory note bears interest at the prime rate plus 1%. In November 2003, the Company began repaying the outstanding balance over 48 months with equal monthly principal payments of $0.2 million. Accrued interest will be paid with the final payment in October 2007, unless both are repaid before then. As of December 31, 2005, the remaining principal and accrued interest to date totaled $6.9 million, and the interest rate on the note on this date was 8.25%. The outstanding principal and interest under the note may be repaid at any time upon mutual agreement, by conversion into shares of the Company’s common stock at a price based upon the average price of Nuvelo’s common stock over a 20-day period ending 2 days prior to the conversion or, if in connection with an equity financing, at the offering price. As of December 31, 2005, 818,347 shares would be issuable to fully repay the principal and interest outstanding upon conversion.

The personal guarantee that Dr. Rathmann had provided to The Irvine Company, related to the 985 Almanor Avenue facility lease, was terminated during 2005 (see Note 11).

17.    Segment and Geographic Data

Segment data

The Company is engaged in the discovery, development and commercialization of novel acute cardiovascular and cancer therapies. The Company has only one reportable segment since the sale of its majority-owned subsidiary, Callida Genomics, Inc., in December 2004. Accordingly, all segment-related financial information required by Statement of Financial Accounting Standards No. 131, “Disclosures About Segments of an Enterprise and Related Information” is included in the consolidated financial statements. Reportable segments reflect the Company’s structure, reporting responsibilities to the chief executive officer and the nature of the products under development.

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Geographic data

For geographical reporting, revenues are attributed to the geographical location where the customer or collaboration partner is located. Long-lived assets consist primarily of equipment, leasehold improvements and capitalized software and are attributed to the geographical location where the assets are located. Revenues and long-lived assets by geographical location were as follows (in thousands):

	Year Ended December 31,
	2005		2004		2003
Revenues:
United States	$	357	$	195	$	984
Japan		188		—		—
Germany		—		—		40
Total revenues	$	545	$	195	$	1,024
Long-lived assets:
United States	$	14,627	$	6,048	$	9,955
England		538		—		—
Total long-lived assets	$	15,165	$	6,048	$	9,955

Revenues from collaborative agreements or other sources representing 10% or more of total revenues in each period were as follows:

	Year Ended December 31,
	2005		2004		2003
Source:
MTHFR technology sublicensing	66	%	100	%	18	%
Kirin	34	%	*		*
Affymetrix	*		*		51	%
Celera Diagnostics	*		*		24	%

* less than 10%

18.    Legal Matters

On or about December 6, 2001, Variagenics was sued in a complaint filed in the United States District Court for the Southern District of New York naming it and certain of its officers and underwriters as defendants. The complaint purportedly is filed on behalf of persons purchasing the Company’s stock between July 21, 2000 and December 6, 2000, and alleges violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended and Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder.

The complaint alleges that, in connection with Variagenics’ July 21, 2000 initial public offering, or IPO, the defendants failed to disclose additional and excessive commissions purportedly solicited by and paid to the underwriter defendants in exchange for allocating shares of Variagenics’ stock to preferred customers and alleged agreements among the underwriter defendants and preferred customers tying the allocation of IPO shares to agreements to make additional aftermarket purchases at predetermined prices. Plaintiffs claim that the failure to disclose these alleged arrangements made Variagenics’ registration statement on Form S-1 filed with the SEC in July 2000 and the prospectus, a part of the registration statement, materially false and misleading. Plaintiffs seek unspecified damages. On or about April 19, 2002, an amended complaint was filed which makes essentially the same allegations. On or about July 15, 2002, Variagenics and the individuals filed a motion to dismiss. The Company is involved in this litigation as a result of the merger with Variagenics in January 2003.

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On July 16, 2003, the Company’s Board of Directors approved a settlement proposal initiated by the plaintiffs. The final terms of the settlement are still being negotiated. Nuvelo believes that any loss or settlement amount will not be material to the Company’s financial position or results of operations, and that any settlement payment and attorneys’ fees accrued with respect to the suit will be paid by our insurance provider. However, it is possible that the parties may not reach agreement on the final settlement documents or that the Federal District Court may not approve the settlement in whole or part. The Company could be forced to incur material expenses in the litigation if the parties do not reach agreement of the final settlement documents, and in the event there is an adverse outcome, the Company’s business could be harmed.

19.    Subsequent Events

In January 2006, the Company entered into a license and collaboration agreement with Bayer HealthCare AG, or Bayer, for the global development and commercialization of alfimeprase. Under this agreement, Bayer will commercialize alfimeprase in all territories outside the United States and will pay tiered royalties ranging from a minimum of 15 percent to a maximum of 37.5 percent. Nuvelo retains all commercialization rights and profits from alfimeprase sales in the United States and is eligible to receive up to $385.0 million in milestone payments from Bayer, including a $50.0 million up-front cash payment that was received in January 2006, up to $165.0 million in development milestones and $170.0 million in sales and commercialization milestones over the course of the agreement. In addition, Bayer will be responsible for 40 percent of the costs for global development programs. Nuvelo will be responsible for 60 percent of the costs and will remain the lead for the design and conduct of the global development programs. Each party will bear its own expenses for any country-specific alfimeprase clinical trials it conducts, where the country-specific clinical trials are not part of the agreed global development program. Nuvelo will continue to bear sole responsibility for milestone payments and royalties owed to Amgen.

In February 2006, the Company raised approximately $111.9 million in a public offering, after deducting underwriters’ fees and stock issuance costs of approximately $7.7 million, from the sale of 7,475,000 shares of common stock, including 975,000 shares related to the exercise of an over-allotment option granted to the underwriters, at a public offering price of $16.00 per share. As a result of this offering, in February 2006, the Company paid The Irvine Company $3.7 million towards the remaining deferred rent obligation under the terms of the related lease agreement (see Note 11).

On March 10, 2006, the lease on the property at 201 Industrial Road was amended to provide for the exercise of the Company’s expansion option over 7,624 square feet of rentable space (see Note 11). The amendment allows for a tenant improvement allowance of $1.0 million, and the related lease rental payments are expected to commence in the third quarter of 2006.

20.    Selected Quarterly Financial Data (Unaudited)

Summarized selected quarterly financial data is as follows (in thousands, except per share amounts):

	Quarter Ended
	December 31, 2005			September 30, 2005			June 30, 2005			March 31, 2005
Contract revenues	$	183		$	123		$	197		$	42
Operating loss		(21,895	)		(18,852	)		(17,439	)		(14,852	)
Loss from continuing operations		(21,484	)		(18,459	)		(17,007	)		(14,661	)
Net loss		(21,484	)		(18,459	)		(17,007	)		(14,661	)
Basic and diluted net loss per share from continuing operations*		(0.50	)		(0.44	)		(0.40	)		(0.39	)
Total basic and diluted net loss per share*		(0.50	)		(0.44	)		(0.40	)		(0.39	)

89

	Quarter Ended
	December 31, 2004			September 30, 2004			June 30, 2004			March 31, 2004
Contract revenues	$	43		$	54		$	20		$	78
Operating loss		(10,778	)		(10,274	)		(10,629	)		(16,963	)
Loss from continuing operations		(10,837	)		(10,295	)		(10,643	)		(17,166	)
Loss from discontinued operations		(2,145	)		(574	)		(317	)		(512	)
Net loss		(12,982	)		(10,869	)		(10,960	)		(17,678	)
Basic and diluted net loss per share from continuing operations*		(0.33	)		(0.32	)		(0.33	)		(0.63	)
Total basic and diluted net loss per share*		(0.40	)		(0.34	)		(0.34	)		(0.65	)

* The sum of earnings per share for the four quarters may be different from the full year amount as a result of computing the quarterly and full year amounts based on the weighted average number of common shares outstanding in the respective periods.

Historically, the Company’s revenues have varied considerably from period to period due to the nature of the Company’s collaborative arrangements. As a consequence, the Company’s results in any one quarter are not necessarily indicative of results to be expected for a full year.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report.

Changes in Internal Control over Financial Reporting

We have recently completed our second annual company-wide assessment of our internal control over financial reporting as part of the process of complying with Section 404 of the Sarbanes-Oxley Act of 2002, and as a complement to our existing overall internal control over financial reporting. As a result, we have continued to improve the design and effectiveness of our internal control over financial reporting. We anticipate that improvements and changes will continue to be made. However, there has been no change in the Company’s internal controls over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Limitations on the Effectiveness of Controls

Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

90

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Our internal control system was designed to provide reasonable assurance to management and our board of directors regarding the preparation and fair presentation of published financial statements.

A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the Company’s ability to initiate, authorize, record, process, or report external financial data reliably in accordance with generally accepted accounting principles such that there is a more than a remote likelihood that a misstatement of the Company’s annual or interim financial statements that is more than inconsequential will not be prevented or detected. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we have assessed the effectiveness of our internal control over financial reporting as of December 31, 2005. In making our assessment of internal control over financial reporting, we used the criteria issued in the report Internal Control-Integrated Framework by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). We have concluded that our internal control over financial reporting was effective as of December 31, 2005 based on these criteria.

Our independent registered public accounting firm, KPMG LLP, has audited management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2005, as stated in their report included on page 62.

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PART III

Item 10. Directors and Executive Officers of the Registrant

The information required by this item is incorporated by reference to “Election of Board of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Executive Officers” in our Definitive Proxy Statement to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, relating to our 2006 Annual Meeting of Stockholders.

Item 11. Executive Compensation

The response to this item is incorporated by reference to “Executive Compensation,” “Director Compensation” and “Compensation Committee Report” in our Definitive Proxy Statement to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, relating to our 2006 Annual Meeting of Stockholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The response to this item is incorporated by reference to “Security Ownership of Certain Beneficial Owners and Management” and “Executive Compensation” in our Definitive Proxy Statement to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, relating to our 2006 Annual Meeting of Stockholders.

Item 13. Certain Relationships and Related Transactions

The response to this item is incorporated by reference to “Certain Relationships and Related Transactions” in our Definitive Proxy Statement to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, relating to our 2006 Annual Meeting of Stockholders.

Item 14. Principal Accountant Fees and Services

The response to this item is incorporated by reference to “Ratification of Selection of Independent Auditors” in our Definitive Proxy Statement to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, relating to our 2006 Annual Meeting of Stockholders.

Consistent with Section 10A(i)(2) of the Securities Exchange Act of 1934, as added by Section 202 of the Sarbanes-Oxley Act of 2002, we are responsible for listing the non-audit services approved by our Audit Committee to be performed by KPMG LLP, our independent registered public accounting firm. Non-audit services are defined as services other than those provided in connection with an audit or a review of our financial statements. The Audit Committee did not approve the engagement of KPMG LLP for any non-audit services in 2005.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

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

1. Consolidated financial statements filed as part of this Report are listed under Part II, Item 8, page 60 of this Form 10-K.

2. No schedules are required because either the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto.

(b) Exhibits

The following documents are filed as part of this annual report on Form 10-K. The Company will furnish a copy of any exhibit listed to requesting stockholders upon payment of the Company’s reasonable expenses in furnishing those materials.

Exhibit Number	Description
2.1	Agreement and Plan of Merger between Hyseq, Inc., Vertical Merger Corp. and Variagenics, Inc. dated November 9, 2002.(16)
2.2	Agreement and Plan of Merger between Nuvelo, Inc. and Nuvelo, Inc., a Nevada corporation and Nuvelo, Inc.’s predecessor in interest dated March 19, 2004.(23)
2.3	Stock Purchase Agreement between SBH Genomics, Inc., Radoje Drmanac, Snezana Drmanac, Nuvelo, Inc., and Affymetrix, Inc. dated December 3, 2004.(27)
3.1	Amended and Restated Certificate of Incorporation of Nuvelo, Inc.(23)
3.2	Amended and Restated By-Laws of Nuvelo, Inc.(31)
4.1	Form of Nuvelo, Inc. Common Stock Certificate.(23)
4.2	Certificate of Designations of Series A Junior Participating Preferred Stock.(23)
4.3	Rights Agreement between Hyseq, Inc. and U.S. Stock Transfer Corporation dated June 5, 1998.(4)
4.4	Amendment to Rights Agreement between Hyseq, Inc. and U.S. Stock Transfer Corporation dated November 9, 2002.(17)
4.5	Amendment to Rights Agreement between Nuvelo, Inc. and U.S. Stock Transfer Corporation dated March 19, 2004.(23)
4.6	Hyseq Promissory Note in the principal amount of $4,000,000 dated November 13, 2001.(10)
4.7	Registration Rights Agreement between Hyseq, Inc. and Affymetrix, Inc. dated November 13, 2001.(10)
4.8	Pledge and Security Agreement between Hyseq, Inc. and Affymetrix, Inc. dated November 13, 2001.(10)
4.9	Form of Warrant to purchase 1,491,544 shares of Common Stock of Hyseq, Inc. dated January 8, 2002.(7)
4.10	Form of Warrant dated April 5, 2002.(13)
4.11	Replacement Warrant to purchase 195,130 shares of Common Stock of Nuvelo, Inc. dated January 20, 2005.(29)

93

Exhibit Number	Description
4.12	Replacement Warrant to purchase 200,000 shares of Common Stock of Nuvelo, Inc. dated January 20, 2005.(29)
4.13	Replacement Warrant to purchase 50,000 shares (pre split) of Common Stock of Nuvelo, Inc. dated June 7, 2005.(33)
4.14	Warrant to purchase 350,000 shares of Common Stock of Nuvelo, Inc. dated August 4, 2005.(35)
4.15	Registration Rights Agreement by and between Nuvelo, Inc. and Kingsbridge Capital Limited dated August 4, 2005.(35)
4.16	Replacement Warrant to purchase 109,607 shares (pre split) of Common Stock of Nuvelo, Inc. dated July 15, 2005.(37)
4.17	Replacement Warrant to purchase 222,536 shares (pre split) of Common Stock of Nuvelo, Inc. dated July 15, 2005.(37)
4.18	Reference is made to Exhibits 3.1 and 3.2.
10.1	Form of Indemnification Agreement between Hyseq, Inc. and each of its directors and officers.(1)
10.2	Patent License Agreement dated June 7, 1994 between Arch Development Corporation and Hyseq, Inc.(1)
10.3	Stock Purchase Agreement dated May 28, 1997 for Series B Convertible Preferred Stock.(1)
10.4†	Stock Option Plan, as amended.(2)
10.5†	Employee Stock Purchase Plan, as amended and restated on December 14, 2004.(36)
10.6†	Non-Employee Director Stock Option Plan, as amended.(3)
10.7	Collaboration and License Agreement dated December 10, 1999 between Hyseq, Inc. and American Cyanamid Company.(5)
10.8†	Non-Qualified Employee Stock Purchase Plan.(6)
10.9†	Scientific Advisory Board/Consultants Stock Option Plan.(6)
10.10†	Employment and Confidential Information Agreement dated January 11, 2001 between Hyseq, Inc. and Dr. Ted W. Love.(7)
10.11	Lease dated April 30, 2001 between The Irvine Company and Hyseq, Inc.(8)
10.12	Form of Registration Rights Agreement dated August 28, 2001 between Hyseq, Inc. and the investors party thereto.(9)
10.13†	Stock Option Agreement dated February 1, 2000 between Hyseq, Inc. and Dr. George B. Rathmann.(10)
10.14†	Stock Option Agreement dated August 21, 2001 between Hyseq, Inc. and Dr. George B. Rathmann.(10)
10.15	Line of Credit Agreement dated August 6, 2001 between Hyseq, Inc. and Dr. George B. Rathmann.(10)
10.16	Interference Settlement Agreement dated October 24, 2001 between Hyseq, Inc. and Affymetrix, Inc.(10)
10.17	Settlement Agreement dated October 24, 2001 between Hyseq, Inc. and Affymetrix, Inc.(10)
10.18†	Form of Non-Stockholder Approved Stock Option Agreement for Officers.(11)

94

Exhibit Number	Description
10.19†	Stock Option Agreement dated September 21, 2001 between Nuvelo, Inc. and Dr. George B. Rathmann.(10)
10.20†	Form of Non-Stockholder Approved Option Agreement for Officers.(11)
10.21	Registration Rights Agreement dated April 5, 2002 between Hyseq, Inc. and the investors party thereto.(13)
10.22	Collaboration Agreement dated of January 8, 2002 between Hyseq, Inc. and Amgen, Inc.(14)
10.23	Amendment No. 1 to Lease Agreement dated August 1, 2002 between Hyseq, Inc. and The Irvine Company.(15)
10.24	Form of Warrant Purchase Agreement, entered into January 8, 2002 between Hyseq, Inc. and Amgen, Inc.(12)
10.25	Securities Purchase Agreement dated April 5, 2002, among Hyseq, Inc. and the investors party thereto.(13)
10.26†	Variagenics, Inc. Amended 1997 Employee, Director and Consultant Stock Option Plan.(18)
10.27	Guarantee by George Rathmann in favor of AMB Property, L.P. dated October 1, 2002.(19)
10.28	Amendment to Amended and Restated Line of Credit dated November 9, 2002 between Hyseq, Inc. and Dr. George B. Rathmann.(19)
10.29†	Nuvelo, Inc. 2002 Equity Incentive Plan.(20)
10.30	Second Amendment to Lease dated October 21, 2003 by and between the Irvine Company and Nuvelo, Inc.(21)
10.31	Collaboration Agreement dated January 12, 2004 between Nuvelo, Inc. and Archemix Corp.(22)
10.32	License Agreement dated February 4, 2004, among Dendreon San Diego LLC, Dendreon Corporation and Nuvelo, Inc.(22)
10.33	Amended and Restated Secreted Protein Development and Collaboration Agreement dated January 28, 2004 between Deltagen, Inc. and Nuvelo, Inc.(24)
10.34†	Nuvelo, Inc. 2004 Equity Incentive Plan.(36)
10.35†	Form of Notice of Grant of Stock Option under Nuvelo, Inc. 2004 Equity Incentive Plan.(25)
10.36†	Form of Nuvelo, Inc. Stock Option Agreement (Single Trigger Acceleration) under Nuvelo, Inc. 2004 Equity Incentive Plan.(25)
10.37†	Form of Nuvelo, Inc. Stock Option Agreement (Double Trigger Acceleration) under Nuvelo, Inc. 2004 Equity Incentive Plan.(26)
10.38	Amendment No. 3 to Collaboration Agreement dated September 10, 2004 between Nuvelo, Inc. and Kirin Brewery Co., Ltd.(26)
10.39	Loan and Security Agreement dated August 31, 2004 between Nuvelo, Inc., and Silicon Valley Bank.(26)
10.40†	Nuvelo, Inc. Executive Change in Control and Severance Benefit Plan.(28)
10.41§	Opt-Out, Termination, Settlement and Release Agreement dated October 29, 2004 between Nuvelo, Inc. and Amgen, Inc.(28)
10.42§	License Agreement dated November 3, 2004 between Nuvelo, Inc. and Amgen, Inc.(29)

95

Exhibit Number	Description
10.43	Lease Agreement dated January 11, 2005 between Nuvelo, Inc. and BMR-201 Industrial Road LLC.(29)
10.44§	Interim Agreement dated January 21, 2005 between Nuvelo, Inc. and Avecia Limited.(29)
10.45	Letter Agreement dated March 30, 2005 between Silicon Valley Bank and Nuvelo, Inc.(30)
10.46§	Collaboration Agreement dated March 31, 2005 between Kirin Brewery Company and Nuvelo, Inc.(31)
10.47	First Amendment to Lease dated May 10, 2005 between BMR-2001 Industrial Road LLC and Nuvelo, Inc.(32)
10.48	Development and Validation Agreement dated June 30, 2005 between Avecia Limited and Nuvelo, Inc.(36)
10.49	First Amendment to Loan and Security Agreement dated July 18, 2005 between Silicon Valley Bank and Nuvelo, Inc.(34)
10.50	Common Stock Purchase Agreement dated August 4, 2005 by and between Kingsbridge Capital Limited and Nuvelo, Inc.(35)
10.51	Third Amendment to Lease dated September 15, 2005 between The Irvine Company and Nuvelo, Inc.(38)
10.52†	2005 Base Salaries for Named Executive Officers.(34)
10.53	Separation agreement between Linda Fitzpatrick and Nuvelo, Inc. dated August 4, 2005.(39)
10.54†	Nuvelo, Inc. Management Bonus Amounts for Named Executive Officers for the 2005 Fiscal Year.(40)
10.55†*	Offer Letter dated September 7, 2004 between Nuvelo, Inc. and Dr. Michael Levy.
10.56§*	License and Collaboration Agreement dated January 4, 2006 between Bayer Healthcare AG and Nuvelo, Inc.
21.1*	Subsidiaries of Nuvelo, Inc. as of December 31, 2005.
23.1*	Consent of Independent Registered Public Accounting Firm.
24.1*	Power of Attorney (included in the signature page hereto)
31.1*	Certificate of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certificate of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

   * Filed herewith.

   † Compensatory plan or agreement.

   § Confidential treatment has been requested for portions of this document, which are omitted and filed separately with the SEC.

  (1) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form S-1, as amended, File No. 333-29091.

  (2) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form S-8, filed on December 5, 1997, File No. 333-41663.

96

  (3) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form S-8, filed on May 20, 1998, File No. 333-53089.

  (4) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form 8-K, filed on July 31, 1998, File No. 00-22873.

  (5) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form 10-K, filed on March 20, 2000, File No. 000-22873.

  (6) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form 8-K/A, filed on March 17, 2000, File No. 00-22873.

  (7) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form 10-K filed April 2, 2001, File No. 000-22873.

  (8) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form 8-K, filed on May 21, 2001, File No. 000-22873.

  (9) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form S-3, as amended, filed on September 25, 2001, File No. 333-70134.

(10) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form 10-K, filed on April 1, 2002, File No. 000-22873.

(11) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form 10-K/A, filed on May 9, 2002, File No. 000-22873.

(12) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form 10-Q, filed on May 15, 2002, File No. 000-22873.

(13) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form S-3, filed on June 14, 2002, File No. 333-90458.

(14) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form 10-Q/A, filed on July 22, 2002, File No. 000-22873.

(15) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form 10-Q, filed on November 8, 2002, File No. 000-22873.

(16) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form 8-K, filed on November 12, 2002, File No. 000-22873.

(17) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form S-4, filed on November 27, 2002, File No. 333-101503.

(18) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form S-8, filed on February 7, 2003, File No. 333-103055.

(19) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 10-K, filed on March 31, 2003, File No. 000-22873.

(20) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form S-8, filed on September 5, 2003, File No. 333-108563.

(21) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 10-Q, filed on November 14, 2003, File No. 000-22873.

(22) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 8-K, filed on February 19, 2004, File No. 000-22873.

97

(23) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 8-K, filed March 26, 2004, File No. 000-22873.

(24) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 10-Q, filed on May 10, 2004, File No. 000-22873.

(25) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 8-K, filed September 20, 2004, File No. 000-22873.

(26) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 10-Q, filed on November 9, 2004, File No. 000-22873.

(27) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 8-K, filed December 9, 2004, File No. 000-22873.

(28) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 8-K, filed December 20, 2004, File No. 000-22873.

(29) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 10-K, filed on March 16, 2005, File No. 000-22873.

(30) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 8-K, filed April 4, 2005, File No. 000-22873.

(31) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 10-Q, filed on May 10, 2005, File No. 000-22873.

(32) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 8-K, filed May 13, 2005, File No. 000-22873.

(33) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form S-3, filed on July 14, 2005, File No. 333-126591.

(34) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 8-K, filed July 21, 2005, File No. 000-22873.

(35) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 8-K, filed August 5, 2005, File No. 000-22873.

(36) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 10-Q, filed on August 8, 2005, File No. 000-22873.

(37) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form S-3, filed on September 14, 2005, File No. 333-128316.

(38) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 8-K, filed September 20, 2005, File No. 000-22873.

(39) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 10-Q, filed November 8, 2005, File No. 000-22873.

(40) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 8-K, filed February 10, 2006, File No. 000-22873.

98

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, in the City of San Carlos, State of California, on March 15, 2006.

NUVELO, INC.
By:	/s/    GARY S. TITUS
	Gary S. Titus Vice President and acting Chief Financial Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ted W. Love and Gary S. Titus, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution for him, and in his name in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and any of them or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of Nuvelo, Inc., in the capacities indicated, on March 15, 2006.

Signature	Title
/s/    TED W. LOVE         Ted W. Love	Chairman of the Board and Chief Executive Officer (Principal Executive Officer)
/s/    GARY S. TITUS         Gary S. Titus	Vice President and acting Chief Financial Officer (Principal Financial Officer)
/s/    BARRY L. ZUBROW         Barry L. Zubrow	Vice Chairman of the Board
/s/    MARY K. PENDERGAST         Mary K. Pendergast	Director
/s/    MARK L. PERRY         Mark L. Perry	Director
/s/    KIMBERLY POPOVITS         Kimberly Popovits	Director
/s/    GEORGE B. RATHMANN         George B. Rathmann	Director and Chairman Emeritus
/s/    BURTON E. SOBEL         Burton E. Sobel	Director

99

EXHIBIT INDEX

Exhibit Number	Description
2.1	Agreement and Plan of Merger between Hyseq, Inc., Vertical Merger Corp. and Variagenics, Inc. dated November 9, 2002.(16)
2.2	Agreement and Plan of Merger between Nuvelo, Inc. and Nuvelo, Inc., a Nevada corporation and Nuvelo, Inc.’s predecessor in interest dated March 19, 2004.(23)
2.3	Stock Purchase Agreement between SBH Genomics, Inc., Radoje Drmanac, Snezana Drmanac, Nuvelo, Inc., and Affymetrix, Inc. dated December 3, 2004.(27)
3.1	Amended and Restated Certificate of Incorporation of Nuvelo, Inc.(23)
3.2	Amended and Restated By-Laws of Nuvelo, Inc.(31)
4.1	Form of Nuvelo, Inc. Common Stock Certificate.(23)
4.2	Certificate of Designations of Series A Junior Participating Preferred Stock.(23)
4.3	Rights Agreement between Hyseq, Inc. and U.S. Stock Transfer Corporation dated June 5, 1998.(4)
4.4	Amendment to Rights Agreement between Hyseq, Inc. and U.S. Stock Transfer Corporation dated November 9, 2002.(17)
4.5	Amendment to Rights Agreement between Nuvelo, Inc. and U.S. Stock Transfer Corporation dated March 19, 2004.(23)
4.6	Hyseq Promissory Note in the principal amount of $4,000,000 dated November 13, 2001.(10)
4.7	Registration Rights Agreement between Hyseq, Inc. and Affymetrix, Inc. dated November 13, 2001.(10)
4.8	Pledge and Security Agreement between Hyseq, Inc. and Affymetrix, Inc. dated November 13, 2001.(10)
4.9	Form of Warrant to purchase 1,491,544 shares of Common Stock of Hyseq, Inc. dated January 8, 2002.(7)
4.10	Form of Warrant dated April 5, 2002.(13)
4.11	Replacement Warrant to purchase 195,130 shares of Common Stock of Nuvelo, Inc. dated January 20, 2005.(29)
4.12	Replacement Warrant to purchase 200,000 shares of Common Stock of Nuvelo, Inc. dated January 20, 2005.(29)
4.13	Replacement Warrant to purchase 50,000 shares (pre split) of Common Stock of Nuvelo, Inc. dated June 7, 2005.(33)
4.14	Warrant to purchase 350,000 shares of Common Stock of Nuvelo, Inc. dated August 4, 2005.(35)
4.15	Registration Rights Agreement by and between Nuvelo, Inc. and Kingsbridge Capital Limited dated August 4, 2005.(35)
4.16	Replacement Warrant to purchase 109,607 shares (pre split) of Common Stock of Nuvelo, Inc. dated July 15, 2005.(37)
4.17	Replacement Warrant to purchase 222,536 shares (pre split) of Common Stock of Nuvelo, Inc. dated July 15, 2005.(37)
4.18	Reference is made to Exhibits 3.1 and 3.2.

1

Exhibit Number	Description
10.1	Form of Indemnification Agreement between Hyseq, Inc. and each of its directors and officers.(1)
10.2	Patent License Agreement dated June 7, 1994 between Arch Development Corporation and Hyseq, Inc.(1)
10.3	Stock Purchase Agreement dated May 28, 1997 for Series B Convertible Preferred Stock.(1)
10.4†	Stock Option Plan, as amended.(2)
10.5†	Employee Stock Purchase Plan, as amended and restated on December 14, 2004.(36)
10.6†	Non-Employee Director Stock Option Plan, as amended.(3)
10.7	Collaboration and License Agreement dated December 10, 1999 between Hyseq, Inc. and American Cyanamid Company.(5)
10.8†	Non-Qualified Employee Stock Purchase Plan.(6)
10.9†	Scientific Advisory Board/Consultants Stock Option Plan.(6)
10.10†	Employment and Confidential Information Agreement dated January 11, 2001 between Hyseq, Inc. and Dr. Ted W. Love.(7)
10.11	Lease dated April 30, 2001 between The Irvine Company and Hyseq, Inc.(8)
10.12	Form of Registration Rights Agreement dated August 28, 2001 between Hyseq, Inc. and the investors party thereto.(9)
10.13†	Stock Option Agreement dated February 1, 2000 between Hyseq, Inc. and Dr. George B. Rathmann.(10)
10.14†	Stock Option Agreement dated August 21, 2001 between Hyseq, Inc. and Dr. George B. Rathmann.(10)
10.15	Line of Credit Agreement dated August 6, 2001 between Hyseq, Inc. and Dr. George B. Rathmann.(10)
10.16	Interference Settlement Agreement dated October 24, 2001 between Hyseq, Inc. and Affymetrix, Inc.(10)
10.17	Settlement Agreement dated October 24, 2001 between Hyseq, Inc. and Affymetrix, Inc.(10)
10.18†	Form of Non-Stockholder Approved Stock Option Agreement for Officers.(11)
10.19†	Stock Option Agreement dated September 21, 2001 between Nuvelo, Inc. and Dr. George B. Rathmann.(10)
10.20†	Form of Non-Stockholder Approved Option Agreement for Officers.(11)
10.21	Registration Rights Agreement dated April 5, 2002 between Hyseq, Inc. and the investors party thereto.(13)
10.22	Collaboration Agreement dated of January 8, 2002 between Hyseq, Inc. and Amgen, Inc.(14)
10.23	Amendment No. 1 to Lease Agreement dated August 1, 2002 between Hyseq, Inc. and The Irvine Company.(15)
10.24	Form of Warrant Purchase Agreement, entered into January 8, 2002 between Hyseq, Inc. and Amgen, Inc.(12)
10.25	Securities Purchase Agreement dated April 5, 2002, among Hyseq, Inc. and the investors party thereto.(13)

2

Exhibit Number	Description
10.26†	Variagenics, Inc. Amended 1997 Employee, Director and Consultant Stock Option Plan.(18)
10.27	Guarantee by George Rathmann in favor of AMB Property, L.P. dated October 1, 2002.(19)
10.28	Amendment to Amended and Restated Line of Credit dated November 9, 2002 between Hyseq, Inc. and Dr. George B. Rathmann.(19)
10.29†	Nuvelo, Inc. 2002 Equity Incentive Plan.(20)
10.30	Second Amendment to Lease dated October 21, 2003 by and between the Irvine Company and Nuvelo, Inc.(21)
10.31	Collaboration Agreement dated January 12, 2004 between Nuvelo, Inc. and Archemix Corp.(22)
10.32	License Agreement dated February 4, 2004, among Dendreon San Diego LLC, Dendreon Corporation and Nuvelo, Inc.(22)
10.33	Amended and Restated Secreted Protein Development and Collaboration Agreement dated January 28, 2004 between Deltagen, Inc. and Nuvelo, Inc.(24)
10.34†	Nuvelo, Inc. 2004 Equity Incentive Plan.(36)
10.35†	Form of Notice of Grant of Stock Option under Nuvelo, Inc. 2004 Equity Incentive Plan.(25)
10.36†	Form of Nuvelo, Inc. Stock Option Agreement (Single Trigger Acceleration) under Nuvelo, Inc. 2004 Equity Incentive Plan.(25)
10.37†	Form of Nuvelo, Inc. Stock Option Agreement (Double Trigger Acceleration) under Nuvelo, Inc. 2004 Equity Incentive Plan.(26)
10.38	Amendment No. 3 to Collaboration Agreement dated September 10, 2004 between Nuvelo, Inc. and Kirin Brewery Co., Ltd.(26)
10.39	Loan and Security Agreement dated August 31, 2004 between Nuvelo, Inc., and Silicon Valley Bank.(26)
10.40†	Nuvelo, Inc. Executive Change in Control and Severance Benefit Plan.(28)
10.41§	Opt-Out, Termination, Settlement and Release Agreement dated October 29, 2004 between Nuvelo, Inc. and Amgen, Inc.(28)
10.42§	License Agreement dated November 3, 2004 between Nuvelo, Inc. and Amgen, Inc.(29)
10.43	Lease Agreement dated January 11, 2005 between Nuvelo, Inc. and BMR-201 Industrial Road LLC.(29)
10.44§	Interim Agreement dated January 21, 2005 between Nuvelo, Inc. and Avecia Limited.(29)
10.45	Letter Agreement dated March 30, 2005 between Silicon Valley Bank and Nuvelo, Inc.(30)
10.46§	Collaboration Agreement dated March 31, 2005 between Kirin Brewery Company and Nuvelo, Inc.(31)
10.47	First Amendment to Lease dated May 10, 2005 between BMR-2001 Industrial Road LLC and Nuvelo, Inc.(32)
10.48	Development and Validation Agreement dated June 30, 2005 between Avecia Limited and Nuvelo, Inc.(36)
10.49	First Amendment to Loan and Security Agreement dated July 18, 2005 between Silicon Valley Bank and Nuvelo, Inc.(34)

3

Exhibit Number	Description
10.50	Common Stock Purchase Agreement dated August 4, 2005 by and between Kingsbridge Capital Limited and Nuvelo, Inc.(35)
10.51	Third Amendment to Lease dated September 15, 2005 between The Irvine Company and Nuvelo, Inc.(38)
10.52†	2005 Base Salaries for Named Executive Officers.(34)
10.53	Separation agreement between Linda Fitzpatrick and Nuvelo, Inc. dated August 4, 2005.(39)
10.54†	Nuvelo, Inc. Management Bonus Amounts for Named Executive Officers for the 2005 Fiscal Year.(40)
10.55†*	Offer Letter dated September 7, 2004 between Nuvelo, Inc. and Dr. Michael Levy.
10.56§*	License and Collaboration Agreement dated January 4, 2006 between Bayer Healthcare AG and Nuvelo, Inc.
21.1*	Subsidiaries of Nuvelo, Inc. as of December 31, 2005.
23.1*	Consent of Independent Registered Public Accounting Firm.
24.1*	Power of Attorney (included in the signature page hereto)
31.1*	Certificate of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certificate of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

   * Filed herewith.

   † Compensatory plan or agreement.

   § Confidential treatment has been requested for portions of this document, which are omitted and filed separately with the SEC.

  (1) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form S-1, as amended, File No. 333-29091.

  (2) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form S-8, filed on December 5, 1997, File No. 333-41663.

  (3) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form S-8, filed on May 20, 1998, File No. 333-53089.

  (4) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form 8-K, filed on July 31, 1998, File No. 00-22873.

  (5) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form 10-K, filed on March 20, 2000, File No. 000-22873.

  (6) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form 8-K/A, filed on March 17, 2000, File No. 00-22873.

  (7) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form 10-K filed April 2, 2001, File No. 000-22873.

  (8) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form 8-K, filed on May 21, 2001, File No. 000-22873.

4

  (9) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form S-3, as amended, filed on September 25, 2001, File No. 333-70134.

(10) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form 10-K, filed on April 1, 2002, File No. 000-22873.

(11) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form 10-K/A, filed on May 9, 2002, File No. 000-22873.

(12) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form 10-Q, filed on May 15, 2002, File No. 000-22873.

(13) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form S-3, filed on June 14, 2002, File No. 333-90458.

(14) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form 10-Q/A, filed on July 22, 2002, File No. 000-22873.

(15) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form 10-Q, filed on November 8, 2002, File No. 000-22873.

(16) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form 8-K, filed on November 12, 2002, File No. 000-22873.

(17) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Hyseq, Inc.’s Form S-4, filed on November 27, 2002, File No. 333-101503.

(18) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form S-8, filed on February 7, 2003, File No. 333-103055.

(19) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 10-K, filed on March 31, 2003, File No. 000-22873.

(20) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form S-8, filed on September 5, 2003, File No. 333-108563.

(21) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 10-Q, filed on November 14, 2003, File No. 000-22873.

(22) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 8-K, filed on February 19, 2004, File No. 000-22873.

(23) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 8-K, filed March 26, 2004, File No. 000-22873.

(24) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 10-Q, filed on May 10, 2004, File No. 000-22873.

(25) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 8-K, filed September 20, 2004, File No. 000-22873.

(26) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 10-Q, filed on November 9, 2004, File No. 000-22873.

(27) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 8-K, filed December 9, 2004, File No. 000-22873.

(28) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 8-K, filed December 20, 2004, File No. 000-22873.

(29) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 10-K, filed on March 16, 2005, File No. 000-22873.

5

(30) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 8-K, filed April 4, 2005, File No. 000-22873.

(31) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 10-Q, filed on May 10, 2005, File No. 000-22873.

(32) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 8-K, filed May 13, 2005, File No. 000-22873.

(33) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form S-3, filed on July 14, 2005, File No. 333-126591.

(34) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 8-K, filed July 21, 2005, File No. 000-22873.

(35) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 8-K, filed August 5, 2005, File No. 000-22873.

(36) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 10-Q, filed on August 8, 2005, File No. 000-22873.

(37) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form S-3, filed on September 14, 2005, File No. 333-128316.

(38) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 8-K, filed September 20, 2005, File No. 000-22873.

(39) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 10-Q, filed November 8, 2005, File No. 000-22873.

(40) Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 8-K, filed February 10, 2006, File No. 000-22873.

6

EX-10.55

EXHIBIT 10.55

September 7, 2004

Dr. Michael Levy

Re: Offer of Employment

Dear Michael:

Nuvelo is pleased to make you the following offer of employment and we look forward to you joining our team!

Position:	Senior Vice President, Research and Development reporting to Ted Love.
Salary:	$375,000.00 per year, paid semi-monthly.
Hiring Bonus	$15,000.00, this bonus will be repayable to Nuvelo if you should voluntarily leave the company prior to the first anniversary of your employment.
Annual Bonus	You are eligible to participate in Nuvelo’s Management Incentive Plan. This plan provides for an annual bonus based upon the achievement of corporate and individual goals. The current target payout is up to 25% of your base salary; your specific bonus will be approved by the Board of Directors. Since you are joining Nuvelo following January 1, your bonus payout may be pro-rated, at the discretion of the Board.
Stock Options:	Option to purchase 175,000 shares of Nuvelo, Inc common stock at an exercise price equal to the approximate fair market value on the first day of your employment with Nuvelo. The stock options will vest over 4 years, with 25% upon the first anniversary of your employment. The remaining 75% vest monthly, over the next three years. You may be eligible for additional stock options at the time of your annual review. The number of shares and the exercise price per share, of any stock options that may be granted at the time of your annual review cannot be determined at this time.

675 Almanor Avenue, Sunnyvale, CA 94085 tel: 408-215-4000 fax: 408-215-4001 www.nuvelo.com

Benefits:	Medical (choice of Aetna HMO or PPO or Kaiser HMO), dental, vision and life insurance, short & long term disability, ESPP, and a 401K plan. Nuvelo currently also offers 4 weeks of paid time off (PTO) and 10 paid holidays per year in accordance with the Employee Policy Manual, as amended from time to time. You may sign up for medical, dental, vision and life insurance on date of hire. Eligibility to participate in the 401K will begin on the first payroll entry date following your hire date (see HR for details).
Periodic Review:	You will be given annual reviews, and will be eligible for an annual performance related salary increase and stock option grant.
Start Date:	We are looking forward to your joining us in the very near term.

In addition to the information specified above, you will be required to sign an “at will” employment agreement that contains confidentiality and other provisions that are fairly standard in the industry. Should you accept this offer, you will, like other employees at Nuvelo, be an employee “at will” and can be terminated at any time for any or no reason.

As we discussed on the phone Friday, should there be a change in control and as a result your position is either eliminated or not deemed to be equivalent, you will receive one (1) year pay, any accrued bonus to which you are entitled and health benefits. Your stock options will also fully vest as of the effective date of the change in control, subject to any single or double trigger provisions to be determined at the September 14, 2004 board of directors meeting. Should your employment terminate for any reason other than for cause you will receive one (1) year pay, any accrued bonus to which you are entitled and health benefits. Additionally, your stock options will continue to vest during the one (1) year of salary continuation.

This offer letter supersedes any and all prior or contemporaneous agreements or representations regarding your potential employment at Nuvelo. Once employed, the Employment and Proprietary Information Agreement and the Employee Policy Manual will govern the terms of your employment. This agreement is subject to verification of references. Please call Krista Giusti, if you have any questions, at (408) 215-4463.

Sincerely, Ted W. Love President and CEO I hereby accept the offer: Michael Levy   Date: Sept. 9^TH, 2004

675 Almanor Avenue, Sunnyvale, CA 94085 tel: 408-215-4000 fax: 408-215-4001 www.nuvelo.com

EX-10.56

EXHIBIT 10.56

LICENSE AND COLLABORATION AGREEMENT

BY AND BETWEEN

NUVELO, INC.

AND

BAYER HEALTHCARE AG

[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

LICENSE AND COLLABORATION AGREEMENT

THIS LICENSE AND COLLABORATION AGREEMENT (“Agreement”) is made as of January 4, 2006 (the “Effective Date”) by and between NUVELO, INC., a Delaware corporation having its principal place of business at 201 Industrial Road, Suite 310, San Carlos, Ca 94070-6211 (“Nuvelo”) and BAYER HEALTHCARE AG, a corporation organized and existing under the laws of Germany and having its principal office at 51368 Leverkusen, Germany (“Bayer”). Nuvelo and Bayer are sometimes referred to herein individually as a “Party” and collectively as the “Parties”.

RECITALS

WHEREAS Nuvelo is the exclusive licensee of worldwide rights to a polypeptide known as Alfimeprase (as defined in Exhibit A);

WHEREAS, Bayer has significant experience in the development, marketing, promotion and sale of pharmaceutical products and can make significant contributions to the successful global development and commercialization of Licensed Product (as defined in Exhibit A);

WHEREAS, Nuvelo and Bayer wish to collaborate in the global development and commercialization of Licensed Product, on the terms and conditions in this Agreement;

NOW THEREFORE, for and in consideration of the foregoing premises and the covenants, representations and agreements set forth below, the Parties, intending to be legally bound, hereby agree as follows:

ARTICLE 1

DEFINITIONS

Capitalized terms used but not otherwise defined herein have the meanings provided in Exhibit A.

ARTICLE 2

GRANT OF LICENSES AND OTHER RIGHTS

2.1 Nuvelo Technology Licenses. Subject to the terms and conditions of this Agreement, Nuvelo hereby grants to Bayer, and Bayer hereby accepts, an exclusive, fee-bearing license under Nuvelo Technology to develop, use, sell, offer to sell, have sold, import, export, transfer physical possession of and transfer title or interest in and to Licensed Product in the Bayer Territory. Bayer will have the right to grant sublicenses under the foregoing license only as set forth in Section 2.4.

2.2 Trademark License. Subject to the terms and conditions of this Agreement, including without limitation Article 6, Nuvelo hereby grants to Bayer an exclusive, royalty-free license under Nuvelo’s entire right, title and interest in and to the Product Trademarks, to use and

display the Product Trademarks in connection with the Commercialization of Licensed Product in the Bayer Territory. Bayer will have the right to grant sublicenses under the foregoing license only as set forth in Section 2.4.

2.3 Bayer Technology License. Subject to the terms and conditions of this Agreement, Bayer hereby grants to Nuvelo, and Nuvelo hereby accepts, an exclusive, fully paid- up, royalty-free, sublicensable license in the United States under Bayer Technology to make, have made, use, sell, offer to sell, have sold, import, export, transfer physical possession of and transfer title or interest in and to Licensed Product in the United States.

2.4 Sublicensing.

(a) Subject to this Section 2.4, Bayer will have the right to sublicense any of its rights under Section 2.1 or 2.2, provided that Bayer may grant a sublicense only to Sublicensees who are distributors doing business in one or more Sublicense Countries. Any such sublicense will require the Sublicensee to comply with the obligations of Bayer as contained herein (specifically including, without limitation, obligations under Articles 8 and 10 and Section 17.15), and include an obligation of the Sublicensee to account for and report its sales of Licensed Product to Bayer on the same basis as if such sales were Net Sales by Bayer. Any sublicense will provide for the termination of the sublicense or the conversion to a license directly between the Sublicensee and Nuvelo, at the option of Nuvelo, upon termination of this Agreement pursuant to Article 15. Bayer will forward to Nuvelo a copy of each fully executed sublicense agreement within sixty (60) days of the execution of the agreement.

(b) Bayer will remain responsible for the full and complete performance of all of Bayer’s obligations and duties under this Agreement, whether the obligations and duties are performed by Bayer or by any Sublicensee. For the avoidance of doubt, Bayer will forward to Nuvelo and Bayer acknowledges that Nuvelo will be entitled to receive, Royalties on Net Sales of Licensed Product(s) sold by Sublicensees hereunder and that Bayer will be responsible to Nuvelo for paying Royalties due on Net Sales of Licensed Product sold by Sublicensees.

2.5 Right of First Refusal. If Nuvelo, in its sole discretion, decides to offer to a Third Party an exclusive or co-exclusive license to Commercialize Licensed Product in the United States, it shall offer such a license to Bayer (or, at Bayer’s option, Bayer’s Affiliate) on terms no less favorable to Bayer than those offered to that Third Party, provided that Bayer’s (or its Affiliate’s, as applicable) commercial infrastructure in the United States, including without limitation its United States market coverage, the size and capabilities of its United States Field Force, and its reimbursement expertise are, in Nuvelo’s sole discretion, at least equal to those of the Third Party. If Bayer (or its Affiliate, as applicable) fails to accept such terms within fifteen (15) business days of Nuvelo’s offer, Nuvelo shall be free to offer such a license to the Third Party for a period of nine (9) months thereafter, provided that the terms offered to the Third Party are not, in the reasonable judgment of Nuvelo, less attractive to Nuvelo, taken as a whole, than the terms previously offered to Bayer. The provisions of this Section 2.5 do not apply to any merger, acquisition or other business combination to which Nuvelo may be a party, whether or not such a transaction involves an assignment of Nuvelo’s rights under this Agreement as contemplated by Section 17.5

2.6 Assignment to Bayer. Promptly after the Effective Date, Nuvelo will transfer to Bayer all of Nuvelo’s right, title and interest in all Regulatory Filings, Drug Approval Applications and Regulatory Approvals owned or controlled in each case by Nuvelo in the Bayer Territory, and will deliver to Bayer all correspondence between Nuvelo and Regulatory Authorities relating to all Regulatory Filings, Drug Approval Applications and Regulatory Approvals in the Bayer Territory that are Controlled by Nuvelo.

2.7 Retained Rights. With respect to the licenses granted under this Article 2, Nuvelo reserves for itself and its Affiliates the exclusive (subject to Article 7) right to make and have made Licensed Product under Nuvelo Technology and Nuvelo Materials and Manufacturing Information in the Bayer Territory for the purpose of supplying (i) the requirements for Licensed Product of Nuvelo and any Nuvelo licensee for use in the Nuvelo Territory and (ii) Bayer’s requirements for Licensed Product pursuant to this Agreement. In addition, Nuvelo retains a non-exclusive, sublicensable (with Bayer approval, which shall not be unreasonably withheld) right to distribute and use Licensed Product in the Bayer Territory exclusively for non-commercial research and Development purposes, provided that no Bayer approval will be required under this Section 2.7 with regard to Nuvelo activities in the Bayer Territory conducted under a Global Development Program. For the avoidance of doubt, Nuvelo retains all rights in Nuvelo Technology and the Nuvelo Materials and Nuvelo Manufacturing Information not expressly licensed hereunder, including the right to make, have made, use, sell, lease, offer to sell or lease, have sold, import, export or otherwise exploit, transfer physical possession of and transfer title or interest in and to products, other than Licensed Product, for any purpose in the Bayer Territory.

2.8 Annual Reports. On each anniversary of this Agreement, each Party will provide the other Party with a detailed written report setting forth all Development, regulatory, and Commercialization activities (pursuant to Articles 4, 5, and 6) for Licensed Product that have been conducted by such reporting Party during the past year. At the other Party’s request, the reporting Party will promptly discuss with the other Party such annual report and any progress made by the reporting Party regarding its Development, regulatory and Commercialization activities.

ARTICLE 3

MANAGEMENT OF ACTIVITIES

3.1 Generally. Subject to the other provisions of this Agreement, the Parties agree that the principal objectives of the Parties hereunder are to jointly continue Nuvelo’s in-progress worldwide Development and Commercialization of Licensed Product, including, without limitation, by sponsoring various clinical studies in the United States and worldwide in support of obtaining global Regulatory Approval of Licensed Product. The Parties agree that they shall establish a formal framework within which they will discuss strategies for the worldwide Development and Commercialization during the Term.

3.2 Joint Steering Committee. The formal framework referred to in Section 3.1 shall be headed by a Joint Steering Committee (the “JSC”), with such subcommittees as the JSC may establish from time to time as it deems appropriate, including, without limitation, standing subcommittees for Development and Commercialization as more fully described in Article 4 and Article 6. The Parties will establish the JSC within ten (10) days of the Effective Date.

3.3 Membership of JSC. The JSC will be comprised of at least three (3) members representing each Party, all of whom shall have appropriate expertise and seniority to enable them to make decisions on behalf of the Parties with respect to the issues falling within the jurisdiction of the JSC. Either Party, in its sole discretion, may substitute members of the JSC from time to time upon written notice to the other Party, provided, however that, without limiting the generality of the foregoing, a key objective with respect to membership in the JSC shall be preserving continuity. The JSC shall be chaired at each meeting by a representative of the Party hosting that meeting, as described in Section 3.5. One representative of each of Bayer and Nuvelo from the JDC and from the JCC shall take part in all meetings of the JSC.

3.4 Responsibilities of JSC. The JSC shall have responsibility for overseeing and coordinating the global Development and Commercialization of Licensed Product, including the following specific responsibilities:

(a) establishing a global strategy for the Development and Commercialization of Licensed Product, and overseeing the implementation of such strategy worldwide;

(b) reviewing and approving, or as appropriate amending, all plans, programs, proposals and budgets developed by the JDC and JCC, including, without limitation, Global Development Programs and the annual budget for Development Expenses associated with Global Development Programs;

(c) evaluating the broad range of indications for which Development of Licensed Product might be appropriate;

(d) determining whether the Parties should reprioritize their Development activities based on the JSC’s ongoing evaluation of all such potential indications and adjusting any associated Milestone Events and Milestone Payments due hereunder accordingly; and

(e) performing such other functions as are set forth herein or as the Parties may mutually agree in writing.

3.5 Administrative Matters.

(a) The JSC will establish its own procedural rules for its operation, consistent with the terms of this Article 3. The chairperson of the JSC will be responsible for calling regular meetings of the JSC and for leading the meetings. The chairperson of each JSC meeting will alternate between the Parties. Regular meetings of the JSC will be held at least once per calendar quarter either by phone, videoconference or in person. The JSC also shall meet as necessary, either by phone or in person, to timely address all matters it is called upon to resolve by the JDC or the JCC. A JSC member of the Party hosting the JSC meeting will serve as secretary of that meeting. Within ten (10) business days following each meeting, the secretary of the meeting will prepare and distribute to all members of the JSC the written minutes of the meeting. The minutes will provide a reasonably detailed description of the meeting discussions and a list of any actions, decisions or determinations approved by the JSC. The minutes of each

JSC meeting will be approved or disapproved by each member within ten (10) business days of receipt, and revised as necessary, at the next meeting. Final minutes of each meeting will be distributed to the members of the JSC by the chairperson prior to commencement of the next meeting. Each Party shall bear its own costs associated with its participation on the JSC, including all travel and living expenses.

(b) If a Party’s representative is unable to attend a meeting, that Party may designate an alternate representative with decision making authority for that Party to attend the meeting. Any decision made by that attendee will be considered to be a decision made by the absent representative. In addition, each Party may, at its discretion (and with the consent of the other Party), invite additional employees, consultants or scientific advisors to attend any JSC meetings, provided that any individual so invited will not have any voting power at such JSC meetings. A quorum for each JSC meeting will consist of at least two (2) members from each Party.

3.6 Decision Making. The JSC will operate by consensus. The representatives from each Party will have collectively one vote on behalf of that Party. If the members of the JSC cannot reach consensus on any matter that comes before the JSC, then:

(a) Bayer shall have the deciding vote on the JSC with respect to any matter that relates entirely or substantially to (i) a Country Specific Trial required to support Regulatory Approval solely in one country in the Bayer Territory; (ii) Unilateral Activities (as defined in Section 4.8) pursued by Bayer; and (iii) Commercialization of Licensed Product in the Bayer Territory (except with respect to any issue pertaining to a Global Brand); and

(b) Nuvelo shall have the deciding vote on the JSC with respect to any matter that relates entirely or substantially to (i) a Country Specific Trial required to support Regulatory Approval solely in the United States; (ii) Unilateral Activities (as defined in Section 4.8) pursued by Nuvelo; (iii) Commercialization of Licensed Product in the Nuvelo Territory; (iv) Global Development Programs; and (v) if the Parties decide to use a Global Brand for a particular indication as provided in Section 6.2(a), Global Brand issues.

For the avoidance of doubt, control of decision-making authority for any matter as provided above will not relieve the Party with control from any of its representations, warranties and/or covenants in this Agreement, nor will it enable that Party to unilaterally modify or amend the terms of this Agreement.

3.7 Dispute Resolution. Notwithstanding the foregoing, if either Party reasonably believes that the final decision of the Party authorized to cast the deciding vote above would prevent or significantly impinge on the other Party’s ability to undertake the Development or Commercialization of a Licensed Product in such other Party’s portion of the Territory, then the other Party shall have the right to refer such decision to the Chief Executive Officer of Nuvelo and the Head of the Pharmaceutical Division of Bayer, and such dispute shall be resolved in accordance with Section 16.1. Until such dispute is resolved, the Parties shall refrain from taking action on the decision; provided that this Section shall not apply to any decision relating to a Clinical Trial required by a Regulatory Authority in a Party’s portion of the Territory, and the affected Party shall be entitled to conduct such Clinical Trial as so required.

ARTICLE 4

DEVELOPMENT

4.1 Diligence; Compliance.

(a) Following the Effective Date, each Party will use Commercially Reasonable Efforts to undertake Development of Licensed Product in all indications agreed to by the Parties in each Party’s portion of the Territory in the manner contemplated in this Agreement. Without limiting the foregoing, Bayer will endeavor to file a Drug Approval Application with respect to obtaining Regulatory Approval of a first indication for Licensed Product in Europe and Canada within [    *    ] after the date that Nuvelo files a Drug Approval Application in the United States for that same indication and both Parties will thereafter use Commercially Reasonable Efforts to obtain Regulatory Approval for the Licensed Product in such countries.

(b) To the extent applicable, Bayer agrees to maintain all regulatory and governmental permits, licenses and approvals and to comply with all Bayer Territory Drug Laws that are applicable to its activities in each country in the Bayer Territory and the particular stage of Development of Licensed Product in such country in the Bayer Territory. In addition, to the extent applicable, Bayer will comply with good laboratory practices (“GLP”), good clinical practices (“GCP”) and good manufacturing practices (“GMP”) as these standards are defined in accordance with the applicable guidance and regulations including the International Conference of Harmonization (ICH). To the extent applicable, Nuvelo agrees to maintain all regulatory and governmental permits, licenses and approvals and to comply with all US Drug Laws that are applicable to its activities in the Nuvelo Territory and the particular stage of Development of Licensed Product in the Nuvelo Territory. In addition, to the extent applicable, Nuvelo will comply with GLP, GCP and GMP as these standards are defined in accordance with the applicable FDA rules and regulations.

4.2 Joint Development Committee. Within ten (10) days after the Effective Date, the Parties will establish a Joint Development Committee (the “JDC”) comprised of at least three (3) members representing each Party, all of whom shall have appropriate expertise and seniority to enable them to make decisions on behalf of the Parties with respect to the issues falling within the jurisdiction of the JDC. The JDC will follow the organizational and meeting procedures set forth in Section 4.4.

4.3 JDC Responsibilities. The JDC will be responsible for developing a plan for the overall worldwide strategy for the Development of Licensed Product including, without limitation the following:

(a) reviewing and recommending to the JSC Global Development Programs and Country Specific Trials for each country, including any changes to Global Development Programs as the JDC considers appropriate in response to Regulatory Authority requirements imposed or directed following preparation of an annual budget for a Global Development Program, and managing and allocating clinical drug supply of Licensed Product to facilitate Global Development Programs, Country Specific Trials and Phase 4 Clinical Trials for post-launch marketing support, or other purposes;

[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

(b) reviewing and recommending to the JSC a detailed annual budget and a three-year projection for Development Expenses associated with Global Development Programs beginning with the 2007 calendar year, the Parties having approved the budget for Global Development Programs in 2006 prior to the Effective Date, a summary of which is attached hereto as Exhibit E;

(c) establishing and recommending to the JSC forecasts for non-clinical and clinical supply of Licensed Product;

(d) together with the JCC, recommending to the JSC Phase 4 Clinical Trials and target product profiles for Licensed Product, including acute peripheral arterial occlusion, catheter occlusion, stroke, deep vein thrombosis, and other indications for Licensed Product as they are identified as potential indications for which the Parties intend to Develop Licensed Product;

(e) facilitating the exchange of all data, Information, Materials or results relating to Licensed Product; and

(f) performing such other functions as appropriate to further Development of Licensed Product in the Territory.

4.4 Decision Making; Administrative Matters.

(a) Decision Making. The JDC will operate by consensus. The representatives from each Party will have collectively one vote on behalf of that Party. If the members of the JDC cannot reach consensus on a matter, the matter will be referred to the JSC for resolution as provided in Section 3.6, and a special meeting of the JSC may be called for such purpose.

(b) Administrative Matters. The JDC will establish its own procedural rules for its operation, consistent with the terms of this Article 4. The chairperson for each meeting of the JDC will be a representative of the Party hosting that meeting. The chairperson will be responsible for calling regular meetings of the JDC and for leading the meetings. The regular meetings will be held at least once per calendar quarter either by phone, videoconference or in person. The chairperson of each JDC meeting will alternate between the parties. A JDC member of the Party hosting the JDC meeting will serve as secretary of that meeting. Within ten (10) business days following each meeting, the secretary of the meeting will prepare and distribute to all members of the JDC the written minutes of the meeting. The minutes will provide a reasonably detailed description of the meeting discussions and a list of any actions, decisions or determinations approved by the JDC. The minutes of each JDC meeting will be approved or disapproved by each member within ten (10) business days of receipt, and revised as necessary, at the next meeting. Final minutes of each meeting will be distributed to the members of the JDC by the chairperson prior to commencement of the next meeting. Each Party shall bear its own costs associated with its participation on the JDC, including all travel and living expenses.

(c) Attendance at JDC Meetings. If a Party’s representative is unable to attend a meeting, that Party may designate an alternate representative with decision making authority for that Party to attend, the meeting. Any decision made by that attendee will be considered to be a decision made by the absent representative. In addition, each Party may, at its discretion (and

with the consent of the other Party), invite additional employees, consultants or scientific advisors to attend any JDC meetings, provided that any individual so invited will not have any voting power at such JDC meetings. A quorum for each JDC meeting will consist of at least two (2) members from each Party.

4.5 Information and Data. Each Party will disclose to the other Party all material scientific, medical or technical information relating to Licensed Product that it discovers in the course of its Development activities in its portion of the Territory, promptly after it is learned or its materiality is appreciated. Nuvelo will own and maintain a Clinical Trial database containing data from all Global Development Programs and all Country Specific Trials in the Territory. In addition, Bayer will maintain a database that contains all Clinical Trial data accumulated by Bayer from Global Development Programs and Country Specific Trials conducted or sponsored by Bayer. Each Party will be entitled to have access, during regular business hours and upon reasonable advance notice, to the other Party’s database. Each Party will own the complete interest in all data and Information generated by such Party in its Clinical Trials of Licensed Product, however the other Party will have the right to use all such data and Information for any purpose necessary for the other Party to Develop and Commercialize Licensed Product in such other Party’s Territory.

4.6 Quality Assurance Audit. Nuvelo will have the right to conduct reasonable quality assurance audits with respect to all facilities, operations and laboratories (and any records related thereto) operated by Bayer or its Third Party subcontractors, where Development activities are conducted, as is reasonably necessary solely for the purpose of verifying Bayer’s conformance with applicable GMP, GLP, GCP and other regulatory requirements in each country in the Bayer Territory. All audits initiated by Nuvelo will be conducted at Nuvelo’s sole expense, upon reasonable prior notice to Bayer, and during regular business hours. Bayer will have the right to conduct reasonable quality assurance audits with respect to all facilities, operations and laboratories (and any records related thereto) operated by Nuvelo or its Third Party contractors where Development or manufacturing activities for Licensed Product are conducted, including the right to audit activities that formed the basis of CMC documentation, only to the extent reasonably necessary for Bayer to carry out its Development and Commercialization obligations hereunder and as is reasonably necessary solely for the purpose of verifying Nuvelo’s conformance with applicable GMP, GLP, GCP and other regulatory requirements in the Nuvelo Territory. All audits initiated by Bayer will be conducted at Bayer’s sole expense, upon reasonable prior notice to Nuvelo, and during regular business hours.

4.7 Funding.

(a) All Development Expenses incurred in conducting the Global Development Programs will be funded jointly by the Parties, with Bayer responsible for forty percent (40%) of all such Development Expenses, and Nuvelo responsible for sixty percent (60%) of all such Development Expenses, subject to the provisions of this Section 4.7. Reimbursable Development Expenses for the Global Development Programs will include all amounts actually incurred up to the amounts budgeted and approved pursuant to Sections 3.4 and 4.3(b), and any additional Development Expenses incurred in conducting the Global Development Program up to [    *    ] percent ([    *    ]%) in excess of the total amounts so budgeted. Development Expenses incurred in conducting Global Development Programs in excess of [    *    ]% of the amounts so budgeted shall

[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

also be reimbursed if both Parties approve the excess Development Expenses (either before or after they are incurred). Within thirty (30) days after the end of each calendar quarter, the Parties will send to each other written statements showing Development Expenses incurred by it during that calendar quarter in connection with Global Development Programs. Within fifty (50) days after the end of each calendar quarter, the Party that has incurred less than its pro rata share of Development Expenses for Global Development Programs during that calendar quarter shall reimburse the other Party, so that following any such Development Expense reimbursement Nuvelo will have incurred sixty percent (60%) of such Development Expenses and Bayer will have incurred forty percent (40%) of such Development Expenses during that calendar quarter.

(b) Nuvelo will not be obligated to expend more than [     *    ] Dollars ($[    *    ]) as its share of Development Expenses for Global Development Programs for Licensed Product in any calendar year during the term of this Agreement (the “Nuvelo Development Cap”). If the JSC approves an annual budget for such Global Development Programs, [    *    ] percent ([    *    ]%) of which would exceed the Nuvelo Development Cap, or if during the course of any calendar year Nuvelo incurs agreed-upon Development Expenses that exceed the Nuvelo Development Cap, upon Nuvelo’s written request, Bayer will have the right, but not the obligation to advance any such excess amounts. Bayer will have the right to recover any such advances by reducing royalties payable to Nuvelo under Section 8.3 by [    *    ] percent ([    *    ]%) on annual Net Sales of Licensed Products less than or equal to [    *    ] Dollars ($[    *    ]) and [    *    ] percent ([    *    ]%) on annual Net Sales of Licensed Products in excess of [    *    *    ] Dollars. In addition, all amounts owed to Bayer as a result of any advances made by Bayer under this Section 4.7(b) will become due and payable within [*] ([*]) business days following the earlier of (i) the tenth anniversary of the Effective Date; and (ii) any merger or acquisition of the equity or assets of Nuvelo pursuant to which a single Third Party acquires control of more than fifty percent (50%) of the voting securities of Nuvelo.

(c) Upon reasonable notice, during normal business hours, and no more than once per calendar year, each Party shall have the right to have independent, certified public accountants, which shall be reasonably acceptable to the audited Party, audit the records of the other Party with respect to Development Expenses incurred by the audited Party during the previous three (3) calendar years. The report of such accountant will be limited to a certificate verifying the correctness of such Development Expenses as previously reported by the audited Party, or identifying any discrepancy between actual and reported Development Expenses, along with an explanation of the basis for such a finding. The result of the audit and the audit report shall be subject to Article 12. The results of such audit may be disputed by the audited Party in accordance with Section 16.1. If an audit discloses a discrepancy between actual and reported Development Expenses, within sixty (60) days of the Parties’ receipt of the audit report or, if disputed, within sixty (60) days after resolution of such dispute, the Party who is obligated to reimburse the other Party for any Development Expenses resulting from the discrepancy will do so. The Party requesting the audit shall bear the full cost and expense of the performance of any such audit, unless such audit discloses an overstatement by a Party of its Development Expenses in the audited period by more than five percent (5%), in which case the audited Party will reimburse the auditing Party the full cost of the performance of such audit. Upon the expiration of three (3) years following the end of any calendar year, the calculation of Development Expenses for purposes of this Section 4.7 will be binding upon the Parties.

[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

(d) Each Party will be solely responsible for all Development Expenses incurred in connection with Country Specific Trials required to support Regulatory Approval in a country in such Party’s portion of the Territory and for all Unilateral Activities pursued by such Party. If Bayer desires to use the efficacy data from a Country Specific Trial in the Nuvelo Territory to support an application for Regulatory Approval in a country in the Bayer Territory, Bayer shall bear forty percent (40%) and Nuvelo shall bear sixty percent (60%) of the Development Expenses incurred in conducting such Country Specific Trial (and Bayer shall make reconciling payments as needed to reflect such split, plus [    *    ] percent ([    *    ]%) of Bayer’s share of such Development Expenses). If Nuvelo desires to use the efficacy data from a Country Specific Trial in the Bayer Territory to support an application for Regulatory Approval in United States, Bayer shall bear forty percent (40%) and Nuvelo shall bear sixty percent (60%) of the Development Expenses incurred in conducting such Country Specific Trial (and Nuvelo shall make reconciling payments as needed to reflect such split, plus [    *    ] percent ([    *    ]%) of Nuvelo’s share of such Development Expenses). Nothing in this Section 4.7(d) will require either Party to compensate the other Party if it submits to a Regulatory Authority in that Party’s portion of the Territory data from a Country Specific Trial conducted by the other Party solely because the Regulatory Authority or applicable statutes or regulations require it to do so.

4.8 Unilateral Activities.

(a) In the event the JSC cannot agree whether to pursue a Clinical Trial in support of an indication for a Licensed Product (other than an indication for Licensed Product agreed upon by the Parties as of the Effective Date), a Party shall have the right, on written notice to the other Party, to proceed unilaterally with such Clinical Trial solely to support Regulatory Approval or Commercialization of such Licensed Product in such Party’s portion of the Territory (such activities, the “Unilateral Activities”), and the non-pursuing Party shall be deemed to have opted-out (each, an ‘Opt-Out”), with respect to such Unilateral Activities, provided that, subject to Section 4.8(b), (i) the pursuing Party shall be solely responsible for all Development Expense incurred in connection with such Unilateral Activities, and (ii) the non-pursuing Party shall have no further financial obligation to support or otherwise fund any additional efforts in respect of such Unilateral Activities, and no obligation, responsibility, or authority regarding such additional efforts in respect of such Unilateral Activities; provided, however, that if the non-pursuing Party reasonably believes that the pursuing Party’s conduct of such Unilateral Activities would prevent or significantly impinge on such non-pursuing Party’s ability to undertake the Development or Commercialization of Licensed Product for agreed-upon indication(s) in such non-pursuing Party’s portion of the Territory, then the non-pursuing Party shall have the right to refer such decision to the Chief Executive Officer of Nuvelo and the Head of the Pharmaceutical Division of Bayer, and such dispute shall be resolved in accordance with Section 16.1. Until such dispute is resolved, the Parties shall refrain from taking action on the decision; provided that this Section shall not apply to any decision relating to a Clinical Trial required by a Regulatory Authority, and the affected Party shall be entitled to conduct such Clinical Trial as so required.

(b) The non-pursuing Party shall have the right to opt-in (“Opt-In”) with respect to any Unilateral Activities of which such Party Opted-Out at any time in accordance with this Section 4.8(b). Within twenty (20) days after receipt of a written request by the non-pursuing Party, the pursuing Party shall provide to the non-pursuing Party a written statement of

[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

Development Expenses incurred by the pursuing Party in connection with such Unilateral Activities to date. Within thirty (30) days after receipt of such statement (subject to the non-pursuing Party’s audit rights in accordance with Section 4.7(c)), the non-pursuing Party shall have the right to Opt-In with respect to such Unilateral Activities by providing written notice thereof to the pursuing Party (an “Opt-In Notice”), which Opt-In Notice shall be accompanied by a payment equal to (i) [    *    ] percent ([    *    ]%) of the total amount of the non-pursuing Party’s share of such Development Expenses, as though such costs and expenses were Development Expenses shared in accordance with Section 4.7(a), and (ii) all interest on such amount accrued from the date that such costs would have been reimbursed had the non-pursuing Party not Opted-Out of such Unilateral Activities (calculated in accordance with Section 10.1(d)). From and after the pursuing Party’s receipt of such payment for the non-pursuing Party’s share of such Development Expenses, such Unilateral Activities shall cease to be Unilateral Activities and shall be deemed Global Development Programs Development Expenses, and the Parties shall share all such Development Expenses in accordance with Section 4.7(a).

ARTICLE 5

REGULATORY

5.1 Regulatory Filings and Regulatory Approvals. Bayer will prepare, file and own all right, title and interest in Regulatory Filings and Regulatory Approvals relating to Licensed Product in each country in the Bayer Territory. Nuvelo will prepare, file and own all right, title and interest in Regulatory Filings and Regulatory Approvals relating to Licensed Product in the Nuvelo Territory.

5.2 Country Specific Trials. Bayer will be the sponsor of record for each Country Specific Trial in the Bayer Territory and Nuvelo will be the sponsor of record for each Country Specific Trial in the Nuvelo Territory, and each such Party will have the right and obligation to monitor, review and direct all aspects of regulatory matters regarding Licensed Product for each such Country Specific Trial, including making all strategic and tactical decisions with respect thereto and establishing the methods and means by which it performs such services, including the management of permitted subcontractors. Bayer will have responsibility for all official correspondence, communications and Regulatory Filings with Regulatory Authorities regarding Country Specific Trials in the Bayer Territory and Nuvelo will have responsibility for all official correspondence, communications and Regulatory Filings with Regulatory Authorities regarding Country Specific Trials in the Nuvelo Territory. Each Party will promptly provide the other Party with copies of all Regulatory Filings, Regulatory Approvals and all official correspondence with Regulatory Authorities in the United States, Major Countries, Canada and Japan. Bayer will also promptly provide Nuvelo with copies of all Regulatory Filings, Regulatory Approvals and all official correspondence with Regulatory Authorities addressing matters of material importance to the Development or Commercialization of Licensed Product in every other country in the Bayer Territory. Bayer will not transfer title in or otherwise attempt in any manner to dispose of any Regulatory Filings or Regulatory Approvals or other governmental licenses, approvals or certificates for Licensed Product in the Bayer Territory, or otherwise impair Nuvelo’s rights in the Regulatory Filings or Regulatory Approvals, or other governmental licenses, approvals or certificates.

[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

5.3 Transfer of Regulatory Filings. Promptly after the Effective Date, Nuvelo will transfer to Bayer ownership of all Regulatory Filings and Regulatory Approvals in the Bayer Territory for Licensed Product that are Controlled by Nuvelo as of the Effective Date.

5.4 Drug Approval Applications in the Bayer Territory. Bayer will have full responsibility for filing all Drug Approval Applications and seeking Regulatory Approvals for Licensed Product in all countries in the Bayer Territory. Bayer will provide Nuvelo with a reasonable opportunity to review and comment on all such applications prior to submission.

5.5 Adverse Event Reporting; Customer Complaints. Consistent with the terms of the Pharmacovigilance Agreement (defined in Section 5.6):

(a) Bayer will maintain a record of all non-medical and medical product-related complaints and reports of adverse events that it receives with respect to Licensed Product in the Bayer Territory. Bayer will notify Nuvelo of any safety-related complaint received by it and, within seven (7) days (but, in the event of serious adverse events, three (3) days) of the initial receipt, provide Nuvelo with a copy of such safety-related complaint(s) and adverse event reports.

(b) Bayer will be responsible for reporting to Regulatory Authorities in all countries in the Bayer Territory any adverse experience and safety issues for Licensed Product in compliance with Bayer Territory Drug Laws. Bayer will promptly provide Nuvelo with a copy of such report.

(c) Nuvelo will maintain a record of all non-medical and medical product-related complaints and reports of adverse events that it receives with respect to Licensed Product in the United States. Nuvelo will notify Bayer of any safety-related complaint received by it and, within seven (7) days (but, in the event of serious adverse events, three (3) days) of the initial receipt, provide Bayer with a copy of such safety-related complaint(s) and adverse event reports.

(d) Nuvelo will be responsible for reporting to Regulatory Authorities in the United States any adverse experience and safety issues for Licensed Product in compliance with US Drug Laws. Nuvelo will promptly provide Bayer with a copy of such report.

5.6 Drug Safety Information. Notwithstanding anything to the contrary in this Agreement, the Parties shall execute a pharmacovigilance agreement (“Pharmacovigilance Agreement”) within ninety (90) days after the Effective Date. Unless otherwise agreed by the Parties, Nuvelo shall have the sole right to create and maintain a master drug safety database that shall cross-reference any Adverse Event (as such term shall be defined in the Pharmacovigilance Agreement) relating to Licensed Product occurring anywhere in the Territory. Nuvelo shall be the sole owner of this master drug safety database and Clinical Trial registry. Bayer shall submit to Nuvelo all data collected by it with respect to Adverse Events relating to Licensed Product in accordance with the timelines set forth in the Pharmacovigilance Agreement.

5.7 Regulatory Communications in the Bayer Territory.

(a) Bayer will have exclusive responsibility for all correspondence and for any official communication (except as Nuvelo may be required by applicable laws or regulations or a

Regulatory Authority to communicate) regarding Development of Licensed Product in the Bayer Territory with applicable Regulatory Authorities in the Bayer Territory. Nuvelo will have the right to be present (and to participate at the request of the Regulatory Authority) at all teleconference, videoconference, or face-to-face meetings scheduled with Regulatory Authorities in the Bayer Territory. To the extent practicable, Bayer will give Nuvelo at least ten (10) business days’ advance notice of any planned communication for Nuvelo’s planning purposes.

(b) Nuvelo, or its designated Third Party(ies) responsible for manufacturing Licensed Product, will cooperate with Bayer regarding communications with Regulatory Authorities in the Bayer Territory directed to the manufacture of Licensed Product by Nuvelo or its Third Party(ies) for supply to Bayer; provided however, that Nuvelo’s obligation to provide Bayer or Regulatory Authorities with Nuvelo Material and Manufacturing Information is limited to the extent the information is reasonably required for Bayer to carry out its Development responsibilities as those responsibilities relate to Regulatory Filings or Regulatory Approval, or is required by law, rule, regulation or a Regulatory Authority having jurisdiction in the Bayer Territory, to have access. Bayer will only be entitled to use the Nuvelo Material and Manufacturing Information to the extent required by such law, rule, regulation or Regulatory Authority or to the extent required to carry out its Development activities. For so long as Nuvelo or its Third Party(ies) is supplying Bayer with Licensed Product hereunder, Nuvelo will have the right to be present at all meetings and to participate in telephone calls with all Regulatory Authorities in the Bayer Territory having jurisdiction in the Bayer Territory wherein the chemistry, manufacturing and control section (“CMC”) contained in any Regulatory Filing is to be discussed.

(c) Bayer will have exclusive responsibility for all correspondence and for any official communications (except as Nuvelo may be required by applicable laws or regulations or a Regulatory Authority to communicate) with Regulatory Authorities in the Bayer Territory (e.g., annual reports, filing of Promotional Materials) consistent with Bayer Territory Drug Laws.

(d) Bayer will promptly notify Nuvelo of and provide Nuvelo with a copy of any correspondence or other reports or complaints submitted to or received from any Regulatory Authority, or other Third Party claiming that any Promotional Materials are inconsistent with the product labeling or are otherwise in violation of any Bayer Territory Drug Laws.

5.8 Regulatory Communications in the United States.

(a) Nuvelo will have exclusive responsibility for all correspondence and for any official communication (except as Bayer may be required by applicable laws or regulations or a Regulatory Authority to communicate) regarding Development of Licensed Product in the Nuvelo Territory with applicable Regulatory Authorities in the Nuvelo Territory. Bayer will have the right to be present (and to participate at the request of the Regulatory Authority) at all teleconference, videoconference, or face-to-face meetings scheduled with Regulatory Authorities in the Nuvelo Territory. To the extent practicable, Nuvelo will give Bayer at least ten (10) business days’ advance notice of any planned communication for Bayer’s planning purposes.

(b) Nuvelo will have exclusive responsibility for all correspondence and for any official communications (except as Bayer may be required by applicable laws or regulations or a Regulatory Authority to communicate) with Regulatory Authorities in the United States (e.g., annual reports, filing of Promotional Materials) consistent with US Drug Laws.

(c) Nuvelo will promptly notify Bayer of and provide Bayer with a copy of any correspondence or other reports or complaints submitted to or received from any Regulatory Authority in the United States, or other Third Party claiming that any Promotional Materials are inconsistent with the product labeling or are otherwise in violation of any US Drug Laws.

5.9 Applications for Regulatory Exclusivity. The Parties recognize the commercial value of exclusivity rights to Licensed Product granted or provided for under regulatory laws of the countries in the Bayer Territory. To the extent permitted by law, Bayer will have the exclusive right to file for, request and maintain any regulatory exclusivity rights for Licensed Product in the Bayer Territory (including without limitation regulatory exclusivity rights based upon an orphan drug designation of Licensed Product) and to conduct and prosecute any proceedings or actions to enforce the regulatory exclusivity rights.

5.10 Recalls.

(a) The Parties will exchange their internal standard operating procedures, if any, as to Licensed Product Recalls (“SOPs”) reasonably promptly after the Effective Date and thereafter reasonably promptly after such SOPs are approved or modified. If either Party becomes aware of information about quantities of Licensed Product which may not conform to the specifications for the Licensed Product, or for which there are potential adulteration, misbranding and/or other issues regarding safety or effectiveness, or for which the Licensed Product itself is alleged or proven to be the subject of a Recall in any country in the Territory, it will promptly so notify the other Party. Either Party may take immediate action, with notice to the JDC, with respect to a Recall in such Party’s portion of the Territory when regulatory timeframes or public safety considerations so require. The JDC will meet (in person, by telephone or otherwise) to discuss other circumstances of a Recall in the Territory and to consider appropriate courses of action with respect such Recall, which courses of action will be consistent with the internal SOPs of Bayer or Nuvelo, as applicable. Each Party shall provide all pertinent records and such other assistance to the other Party as such other Party reasonably may request to assist in effecting any Recall. In addition, Each Party will maintain all records relating to the Recall for the period required by legal requirements, but for no less than three (3) years. Nuvelo shall bear the cost of recalls that are a result of any Licensed Product manufactured by Nuvelo that does not conform to the specifications in the Manufacturing Agreement (as defined in Section 7.1) at the time of delivery to Bayer.

(b) If Bayer elects not to conduct a Recall of Licensed Product in the Bayer Territory when, in the good faith opinion of Nuvelo, a Recall of the Licensed Product should be undertaken to address specific issues of Licensed Product safety due to manufacturing defect or Product design that have been identified by Nuvelo in writing to Bayer (“Safety Issues”), then Nuvelo shall have no obligation to defend or indemnify Bayer under Section 14.1 or 14.3 for any Product Liability Claims arising in connection with the Safety Issues, and Bayer will defend and indemnify Nuvelo under Section 14.2 for any such Product Liability Claims.

5.11 Manufacturing Documents. In order to help preserve the proprietary nature of Nuvelo’s manufacturing information (e.g., the CMC section contained in any Regulatory Filings), Nuvelo will have the right, to the extent permitted by Regulatory Authorities, to file a drug master file with a Regulatory Authority to make the information regarding such manufacturing information available directly to the Regulatory Authority; provided however, for all countries in the Bayer Territory, Bayer will have the right to access and reference the Regulatory Filing, including the CMC section and documentation, to the extent required by law, rule, regulation or a Regulatory Authority having jurisdiction in each country in the Bayer Territory. Bayer will only be entitled to use the manufacturing information to the extent reasonably required by local law, rule, regulation or Regulatory Authority and to carry out its Development responsibilities.

ARTICLE 6

COMMERCIALIZATION

6.1 Diligence. Throughout the term of this Agreement, Bayer will use Commercially Reasonable Efforts to Commercialize the Licensed Product throughout the Bayer Territory for all indications agreed upon by the JSC and Nuvelo will use Commercially Reasonable Efforts to Commercialize the Licensed Product throughout the United States for all indications agreed upon by the JSC for the benefit of both Bayer and Nuvelo. Without limiting the generality of the previous sentence, Bayer will endeavor to commence selling Licensed Product within[    *    ][    *    ] [    *    ] of obtaining Regulatory Approval in each country in the Bayer Territory in which it files a Drug Approval Application. In addition, in Commercializing Licensed Product in Major Countries, Japan and Canada, Bayer will apply Field Force resources comparable to or greater than those applied by Bayer in those countries for its own specialty pharmaceutical products on an indication-by-indication basis.

6.2 Joint Commercial Committee. Within ten (10) days of the Effective Date, the Parties will establish a Joint Commercial Committee (the “JCC”) comprised of at least three (3) members representing each Party, all of whom shall have appropriate expertise and seniority to enable them to make decisions on behalf of the Parties with respect to the issues falling within the jurisdiction of the JCC. The JCC will follow the organizational and meeting procedures set forth in Section 6.4.

6.3 JCC Responsibilities. The JCC will be responsible for reviewing and developing a plan for the overall worldwide strategy for the Commercialization of Licensed Product, including, without limitation, the following functions:

(a) recommending to the JSC whether a single brand will be used for Commercialization of Licensed Product for one or more indications throughout the United States, Major Countries, Japan, and Canada (“Global Brand”). If the JCC agrees that a Global Brand(s) for the Licensed Product is desirable, the JCC will diligently outline and implement a process to define the architecture of the Global Brand(s). If there is agreement on that process and architecture, the JCC will proceed to develop the Global Brand. If the JCC does not agree on a Global Brand(s) or the associated process or architecture and such disagreement is not resolved in accordance with Section 3.6 or Section 3.7, each Party will use a separate brand for the Commercialization of Licensed Product;

[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

(b) reviewing and recommending to the JSC strategic launch plans for Commercialization of each indication of Licensed Product in the Territory and country specific plans for the United States, Major Countries, Japan and Canada, including size and composition of the Bayer Field Force in each of those countries (other than the United States) as well as marketing plans, advertising campaigns, and other efforts to launch the Licensed Product;

(c) if a Global Brand is pursued, then ensuring that country specific launch plans in the Territory are consistent with (a), above;

(d) reviewing and recommending to the JSC forecasts for commercial supply of Licensed Product in the Bayer Territory;

(e) recommending to the JSC a recommended annual minimum budget and three-year projection for Bayer’s Commercialization activities under this Article 6 for each year that this Agreement in force;

(f) to the extent permissible by law, recommending to the JSC suggested pricing bands;

(g) together with the JDC, recommending to the JSC Phase 4 Clinical Trials and target product profiles for Licensed Product, including acute peripheral arterial occlusion, catheter occlusion, stroke, deep vein thrombosis, and other indications for Licensed Product as they are identified as potential indications for which the Parties intend to Develop Licensed Product; and

(h) performing such other functions as appropriate to further Commercialization of Licensed Product in the Territory.

6.4 Decision Making; Administrative Matters.

(a) The JCC will operate by consensus. The representatives from each Party will have collectively one vote on behalf of that Party. If the members of the JCC cannot reach consensus on a matter, the matter will be referred to the JSC for resolution as provided in Section 3.6, and a special meeting of the JSC may be called for such purpose.

(b) The JCC will establish its own procedural rules for its operation, consistent with the terms of this Article 6. The chairperson for each meeting of the JCC will be a representative of the Party hosting that meeting. The chairperson of each JCC meeting will alternate between the Parties. The chairperson will be responsible for calling regular meetings of the JCC and for leading the meetings. The regular meetings will be held at least once per calendar quarter either by phone, videoconference or in person. A JCC member of the Party hosting the JCC meeting will serve as secretary of that meeting. Within ten (10) business days following each meeting, the secretary of the meeting will prepare and distribute to all members of the JCC the written minutes of the meeting. The minutes will provide a reasonably detailed description of the meeting discussions and a list of any actions, decisions or determinations approved by the JCC. The minutes of each JCC meeting will be approved or disapproved by each member within ten (10) business days of receipt, and revised as necessary, at the next meeting. Final minutes of each meeting will be distributed to the members of the JCC by the chairperson prior to commencement of the next meeting. Each Party shall bear its own costs associated with its participation on the JCC, including all travel and living expenses.

(c) If a Party’s representative is unable to attend a meeting, that Party may designate an alternate representative with decision making authority for that Party to attend the meeting. Any decision made by that attendee will be considered to be a decision made by the absent representative. In addition, each Party may, at its discretion (and with the consent of the other Party), invite additional employees, consultants or scientific advisors to attend any JCC meetings. A quorum for each JCC meeting will consist of at least two (2) members from each Party.

6.5 Exchange of Information. Bayer will use reasonable efforts to provide Nuvelo with full access to Bayer information relating to the Commercialization of the Licensed Product in the Bayer Territory, including without limitation information relating to the development of sales targets by customer segment and territory, key market metrics (e.g. awareness, usage, therapy change), market research, sales forecasting and modeling, sales, prescription and patient data, reimbursement, and Field Force plans, goals, incentives and training. Nuvelo will use reasonable efforts to provide Bayer with access to the following information of Nuvelo relating to the Commercialization of the Product in the United States: key market metrics, market research, prescription and patient data, and sales goals.

6.6 Pricing and Reimbursement. Each Party and its Sublicensees will have sole authority for determining and establishing the price of Licensed Product for each country in such Party’s portion of the Territory; provided that pricing shall optimize the economic value of the Licensed Product in such Territory. Each Party will provide the other Party with drafts of all submissions relating to pricing and reimbursement approvals in, with respect to Nuvelo, the United States, and, with respect to Bayer, the Major Countries, Canada and Japan for the other Party’s review and comment, which comments shall be considered in good faith prior to the submission. Each Party will also provide the other Party with copies of any material documents or other material correspondence pertaining to pricing and reimbursement approvals in, with respect to Nuvelo, the United States and, with respect to Bayer, the Major Countries, Canada and Japan.

6.7 Medical and Other Inquiries. Each Party will have responsibility for all correspondence and communication with physicians and other health care professionals and customers in such Party’s portion of the Territory regarding product complaints (e.g., quality) and all adverse drug experience information and all other correspondence and communication with physicians and other health care professionals and customers in such Party’s portion of the Territory. Each Party will keep such records and make such reports as will be reasonably necessary to document such communications in compliance with all applicable regulatory requirements. Upon request, each Party will make all information under this Section 6.7 available to the other Party for inspection.

6.8 Promotional Materials.

(a) Bayer will be responsible, consistent with the guidelines agreed upon by the JSC, for the creation, preparation, production and reproduction of all Promotional Materials and

for filing, as appropriate, all Promotional Materials with all Regulatory Authorities in the Bayer Territory. Upon request, Nuvelo will have the right to review and comment on all major Promotional Materials for use in a Major Country, Canada or Japan prior to their distribution by Bayer for use in such Major Country, Canada or Japan, as applicable. Nuvelo will be responsible, consistent with the guidelines agreed upon by the JSC, for the creation, preparation, production and reproduction of all Promotional Materials and for filing, as appropriate, all Promotional Materials with all Regulatory Authorities in the Nuvelo Territory. Upon request, Bayer will have the right to review and comment on all major Promotional Materials prior to their distribution by Nuvelo.

(b) Each Party shall use its own corporate name and/or logo on Promotional Materials and Licensed Product labels in connection with Commercialization of Licensed Product in such Party’s portion of the Territory, unless otherwise mutually agreed by the Parties.

(c) In order to maintain the value of each Party’s Product Trademarks and each Party’s corporate name and logo, when using the other Party’s Product Trademarks, corporate name or logo, each Party will maintain the reasonable quality standards as it maintains for its own corporate name and/or logo and will comply with the other Party’s then-current policies regarding use of its Product Trademarks, corporate name and logo. Prior to a Party’s use thereof in the United States, a Major Country, Canada or Japan, such Party will provide to the other Party a prototype of any Promotional Materials or product labeling for use in the United States, a Major Country, Canada or Japan which contains the other Party’s Product Trademarks, corporate name or logo, so that the other Party may review the manner in which they are used therein. Within ten (10) business days after delivery of such prototype, the other Party will notify such Party whether the other Party approves or disapproves of the manner of use and, in the case of disapproval, the specific reasons therefor and an acceptable alternative. All Promotional Materials used in the Bayer Territory will state that Licensed Product is sold under license from Nuvelo.

6.9 Compliance with Laws, Regulations and Guidelines. Bayer agrees to comply with all Bayer Territory Drug Laws and in all material respects to conform its practices and procedures with, as applicable, the European Federation of Pharmaceutical Industries Associations and the equivalent thereof in each country in the Bayer Territory, as the same may be amended from time to time, with respect to the Commercialization of Licensed Product in the Bayer Territory. Nuvelo agrees to comply with all US Drug Laws and in all material respects to conform its practices and procedures with applicable industry guidelines and codes with respect to Commercialization of Licensed Product in the Nuvelo Territory, including without limitation the PhRMA Code on Interactions with Healthcare Professionals. Each Party will conduct its business operations and cause each of its employees, representatives and agents to refrain from activities that such Party knows or reasonably should know would undermine the good will or reputation of the other Party or the Licensed Product. Neither Party will undertake any activity relating to the Commercialization of Licensed Product that it believes, in good faith, may violate any law or regulations. Each Party will promptly notify the other Party of and provide to the other Party a copy of any correspondence or other reports with respect to the Commercialization of Licensed Product submitted to or received by Bayer from the IFPMA or equivalent organizations in the Bayer Territory. Bayer will in all material respects conform its practices and procedures relating to educating the medical community in the Bayer Territory with respect to

Licensed Product to any applicable EMEA regulations or guidelines, as the same may be amended from time to time, and, as applicable, equivalent guidelines throughout the Bayer Territory.

6.10 Reports/Audits.

(a) Beginning on the calendar quarter in which Regulatory Authorities grant Regulatory Approval for the Licensed Product in each Major Country, Canada or Japan, Bayer will provide Nuvelo with quarterly reports of the activity within its Field Force in each such country, which will include reasonable data from reports created by Bayer for its internal management purposes. Beginning on the calendar quarter in which the Regulatory Authority grants Regulatory Approval for the Licensed Product in the Nuvelo Territory, Nuvelo will provide Bayer with quarterly reports of the activity within its Field Force in the United States, which will include reasonable data from reports created by Nuvelo for its internal management purposes.

(b) Beginning on the calendar quarter in which Regulatory Authorities grant Regulatory Approval for the Licensed Product in the Bayer Territory, Nuvelo will have the right to audit and review, no more than once in each calendar year, the total money spent that year on pre- and post-launch activities for Licensed Product, and the Field Force allocation and efforts on pre- and post-launch efforts of Licensed Product. Nuvelo shall conduct such audits upon reasonable notice to Bayer and during normal business hours.

ARTICLE 7

MANUFACTURE AND SUPPLY

7.1 Supply of Licensed Product. Nuvelo shall supply, free of charge, all of Bayer’s requirements for clinical supplies of Licensed Product for Global Development Programs, the manufacturing costs of which shall be included in Development Expenses. In addition, the Parties will use diligent efforts to negotiate and complete a manufacturing, supply and quality agreement within six (6) months after the Effective Date, pursuant to which Nuvelo will supply Bayer with, and Bayer will purchase from Nuvelo, all of Bayer’s requirements for Licensed Product for use in Country Specific Trials in the Bayer Territory and commercial sales of Licensed Product in the Bayer Territory (the “Manufacturing Agreement”). Among other items, the Manufacturing Agreement will provide the following:

(a) Subject to Section 7.2, Nuvelo will supply Bayer with unlabeled Licensed Product FOB the manufacturing facility of Nuvelo or its contract manufacturer in sufficient quantities for Bayer’s use in connection with the Development and Commercialization of Licensed Product in the Bayer Territory.

(b) Subject to Section 7.1(c), Nuvelo will have the right to make all decisions with respect to manufacturing in its sole discretion, including without limitation, decisions relating to process development and manufacturing procedures, work to support quality assurance, improving manufacturing/cost efficiency and commercial scale-up manufacturing, provided that Nuvelo will manufacture or have the Licensed Product manufactured in conformity with all applicable laws and regulations in the Major Countries and will use Commercially

Reasonable Efforts to manufacture or have manufactured the Licensed Product in conformity with all applicable laws and regulations in all other countries in the Bayer Territory and in conformity with all Licensed Product specifications set forth in the Manufacturing Agreement. Nuvelo shall timely notify Bayer of any manufacturing change that may have an impact on Bayer’s ability to timely receive Regulatory Approval or jeopardize current status of the Licensed Product in the Bayer Territory and in connection with any such change Nuvelo shall supply any information or documents or support any actions required to facilitate Bayer’s commercialization efforts.

(c) Unless otherwise agreed by the Parties, Bayer will have final decision making authority to fulfill all regulatory responsibilities over all subsequent steps of the manufacturing process for Licensed Product in the Bayer Territory (including finish and fill, labeling and packaging, lot release and management of subcontractors).

(d) In cases of shortages of Licensed Product, available supplies will be allocated, as between the Parties pro rata based on their forecasted requirements for Licensed Product over the relevant period.

(e) Nuvelo will agree to manufacture or have Licensed Product manufactured in accordance with applicable GMP requirements in the United States and the Major Countries, and will provide reasonable warranties regarding its transfer of title to Licensed Product to Bayer and the compliance of Licensed Product with applicable specifications, subject to customary limitations of liability. If Bayer notifies Nuvelo in writing of additional or different GMP requirements in other countries in the Bayer Territory, Nuvelo and Bayer will use reasonable efforts to identify a mechanism to address any such country-specific requirements, including any financial consequences thereof and Nuvelo will use Commercially Reasonable Efforts to manufacture or have Licensed Product manufactured in accordance with such requirements.

(f) If (i) Nuvelo supplies Bayer with materially reduced quantities of its requirements for Licensed Product, as compared with amounts forecast and ordered by Bayer, on time frames established in the Manufacturing Agreement, for a period of twelve (12) consecutive months, (ii) the Licensed Product is subject to a Recall in the Bayer Territory, the cause of which is attributed to the manufacturing process, or (iii) a Regulatory Authority notifies Nuvelo or Bayer in writing that the manufacturing process does not comply with applicable laws, rules or regulations in the Bayer Territory, and Nuvelo is unable to cure such noncompliance within a twelve (12) month period to the satisfaction of the applicable Regulatory Authority, then Nuvelo will grant to Bayer a nonexclusive license to manufacture or have manufactured Licensed Product in the Bayer Territory solely to meet the requirements of Bayer and its Sublicensees for Development and Commercialization of Licensed Product in the Bayer Territory. If Bayer selects a contract manufacturer to manufacture Licensed Product, Nuvelo will have the right to approve the contract manufacturer, such approval not to be unreasonably withheld. Nuvelo will use Commercially Reasonable Efforts to support the transfer of manufacturing information to the approved manufacturer of Licensed Product under this Section 7.1(e), including, without limitation, transfer of the then-current manufacturing technology with respect to Licensed Product.

(g) Bayer shall supply the Canadian and Mexican markets with Licensed Product in quantities that are appropriate to the size of each such market (not including cross-border sales).

(h) The Manufacturing Agreement will also set forth all other terms and conditions applicable to the manufacture, distribution, forecast, supply and the like of Licensed Product for Development and Commercialization in the Bayer Territory.

7.2 Transfer Price. Pursuant to the Manufacturing Agreement described in Section 7.1, Nuvelo will sell Licensed Product to Bayer at a price equal to Nuvelo’s direct cost for Licensed Product plus [    *    ] percent [    *    ]%). The Parties agree that such transfer price shall not be included in Development Expenses.

ARTICLE 8

CONSIDERATION

8.1 Upfront Payment. Within five (5) business days of the Effective Date, Bayer will pay to Nuvelo the non-refundable, non-creditable amount of Fifty Million Dollars ($50,000,000.00).

8.2 Milestones.

(a) Within thirty (30) days following the first achievement or occurrence with the Licensed Product of each of the following milestone events (“Regulatory Milestone Event(s)”) by performance of Bayer or an Affiliate or Sublicensee of Bayer, Bayer will pay to Nuvelo the corresponding one-time, non-creditable, non-refundable milestone payments (“Regulatory Milestone Payment(s)”) set forth herein:

Regulatory Milestone Event		Regulatory Milestone Payment
(i)	Upon the first filing of a Drug Approval Application for Licensed Product in a Major Country or EMEA for any indication	[    *    ]Dollars ($[    *    ])
(ii)	Upon (a) the first Regulatory Approval (including price approval) for Licensed Product in a Major Country or (b) [    *    ] after the first Regulatory Approval (excluding price approval) by EMEA for Licensed Product, whichever of (a) or (b) comes first, for any indication other than a stroke or deep vein thrombosis indication	[    *    ]Dollars ($[    *    ])
(iii)	Upon the first filing of a Drug Approval Application for Licensed Product in Canada for any indication	[    *    ]Dollars ($[    *    ])

[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

Regulatory Milestone Event		Regulatory Milestone Payment
(iv)	Upon (a) the first Regulatory Approval (including price approval) for Licensed Product in Canada or (b) [    *    ] after the first Regulatory Approval (excluding price approval) for Licensed Product in Canada, whichever of (a) or (b) comes first, for any indication other than a stroke or deep vein thrombosis indication	Ten Million Dollars ($10,000,000.00)
(v)	Upon the first Regulatory Filing for Licensed Product in Japan for any indication	[    *    ]Dollars ($[    *    ])
(vi)	Upon (a) the first Regulatory Approval (including price approval) for Licensed Product in Japan or (b) [    *    ] after the first Regulatory Approval for Licensed Product in Japan, whichever of (a) or (b) comes first, for any indication other than a stroke or deep vein thrombosis indication	[    *    ]Dollars ($[    *    ])
(vii)	Upon the Initiation of a Global Development Program for Licensed Product that is a Phase 2 Clinical Trial in a stroke indication	[    *    ]Dollars ($[    *    ])
(viii)	Upon Initiation of a Global Development Program for Licensed Product that is a Phase 3 Clinical Trial in a stroke indication	[    *    ]Dollars ($[    *    ])
(ix)	Upon (a) Regulatory Approval (including price approval) for Licensed Product in a Major Country, Canada or Japan, or (b) [    *    ] after Regulatory Approval (excluding price approval) in a Major Country, Canada or Japan, whichever of (a) or (b) comes first, for a stroke indication	[    *    ]Dollars ($[    *    ])
(x)	Upon Initiation of a Global Development Program for Licensed Product that is a Phase 3 Clinical Trial in the deep vein thrombosis indication	[    *    ]Dollars ($[    *    ])
(xi)	Upon (a) Regulatory Approval (including price approval) for Licensed Product in a Major Country, Canada or Japan or (b) [    *    ] after Regulatory Approval (excluding price approval) for Licensed Product in a Major Country, Canada or Japan, whichever of (a) or (b) comes first, for the deep vein thrombosis indication	[    *    ]Dollars ($[    *    ])

[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

(b) Within thirty (30) days following the achievement or occurrence of each of the following milestone events (“Sales Milestone Event(s)”) by performance of Bayer or an Affiliate or Sublicensee of Bayer, Bayer will pay to Nuvelo the corresponding one-time, non-creditable, non-refundable milestone payments (“Sales Milestone Payment(s)”) set forth herein:

Sales Milestone Event		Sales Milestone Payment
(i)	First calendar year in which Net Sales in the Bayer Territory in such year equal or exceed [    *    ] Dollars	[    *    ]Dollars ($[    *    ])
(ii)	First calendar year in which Net Sales in the Bayer Territory in such year equal or exceed [    *    ] Dollars	[    *    ]Dollars ($[    *    ])
(xiii)	First calendar year in which Net Sales in the Bayer Territory in such year equal or exceed [    *    ] Dollars	[    *    ]Dollars ($[    *    ])
(xiv)	First calendar year in which Net Sales in the Bayer Territory in such year equal or exceed [    *    ] Dollars	[    *    ]Dollars ($[    *    ])

(c) Each of the Royalty Milestone Payments and Sales Milestone Payments (each a “Milestone Payment”) shall be paid only once upon achievement of each corresponding Royalty Milestone Event and Sales Milestone Event; provided, however, that Bayer shall make only one Sales Milestone Payment per year. If two Sales Milestone Payments would have been payable in a single year under Section 8.2(b) except for the previous sentence, then Nuvelo will be entitled to the larger of those Sales Milestone Payments in that year, and will be entitled to receive the smaller of those Sales Milestone Payments in a subsequent year if Net Sales reach the required amount for such smaller Sales Milestone Payment. For purposes of clarification, each Milestone Payment is in addition to any other Milestone Payment set forth above and each Milestone Payment will be nonrefundable and noncreditable against Royalties payable pursuant to Section 8.3 and any other fees, other Milestone Payments or other payments due Nuvelo with respect to Licensed Product(s) under this Agreement or under the Manufacturing Agreement described in Article 7.

[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

8.3 Royalties. Subject to Sections 4.7, 8.4 and 8.5, Bayer will pay to Nuvelo a Royalty, based on the following Royalty rates, for annual Net Sales of Licensed Product by Bayer, its Affiliates, or its Sublicensees in the Bayer Territory:

(a) a Royalty rate of fifteen percent (15.0%) of that portion of annual Net Sales in the Bayer Territory of Licensed Product that is less than or equal to [    *    ] Dollars ($[    *    ]);

(b) a Royalty rate of [    *    ] percent ([*]%) of that portion of annual Net Sales in the Bayer Territory of Licensed Product that is greater than [    *    ] Dollars ($[    *    ]) and less than or equal to [    *    ] Dollars ($[    *    ]);

(c) a Royalty rate of [    *    ] percent ([*]%) of that portion of annual Net Sales in the Bayer Territory of Licensed Product that is greater than [    *    ] Dollars ($[    *    ]) and less than or equal to [    *    ] Dollars ($[    *    ]);

(d) a Royalty rate of [    *    ] percent ([*]%) of that portion of annual Net Sales in the Bayer Territory of Licensed Product that is greater than [    *    ] Dollars ($[    *    ]) and less than or equal to [    *    ] and

(e) a Royalty rate of thirty seven and a half percent (37.5%) of that portion of annual Net Sales in the Bayer Territory of Licensed Product that is greater than [    *    ] Dollars ($[    *    ]).

8.4 Third Party Royalty Reduction. Nuvelo will be responsible for paying any and all amounts due to Amgen, Inc. under the Amgen-Nuvelo Agreement. Bayer will be responsible for obtaining any other licenses, and for making any Third Party Payments thereunder, or making any then-due Third Party Payments to Nuvelo (for forwarding to the licensing Third Party) under any license granted by Nuvelo hereunder, for rights to any Third Party intellectual property required to develop, use, sell, lease, offer to sell or lease, have sold, import, export or otherwise exploit, or transfer physical possession of or title in, Licensed Product in one or more countries in the Bayer Territory. If Bayer is required to pay Third Party royalties for any license (other than royalties payable by Nuvelo to Amgen, Inc.), ([    *    ] percent [    *    ]%) of such Third Party royalties which are payable by Bayer will be creditable by Bayer against any Royalties due to Nuvelo under Section 8.3 above for the Net Sales of Licensed Product in that country, but Bayer’s Royalty rate set forth in Section 8.3 in any given year will not be reduced in excess of [    *    ] percent [    *    ]% (e.g., [    *    ]%, [    *    ]%, [    *    ]%, [    *    ]% and [    *    ]% respectively) as a consequence of any royalties being creditable against the Royalties to be paid to Nuvelo by Bayer hereunder Bayer will have sole discretion, authority and right with respect to determining whether to enter into an agreement for a license or other rights and to incur an obligation for any Third Party Payments.

8.5 Term of Royalties. Nuvelo’s right to receive Royalties under Section 8.3 will expire, on a country-by-country basis, upon the later of: (a)[    *    ]([    *    ]) years after the date of First Commercial Sale of Licensed Product in that country; or (b) the earlier of (i) the date of expiration of regulatory exclusivity for the Licensed Product as described in Section 5.8 in that country; or (ii) the date of expiration of the last-to-expire of the Nuvelo Patent Rights and Joint

[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

Patent Rights containing an issued Valid Claim that, but for the license granted by Nuvelo to Bayer hereunder, would be directly or contributorily infringed by the use or sale by Bayer, its Affiliates and permitted Sublicensees of such Licensed Product in that country. Where the Joint Patent Rights described in subparagraph (b)(ii) subsist after expiration of the Nuvelo Patent Rights, then upon expiration of the Nuvelo Patent Rights, the Royalties payable pursuant to this Article 8 will be further reduced by [    *    ] percent ([    *    ]%) of the amount payable immediately before expiry of the Nuvelo Patent Rights, and will continue to be payable by Bayer.

ARTICLE 9

INTELLECTUAL PROPERTY

9.1 Technology Ownership. Ownership of inventions made during the Term will be determined in accordance with the rules of inventorship under United States patent laws. Subject to the licenses granted in Section 2.1, as between the Parties, Nuvelo owns or Controls all right, title and interest in and to Nuvelo Know-How and Nuvelo Patent Rights, and any Confidential Information contained therein is Confidential Information of Nuvelo. As between the Parties, all right and interest in and to Joint Know-How (which will be considered the joint Confidential Information of the Parties) and Joint Patent Rights is owned jointly by Bayer and Nuvelo, and is subject to the license granted by Nuvelo to Bayer in Section 2.1 and the license granted by Bayer to Nuvelo in Section 2.3.

9.2 Prosecution.

(a) At its own cost and expense, Bayer will be responsible (using mutually acceptable outside counsel) for the filing, prosecution, defense and maintenance of the Nuvelo Patent Rights listed in Exhibit C hereto (the “Existing Nuvelo Patent Rights”) before all patent authorities in the Bayer Territory. Nuvelo has the right to review and comment on the filing, prosecution and defense of the Existing Nuvelo Patent Rights and if outside counsel concludes that taking any specific action(s) may likely have an adverse effect on the scope or validity of any Existing Nuvelo Patent Rights, then Bayer will not take the specific action(s) without the prior, express written consent of Nuvelo and, if Nuvelo does not give its consent to the action, Bayer will propose an alternative strategy for Nuvelo’s consideration. To that end, Bayer will instruct outside counsel to furnish Nuvelo with a reasonably complete draft of each potential submission to a patent authority in the Bayer Territory regarding the Existing Nuvelo Patent Rights no later than thirty (30) days (or if given less than thirty (30) days to respond as soon as practicable) prior to the date such submission is proposed to be made, and will reasonably consider any of Nuvelo’s timely comments thereon. Additionally, Bayer will instruct outside counsel to provide Nuvelo with a copy of each submission made to and document received from a patent authority in the Bayer Territory regarding any Existing Nuvelo Patent Rights reasonably promptly after making such filing or receiving each document. If Bayer decides not to file, prosecute, defend or maintain any claim or patent application or patent within the Existing Nuvelo Patent Rights in any country in the Bayer Territory, then Bayer will provide Nuvelo with thirty (30) days prior written notice of the decision, and Nuvelo will have the right to file, prosecute and maintain the claim or patent application or patent on behalf of Nuvelo (at Nuvelo’s sole cost and expense).

[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

(b) At its own cost and expense, Bayer will be responsible (using mutually acceptable outside counsel) for the filing, prosecution, defense and maintenance of Joint Patent Rights before all patent authorities in the Bayer Territory. Nuvelo will have the right to review and comment on the filing, prosecution and defense of the Joint Patent Rights by Bayer and if outside counsel concludes that taking any specific action(s) may likely have an adverse effect on the scope or validity of any Joint Patent Rights, then Bayer will not take the specific action(s) without the prior express written consent of Nuvelo and, if Nuvelo does not give its consent to such action, Bayer will propose an alternative strategy for Nuvelo’s consideration. To that end, Bayer will instruct outside counsel to furnish Nuvelo with a reasonably complete draft of each potential submission to a patent authority regarding Joint Patent Rights no later than thirty (30) days (or if given less than thirty (30) days to respond, as soon as practicable) prior to the date the submission is proposed to be made, and will reasonably consider any of Nuvelo’s timely comments thereon. Additionally, Bayer will instruct such outside counsel to provide Nuvelo with a copy of each submission made to and document received from a patent authority in the Bayer Territory regarding any Joint Patent Rights reasonably promptly after making the filing or receiving such document. If Bayer decides to not file, prosecute, defend or maintain or any claim or patent application or patent within Joint Patent Rights in any country in the Bayer Territory, then Bayer will provide Nuvelo with thirty (30) days prior written notice of the decision. Nuvelo will have the right and opportunity to file, prosecute, defend and maintain the claim or patent application or patent (at Nuvelo’s sole cost and expense), and Bayer will assign its complete interest in the claim or patent application or patent to Nuvelo.

(c) Nuvelo and Bayer will each provide to the other any invention disclosures submitted to its respective outside or in-house patent counsel in the normal course of its business that disclose an invention within Nuvelo Know-How and Joint Know-How, respectively. Nuvelo and Bayer will cooperate with each other and render all reasonable assistance in prosecuting and maintaining all intellectual property licensed to Bayer under this Agreement. Both Parties will meet regularly, either in person or by telephone or videoconference, but not less than on a quarterly basis, to discuss the prosecution (and other related proceedings, such as interferences and oppositions) of all intellectual property licensed to Bayer under this Agreement. Nuvelo and Bayer will cooperate with each other in these matters, and will sign any necessary legal papers and provide the Party responsible for prosecution with data or other information in support thereof (and use their best efforts to ensure the cooperation of any of their respective personnel and, in the case of Bayer, it’s Affiliates and licensee(s) as might reasonably be requested).

(d) At its own cost and expense, Bayer will be responsible (using mutually acceptable outside counsel) for the filing, prosecution, defense and maintenance of the Product Trademarks before all trademark authorities in the Bayer Territory. For the Product Trademarks solely or jointly owned by Nuvelo, Nuvelo will have the right to review and comment on the filing, prosecution and defense of the Product Trademarks by Bayer and if outside counsel mutually acceptable to Bayer and Nuvelo concludes that taking any specific action(s) may likely have an adverse effect on the scope or validity of any Product Trademarks, then Bayer will not take such specific action(s) without the prior express written consent of Nuvelo, and Bayer will propose an alternative strategy for Nuvelo’s consideration. To that end, Bayer will instruct outside counsel to furnish Nuvelo with a reasonably complete draft of each submission to a trademark authority regarding the Product Trademarks no later than thirty (30) days prior to the

date the submission is proposed to be made, or if given less than thirty (30) days to respond as soon as practicable, and Bayer will reasonably consider any of Nuvelo’s timely comments thereon. Additionally, Bayer will instruct outside counsel to provide Nuvelo with a copy of each submission made to or document received from a trademark authority regarding any Product Trademarks reasonably promptly after making the filing or receiving the document. If Bayer decides to not file, prosecute, defend or maintain a Product Trademark in any country, then Bayer will provide Nuvelo with thirty (30) days prior written notice of the decision. Nuvelo will have the opportunity to file, prosecute, defend and maintain the Product Trademark at its sole expense, and Bayer will assign its complete interest, if any, in the Product Trademark to Nuvelo.

9.3 Infringement of Patents and Trademarks by Third Parties.

(a) At its own expense, Bayer may, but will not be obligated to, elect to enforce Nuvelo Patent Rights against any actual, alleged or threatened infringement by Third Parties in the Bayer Territory and may also elect to defend the Nuvelo Patent Rights against any challenges in the Bayer Territory. If Bayer so elects to enforce Nuvelo Patent Rights against Third Party infringement which may in any way affect the rights conferred to Bayer pursuant to this Agreement to Develop, manufacture and Commercialize Licensed Product, Bayer will seek and take under advisement Nuvelo’s comments before determining the strategy and Nuvelo, at Bayer’s request and sole cost and expense, will reasonably assist and cooperate in any enforcement or defense. If Bayer finds it necessary or desirable to join Nuvelo as a party, Nuvelo will execute all papers or perform any other acts as may reasonably be required by Bayer, at the expense of Bayer. If Bayer does not commence an enforcement and/or defense action pursuant to this Section 9.3(a) within forty-five (45) days after Nuvelo notifies Bayer or is notified by Bayer in writing of an actual, alleged or threatened infringement by a Third Party of the Nuvelo Patent Rights in the Bayer Territory (or of the filing of a declaratory judgment action) which may in any way affect the rights conferred to Bayer pursuant to this Agreement to Develop, manufacture and Commercialize Licensed Product, Nuvelo will be entitled to bring and prosecute such an action at its own cost and expense. If Nuvelo elects to bring and prosecute such an action, then Nuvelo will seek and reasonably consider Bayer’s comments on strategy, and Bayer (at Nuvelo’s request and sole cost and expense) will reasonably assist and cooperate in any enforcement or defense. If Nuvelo finds it necessary or desirable to join Bayer as a party, Bayer will execute all papers or perform other acts as may be reasonably be required by Nuvelo, at Nuvelo’s expense.

(b) At its own cost and expense, Bayer may, but will not be obligated to, elect to enforce Joint Patent Rights against any actual, alleged or threatened infringement by Third Parties in the Bayer Territory and to defend the Joint Patent Rights against any challenges in the Bayer Territory. If Bayer so elects, Bayer will seek and reasonably consider Nuvelo’s comments before determining the strategy, and Nuvelo (at Bayer’s request and sole cost and expense) will reasonably assist and cooperate in any enforcement or defense. If Bayer finds it necessary or desirable to join Nuvelo as a party, Nuvelo will execute all papers or perform other acts as may reasonably be required by Bayer, at the expense of Bayer. In the event Bayer does not commence an enforcement and/or defense action pursuant to this Section 9.3(b) within forty-five (45) days after Nuvelo notifies Bayer or is notified by Bayer in writing of an actual, alleged or threatened infringement by a Third Party of the Joint Patent Rights in the Bayer Territory (or of the filing of a declaratory judgment action), Nuvelo will be entitled to bring and prosecute an

action at its own cost and expense. If Nuvelo elects to bring and prosecute an action, then Nuvelo will seek and reasonably consider Bayer’s comments on strategy, and Bayer (at Nuvelo’s request and sole cost and expense) will reasonably assist and cooperate in any enforcement or defense. If Nuvelo finds it necessary or desirable to join Bayer as a party, Bayer will execute all papers or perform other acts as may be reasonably be required by Nuvelo, at Nuvelo’s expense. Bayer will, at its own expense, be entitled to participate in and to have counsel selected by it participate in any action in which Bayer is a named party.

(c) At its own cost and expense, Bayer may, but will not be obligated to, elect to enforce the Product Trademarks against Third Parties in the Bayer Territory and to defend the Product Trademarks against any challenges in the Bayer Territory. Bayer will seek and reasonably consider Nuvelo’s comments before determining the strategy and Nuvelo, at Bayer’s request and sole cost and expense, will reasonably assist and cooperate in any enforcement or defense. If Bayer finds it necessary or desirable to join Nuvelo as a party, Nuvelo will execute all papers or perform other acts as may reasonably be required by Bayer, at the expense of Bayer. If Bayer does not commence an enforcement and/or defense action pursuant to this Section 9.3(c) within forty-five (45) days after Nuvelo notifies or is notified by Bayer in writing of an infringement of the Product Trademarks in the Bayer Territory (or of the filing of a declaratory judgment action, in the case of defense actions), Nuvelo will be entitled to bring and prosecute an action at its own cost and expense. If Nuvelo elects to bring and prosecute an action, then Nuvelo will seek and reasonably consider Bayer’s comments on strategy and Bayer, at Nuvelo’s request and sole cost and expense, will reasonably assist and cooperate in any such enforcement or defense. If Nuvelo finds it necessary or desirable to join Bayer as a party, Bayer will execute all papers or perform such other acts as may be reasonably be required by Nuvelo and at Nuvelo’s expense.

(d) Any recovery realized as a result of any infringement actions described in this Section 9.3 (after reimbursement of the Parties’ reasonable attorneys’ fees for outside counsel and litigation expenses) will be allocated in proportion to each Party’s respective profits realized from the Development and Commercialization of Licensed Product under this Agreement during the calendar year immediately preceding commencement of the infringement action.

(e) Neither Party will enter into any settlement of any action brought under this Section 9.3 that affects the other Party’s rights or interests without the other Party’s prior written consent.

(f) A Party bringing suit under this Section 9.3 will notify the other Party of all substantive developments with respect to such enforcement or defensive actions including, but not limited to, all material filings, court papers and other related documents, substantive settlement negotiations and offers of settlement.

(g) Each Party will promptly notify the other upon becoming aware of any Third Party infringement of the Nuvelo Patent Rights, Joint Patent Rights, Product Trademarks, Nuvelo Know-How or Joint Know-How.

9.4 Infringement of Third Party Rights.

(a) At its own cost and expense, Bayer will have the right to defend any action naming Bayer, but not Nuvelo, and claiming the infringement of (i) any Third Party Patent Rights or other intellectual property rights through the developing, making, having made, using, selling, offering to sell or having sold, importing, exporting or otherwise exploiting, or transferring possession of title or interest in, Licensed Product, or (ii) any Third Party Trademark through the Development, manufacturing or Commercialization of a Licensed Product. The Parties will confer with each other and cooperate during the defense of any action. At Bayer’s cost and expense, Nuvelo will assist and cooperate with Bayer in the defense of any such action. Subject to the foregoing, Nuvelo will, at its own expense, be entitled to participate in and to have counsel selected by it participate in any such action.

(b) At its own cost and expense, each Party will have the right to defend itself in any action naming both Parties and claiming the infringement of (i) any Third Party Patent Rights or other intellectual property rights through the developing, making, having made, using, selling, offering to sell or having sold, importing, exporting or otherwise exploiting, or transferring possession of title or interest in, Licensed Product, or (ii) any Third Party Trademark through the Development, manufacturing or Commercialization of a Licensed Product. The Parties will each have the right to select their own counsel, and will confer with each other and, to the extent their interests are the same, will cooperate during the defense of any such action. To the extent the Parties’ interests in the action diverge, each Party will have the right to represent itself, with its own counsel. Each Party will bear all of its own costs.

(c) Each Party will promptly notify the other upon becoming aware of any actual, alleged or threatened Third Party claim or action against Bayer and/or Nuvelo for infringement of any Third Party Trademark through the Development, manufacturing or Commercialization of Licensed Product, or any Third Party Patent Rights through the developing, making, having made, using, selling, offering to sell, and importing, exporting or otherwise transferring physical possession of or otherwise transferring title in and to Licensed Product in the Bayer Territory.

(d) Neither Party will enter into any settlement of any suit referenced under this Section 9.4 that affects the other Party’s rights or interests without the other Party’s prior written consent.

(e) A Party defending suit under this Section 9.4 will notify the other Party of all substantive developments with respect to enforcement or defensive actions including, but not limited to, all material filings, court papers and other related documents, substantive settlement negotiations and offers of settlement.

9.5 Employee Obligations. Prior to beginning work relating to any aspect of the subject matter of this Agreement and/or being given access to Nuvelo Know-How or Joint Know-How or the Confidential Information of the other Party, each employee, consultant or agent of Bayer or Nuvelo will have signed or will be required to sign a non-disclosure and invention assignment agreement pursuant to which each person will agree to comply with all of the obligations of Bayer or Nuvelo, as appropriate, substantially including: (a) promptly reporting any invention, discovery, process, software program or other intellectual property right,

as appropriate within Nuvelo Know-How or Joint Know-How; (b) assigning to Bayer or Nuvelo, as appropriate, all of his or her right, title and interest in and to any invention, discovery, process, software program or other intellectual property right; (c) cooperating in the preparation, filing, prosecution, maintenance and enforcement of any Patent Rights; (d) performing all acts and signing, executing, acknowledging and delivering any and all documents required for effecting the obligations and purposes of this Agreement; and (e) abiding by the obligations of confidentiality and non-use set forth in this Agreement. It is understood by the Parties that such employee obligations shall be subject to the requirements of German Employee Invention Act. It is understood and agreed that any non-disclosure and invention assignment agreement need not be specific to this Agreement.

9.6 Patent Marking. Licensed Product marketed and sold by Bayer will be marked with appropriate patent numbers or indicia of Nuvelo Patent Rights and/or Joint Patent Rights to the extent permitted by law in those countries of the Bayer Territory in which the markings have notice value as against infringers of patents.

ARTICLE 10

PAYMENTS; RECORDS; AUDIT

10.1 Payments.

(a) Payment Currency. All payments to be made under this Agreement will be made in U.S. Dollars by bank wire transfer in immediately available funds to a bank account designated by Nuvelo.

(b) Royalty Payments. All Royalties payable to Nuvelo under this Agreement will be paid within thirty (30) days of the end of each calendar quarter except as otherwise specifically provided herein. Each payment of Royalties owing to Nuvelo will be accompanied by a statement certified by an executive officer of Bayer as consistent with Bayer’s standard practices in performing such computations and in accordance with GAAP, (i) on a country-by-country basis, the amount of gross sales of Licensed Product by Bayer, its Affiliates and Sublicensees, and an itemized calculation of Net Sales of each Licensed Product during such calendar quarter by Bayer, its Affiliates and Sublicensees, (ii) the amount of aggregate worldwide gross sales of Licensed Product and Net Sales during such calendar quarter by Bayer, its Affiliates and Sublicensees and (iii) on a cumulative basis for the current year and the amount of Royalty due on Net Sales during such calendar quarter.

(c) Foreign Exchange Conversion. Royalties, and any other payments due under this Agreement that are calculated based on amounts received by Bayer in currencies other than Dollars will be converted into the Dollar equivalent, at the average rate of exchange for the Calendar quarter to which such payments relate, as reported in Bloomberg Professional, a service of Bloomberg L.P., or in the event The Bloomberg Professional is not available during the Royalty period of such Net Sales, then in The Wall Street Journal.

(d) Late Payments. Any amounts not paid by Bayer when due under this Agreement will be subject to interest from and including the date payment is due through and including the date upon which Bayer has made a wire transfer of immediately available funds

into an account designated by Nuvelo of such payment at a rate equal to the lesser of (i) the sum of three percent (3%) plus the annual prime rate or successive annual prime rates of interest quoted in the Money Rates section of the on-line edition of The Wall Street Journal (at http://www.interactive.wsj.com) calculated daily on the basis of a 365-day year or (ii) the highest rate permitted by applicable law.

(e) Withholding Taxes. Any taxes, assessments and fees to be withheld by Bayer under the laws, rules or regulations of any foreign country for the account of Nuvelo will be promptly paid by Bayer for and on behalf of Nuvelo to the appropriate governmental authority, and Bayer will furnish Nuvelo with a copy of the original official receipt for the payment of such tax within thirty (30) days of payment. Any such tax, assessment and fee actually paid on Nuvelo’s behalf will be deducted from any Royalty payments due to Nuvelo. Bayer agrees to make all lawful and reasonable efforts to minimize such taxes, assessments and fees to Nuvelo and will claim on Nuvelo’s behalf the benefits of any available Treaty on the Avoidance of Double Taxation that applies to any such payments.

10.2 Records; Audit. Bayer will keep or cause to be kept such records as are required in sufficient detail to track and determine (in accordance with GAAP) the accuracy of calculations of all sums or credits due under this Agreement and to accurately account for the calculations of all Royalties due for Licensed Product under this Agreement. Such records will be retained for a period of the longer of (i) a three (3) year period following the year in which any payments were made hereunder and (ii) the expiration of the applicable tax statute of limitations (or any extensions thereof), or such longer period as may be required by law. Once per calendar year, Nuvelo will have the option to engage (at its own expense) an independent certified public accountant, appointed by Nuvelo and reasonably acceptable to Bayer, to examine in confidence the books and records of Bayer as may be necessary to determine, with respect to any calendar year, the correctness or completeness of any report or payment required to be made under this Agreement; provided however, that the books and records for any particular calendar year will only be subject to one audit. The report of such accountant will be limited to a certificate verifying any report made or payment submitted by Bayer during such period or identifying any over-payment or under-payment made by Bayer, accompanied by an explanation of the basis for its determination of such over-payment or under-payment. In addition, if the accountant will be unable to verify the correctness of any such payment, information relating to why such payment is unverifiable. The results of any audit performed under this Section 10.2 may be disputed by Bayer in accordance with Section 16.1. If the audit reveals any underpayment by Bayer to Nuvelo, then Bayer will pay any underpayment to Nuvelo, together will all interest accrued thereon, promptly after Bayer’s receipt of the audit report or, if disputed by Bayer, promptly after resolution of such dispute. If any audit performed under this Section 10.2 discloses a variance of more than five percent (5%) from the amount of the original report showing the calculation of a Royalty under section 8.3 of this Agreement, Bayer will bear the full cost of the performance of such audit. The result of the audit and the audit report shall be subject to Article 12. Upon the expiration of three (3) years following the end of any calendar year, the calculation of any such amounts payable with respect to such calendar year will be binding and conclusive upon the Parties, and Bayer will be released from any liability or accountability with respect to such amounts for such calendar year.

ARTICLE 11

PUBLICATIONS

11.1 Procedure. Subject to the International Committee of Medical Journal Editors (“ICMJE”) Uniform Requirements for Manuscripts Submitted to Biomedical Journals and applicable legal requirements, Nuvelo will determine the overall strategy for publishing and presenting results of studies pertaining to Licensed Product, except that the JDC together with the JCC (with approval of the JSC) shall determine the strategy with respect to publishing and presenting the results of any Country Specific Trials. The Parties to this Agreement recognize that the publication of papers regarding results of and other information involving the activities under this Agreement (including oral presentations and abstracts) may be beneficial to both Parties, provided the publications protect Confidential Information. Accordingly, each Party will have the right to review and comment on any proposed disclosure by the other Party (including oral presentations and abstracts) relating to Licensed Product. Before any paper is submitted for publication or an oral presentation made, the Party wishing to publish will deliver a complete copy of the paper or materials and abstracts for oral presentation to the other Party at least fourteen (14) days prior to submitting the paper to a publisher or making the presentation. The non-publishing Party will review any such paper and give its comments to the publishing Party within thirty (30) days. Each Party will comply with the other Party’s request to delete references to Confidential Information in any publication and agrees to withhold publication of same for an additional thirty (30) days in order to permit the Parties to obtain patent protection, if either of the Parties deems it necessary, in accordance with the terms of this Agreement.

11.2 Credit. Any such publication or presentation will include recognition of the contributions of the other Party according to standard practice for assigning scientific credit, either through authorship or acknowledgment as may be appropriate.

ARTICLE 12

CONFIDENTIALITY

12.1 Treatment of Confidential Information. The Parties agree that during the Term, and for a period of five (5) years after this Agreement expires or terminates, a Party receiving Confidential Information of the other Party will (a) maintain such Confidential Information in confidence to the same extent such Party maintains its own confidential or proprietary information or trade secrets of similar kind and value; (b) not disclose such Confidential Information to any Third Party without the prior written consent of the disclosing Party, except for disclosures to its Affiliates and Sublicensees who agree to be bound by obligations of non-disclosure and non-use at least as stringent as those contained in this Article 12; and (c) not use Confidential Information for any purpose except those purposes permitted by this Agreement. Neither Party will knowingly disclose to the other Party any Third Party information or know-how that such Party does not have the legal right to disclose to the other Party and/or which it has a contractual obligation not to disclose to the other Party.

12.2 Authorized Disclosure. Notwithstanding any other provision of this Agreement, each Party may disclose Confidential Information of the other Party:

(a) to the extent and to the persons and entities as required by an applicable law, rule, regulation, legal process, court order or the rules of the any securities exchange on which any security issued by either Party is traded or of a Regulatory Authority; or

(b) as necessary to file, prosecute or defend those patent applications or patents for which either Party has the right to assume filing, prosecution, defense or maintenance, pursuant to Section 9.2 of this Agreement; or

(c) to prosecute or defend litigation or otherwise establish rights or enforce obligations under this Agreement, but only to the extent that any disclosure is necessary.

(d) The Party required or intending to disclose the other Party’s Confidential Information under Sections 12.2(a) or (c) will first have given prompt notice to the other Party to enable it to seek any available exemptions from or limitations on such disclosure requirement and will reasonably cooperate in such efforts by the other Party.

12.3 Materials. Pursuant to this Agreement or the Manufacturing Agreement, the Parties anticipate that Nuvelo may transfer certain of its Nuvelo Know-How and Nuvelo Material and Manufacturing Information to Bayer. Bayer agrees that it will use Nuvelo Know-How and Nuvelo Material and Manufacturing Information only in accordance with the terms and conditions of this Agreement and will transfer Nuvelo Know-How and Nuvelo Material and Manufacturing Information only to a Third Party that has agreed in writing to be bound by obligations of confidentiality and non-use at least as restrictive as set forth herein and only to use in accordance with the terms of this Agreement. Bayer will promptly thereafter provide notice of the transfer to Nuvelo.

12.4 Publicity; Terms of Agreement. The Parties will mutually agree upon the text of a press release announcing the execution of this Agreement. Thereafter, if either Party desires to make a public announcement concerning this Agreement or the terms hereof that differs from this mutually agreed upon text, the Party will give reasonable prior advance notice of the proposed text of the announcement to the other Party for its prior review and approval, the approval not to be unreasonably withheld or delayed. A Party will not be required to seek permission from the other Party to repeatedly publish any information as to the terms of this Agreement that have already been publicly disclosed by such Party, in accordance with the foregoing, or by the other Party. Either Party may disclose the terms of this Agreement to potential investors who agree to be bound by obligations of non-disclosure and non-use at least as stringent as those contained in this Article 12. The Parties acknowledge that Nuvelo and/or Bayer may be obligated to file a copy of this Agreement with the U.S. Securities and Exchange Commission (the “SEC”) or its equivalent in each country in the Bayer Territory with its next quarterly report on Form 10-Q, annual report on Form 10-K or current report on Form 8-K or with any registration statement filed with the U.S. Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended, or the equivalent in each country in the Bayer Territory. Each Party will be entitled to make the filing(s) and will have the right to exercise its sole discretion regarding any request for confidential treatment for this Agreement or any provision of this Agreement. In the event of any request for confidential treatment, the filing Party will provide the non-filing Party with an advance copy of the Agreement marked to show provisions for which the filing Party intends to seek confidential treatment and will reasonably

consider the non-filing Party’s timely comments thereon. Each Party will give the other reasonable prior notice of any announcement relating to activities concerning Licensed Product. Bayer acknowledges that Nuvelo as a publicly-traded company is legally obligated to make timely disclosure of all material events relating to Licensed Product.

12.5 Use of Names, Logos or Symbols. Subject to the licenses granted under Sections 2.1 and 2.2, the provisions of Section 6.8, and the authorized disclosure provisions under Sections 12.2 and 12.4, the Parties will not use the name, Product Trademarks, physical likeness, employee names or owner symbol of the other Party for any purpose (including, without limitation, private or public securities placements) without the prior written consent of the affected Party, the consent not to be unreasonably withheld or delayed so long as the use of name is limited to objective statement of fact rather than for endorsement purposes. Except as provided in this Agreement, Bayer will not use any Trademark either substantially resembling or which is likely to cause confusion with any of Nuvelo’s Product Trademarks in connection with the subject matter of this Agreement.

ARTICLE 13

REPRESENTATIONS, WARRANTIES AND COVENANTS

13.1 Representations and Warranties of Bayer. Bayer hereby represents and warrants to Nuvelo that as of the Effective Date:

(a) Corporate Existence, Power and Authority. It is a corporation duly organized, validly existing and in good standing under the laws of Germany and has full corporate power and authority and the legal right to own and operate its property and assets and to carry on its business as it is now being conducted and as contemplated in this Agreement and to perform its obligations hereunder including, without limitation the right to grant the licenses granted hereunder. It has taken all necessary corporate action on its part required to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder.

(b) Binding Agreement. This Agreement has been duly executed and delivered on behalf of Bayer and constitutes a legal, valid and binding obligation of Bayer that is enforceable against it in accordance with its terms.

(c) No Conflict. The execution, delivery and performance of this Agreement by Bayer does not conflict with and would not result in a breach of any agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound, nor does it violate any material law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it.

(d) Validity. It is aware of no action, suit, inquiry or investigation instituted by any Third Party that questions or threatens the validity of this Agreement.

(e) Expertise. In entering into this Agreement, Bayer has relied solely on its own scientific and commercial experience and its own analysis and evaluation of both the scientific and commercial value of the Licensed Product.

(f) Business Condition. It is not in violation of its charter, bylaws, or any other organizational document, or in violation of any law, administrative regulation, ordinance or order of any court or governmental agency, arbitration panel or authority applicable to it, which violation, individually or in the aggregate, would reasonably likely have a materially adverse effect on its business or financial condition. Except as may be set forth in any documents required to be filed by it under the Securities Act or Exchange Act or any foreign equivalents thereof, it is not aware of any facts or circumstances, individually or in the aggregate, which would reasonably likely have a materially adverse effect on its business or financial condition.

13.2 Representations and Warranties of Nuvelo. Nuvelo hereby represents and warrants to Bayer that as of the Effective Date:

(a) Corporate Existence, Power and Authority. It is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has full corporate power and authority and the legal right to own and operate its property and assets and to carry on its business as it is now being conducted and as contemplated in this Agreement and to perform its obligations hereunder including, without limitation, the right to grant the licenses granted hereunder. It has taken all necessary corporate action on its part required to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder.

(b) Binding Agreement. This Agreement has been duly executed and delivered on behalf of Nuvelo and constitutes a legal, valid and binding obligation of Nuvelo that is enforceable against it in accordance with its terms.

(c) No Conflict. The execution, delivery and performance of this Agreement by Nuvelo does not conflict with and would not result in a breach of any agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound, nor does it violate any material law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it.

(d) Validity. It is aware of no action, suit, inquiry or investigation instituted by any Third Party that questions or threatens the validity of this Agreement.

(e) Business Condition. It is not in violation of its charter, bylaws, or any other organizational document, or in violation of any law, administrative regulation, ordinance or order of any court or governmental agency, arbitration panel or authority applicable to it, which violation, individually or in the aggregate, would reasonably likely have a materially adverse effect on its business or financial condition. Except as may be set forth in any documents filed with the Securities and Exchange Commission, as required to be filed by it under the Securities Act or Exchange Act, as the case may be, it is not aware of any facts or circumstances, individually or in the aggregate, which would reasonably likely have a materially adverse effect on its business or financial condition.

(f) Nuvelo Patent Rights and Nuvelo Know-How. (i) Nuvelo owns or otherwise Controls the Nuvelo Patent Rights and Nuvelo Know-How, and has the right and authority to grant the rights and licenses granted pursuant to the terms and conditions of this Agreement. Nuvelo has not granted any right, license, or interest in, to, or under the Nuvelo Patent Rights or

Nuvelo Know-How that is inconsistent with the rights, licenses, and interests granted under the terms and conditions of this Agreement; (ii) to Nuvelo’s Knowledge, the issued patents within the Nuvelo Patent Rights are valid and enforceable as of the Effective Date; (iii) Nuvelo has not placed, and to its Knowledge there does not exist, upon the Nuvelo Patent Rights and Nuvelo Know-How any encumbrance, charge or lien; (iv) Exhibit C is an accurate list of all Patent Rights which are owned or Controlled by Nuvelo as of the Effective Date and which are necessary or useful for Development and/or Commercialization of the Licensed Product in the Bayer Territory. Such listed Nuvelo Patent Rights have been filed and maintained in a manner consistent with standard practice in each country in the Territory and all applicable fees have been paid on or before the due date for payment; and (v) as of the Effective Date, to the Knowledge of Nuvelo, there is no actual infringement or threatened infringement of the Nuvelo Patent Rights by any person. Furthermore, as of the Effective Date Nuvelo has no Knowledge of any claim, litigation, action, suit, proceeding investigation, arbitration proceedings or other proceedings pending or threatened affecting, in whole or in part, the Nuvelo Patent Rights or Nuvelo Know-How in the Bayer Territory, and there is not currently outstanding any unsatisfied judgment or outstanding order, injunction, decree, stipulation or award, in whole or in part, against any of the Nuvelo Patent Rights or the Nuvelo Know-How.

(g) Documents Provided. Nuvelo has, up to and including the Effective Date, made available to Bayer (a) all information requested by Bayer in its possession or control relating to the Licensed Product; and (b) all other information, to Nuvelo’s Knowledge, that is material to the utility or safety of the Licensed Product; and (c) all other information that, to Nuvelo’s Knowledge, is reasonably likely to be material to the Development or Commercialization of Licensed Product in the Territory (as such Development and Commercialization is viewed by Nuvelo as of the Effective Date).

(h) Notice of Infringement. Nuvelo has not received written notice from any Third Party of any issued and enforceable patent of such Third Party which would be infringed by the Development or Commercialization of Licensed Product in the Territory under this Agreement. Further, to Nuvelo’s Knowledge, the Development and Commercialization of Licensed Product under this Agreement in the Territory does not infringe upon any issued and enforceable patent of any Third Party.

(i) Third Party Agreements. Nuvelo has maintained, is in compliance with, and has received no notice of default under any agreements with Third Parties relating to Licensed Product, including, without limitation, the Amgen-Nuvelo Agreement and the Warrant Purchase Agreement (as defined in the Amgen-Nuvelo Agreement).

(j) No Untrue Statement. Neither Nuvelo nor any officer, employee or agent of Nuvelo has made an untrue statement of a material fact to any Regulatory Authority in the Territory with respect to the Licensed Product (whether in any submission to such Regulatory Authority or otherwise), or knowingly failed to disclose a material fact required to be disclosed to any Regulatory Authority in the Territory with respect to Licensed Product.

13.3 Mutual Covenants. Each Party hereby covenants to the other Party as of the Effective Date as follows:

(a) No Conflict. It will not during the term of this Agreement grant any right, license, consent or privilege to any Third Party(ies) in the Territory which would conflict with the rights granted to the other Party under this Agreement, and will not take any action that would in any way prevent it from assuming its obligations or granting the rights granted to the other Party under this Agreement or that would otherwise materially conflict with or adversely affect its obligations or its assumption of the rights granted to the other Party under this Agreement.

(b) Exclusivity. It will work exclusively with the other Party with respect to the Development and Commercialization of Licensed Product in the Bayer Territory (subject to the Parties’ rights under Article 2 of this Agreement to grant sublicenses to Third Parties and the Parties’ right to engage subcontractors). It will not, directly or indirectly, Commercialize a Competitive Product anywhere in the world during the Term. Each Party will be free to conduct research and development with respect to a Competitive Product, provided as follows: If Nuvelo develops a Competitive Product during the Term, it will either grant Bayer a license to commercialize the Competitive Product in the Bayer Territory, in which case Nuvelo will have the right to commercialize the Competitive Product in the United States on terms to be negotiated and agreed upon by the Parties, or it will license the worldwide, exclusive rights to commercialize the Competitive Product to a Third Party. If Bayer develops a Competitive Product during the Term, it will either grant Nuvelo a license to commercialize the Competitive Product in the United States on terms to be negotiated and agreed upon by the Parties, in which case Bayer will have the right to commercialize the Competitive Product in the Bayer Territory, or it will license the worldwide, exclusive rights to commercialize the Competitive Product to a Third Party.

(c) Regulatory Data. It will store and provide the other Party access to source data supporting all Regulatory Filings and Regulatory Approvals for the longer of (i) ten (10) years from the date of generation of such data, and (ii) the time period required by any applicable Regulatory Authority in the Territory.

(d) No Debarment. In the course of the Development, Commercialization and any permitted manufacture of Licensed Product during the Term, it will not knowingly use and will not have knowingly used any employee or consultant who is or has been debarred by a Regulatory Authority or, to the best of such Party’s knowledge, is or has been the subject of debarment proceedings by a Regulatory Authority.

(e) Compliance. It will comply with all applicable statutes, regulations and guidance of Regulatory Authorities in carrying out its activities regarding the Development, manufacturing and Commercialization of Licensed Product in its portion of the Territory.

(f) Diligence. It will use Commercially Reasonable Efforts to carry out its obligations in accordance with the terms of this Agreement including, as applicable, the Development, manufacturing and Commercialization of Licensed Product in its portion of the Territory in accordance with the terms of this Agreement.

(g) Limitation of License Granted. Bayer will not use the Nuvelo Technology or any Nuvelo Material and Manufacturing Information and Nuvelo will not use the Bayer

Technology outside the scope of any licenses so granted. Without limiting the generality of the previous sentence, neither Party will sell any Licensed Product outside of its portion of the Territory and each Party will use reasonable efforts to prevent the unauthorized importation of Licensed Product into the other Party’s portion of the Territory.

(h) No Misappropriation. It will not knowingly misappropriate the trade secret of a Third Party in its activities to Develop, manufacture, or Commercialize Licensed Product.

13.4 Additional Covenants of Nuvelo. Nuvelo acknowledges that Bayer will be substantially damaged as a result of any termination of this Agreement by Amgen, Inc. in the event of termination of the Amgen-Nuvelo Agreement as a result of Nuvelo’s default thereunder. Accordingly, Nuvelo hereby covenants to Bayer:

(a) On an ongoing basis throughout the term of the Amgen-Nuvelo Agreement Nuvelo will keep Bayer apprised of Nuvelo’s performance of its obligations under the Amgen-Nuvelo Agreement and the Warrant Purchase Agreement (as defined in the Amgen-Nuvelo Agreement) including by (i) transmitting to Bayer on a quarterly basis a summary report of Nuvelo’s performance of (or failure to perform) its obligations under the Amgen-Nuvelo Agreement and/or the Warrant Purchase Agreement during the preceding quarter (or, if applicable, a report that no such performance was due during such quarter) and (ii) providing copies to Bayer of all reports and statements required to be delivered by Nuvelo under the Amgen-Nuvelo Agreement as and when Nuvelo transmits the same to Amgen, Inc. All such reports and statements shall be the Confidential Information of Nuvelo and shall be subject to Article 12.

(b) Nuvelo will continue to comply with and perform all of its obligations under the Amgen-Nuvelo Agreement and the Warrant Purchase Agreement. Nuvelo will in good faith consider and act on any concerns reasonably raised by Bayer with respect to Nuvelo’s compliance with the Amgen-Nuvelo Agreement and/or the Warrant Purchase Agreement.

(c) Within five (5) days of receipt of any Notice of Default or any other notice of termination from Amgen, Inc. under the Amgen-Nuvelo Agreement. Nuvelo shall give written notice of the same to Bayer. Bayer shall have the right, but not the obligation, to cure any Nuvelo default in its obligations to Amgen if Bayer in its reasonable judgment believes that Nuvelo’s efforts to cure that default will not be sufficient to avoid termination of the Amgen-Nuvelo Agreement. Nuvelo will provide to Bayer all data, reports and other information reasonably requested by Bayer in connection with Bayer’s effort to cure as provided in the preceding sentence. Bayer may offset any amounts paid by Bayer to Amgen or otherwise expended by Bayer to cure the default, plus an additional [    *    ] percent ([    *    ]%), against any payments subsequently due to be paid by Bayer to Nuvelo under Section 4.7 or Article 8 of this Agreement.

(d) Within ten (10) days of execution of this Agreement by the Parties, Nuvelo will inform Amgen, Inc. that the Parties have entered into this Agreement and, thereafter, Nuvelo shall use reasonable efforts to negotiate and enter into an amendment of the Amgen-Nuvelo Agreement with Amgen, Inc. whereby Amgen will waive its right under Section 2.3(a) of the Amgen-Nuvelo Agreement to terminate this Agreement and will agree that, in the event of

[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

termination of the Amgen-Nuvelo Agreement pursuant to Article 12 thereof, Nuvelo shall assign this Agreement to Amgen and this Agreement shall remain in full force and effect between Amgen and Bayer.

13.5 Additional Covenants of Bayer. Bayer acknowledges that Nuvelo will be substantially damaged as a result of any termination of the Amgen-Nuvelo Agreement by Amgen, Inc. as a result of Bayer’s default hereunder. Accordingly, Bayer hereby covenants to Nuvelo that if Nuvelo receives any Notice of Default from Amgen, Inc. under the Amgen-Nuvelo Agreement that arises as a result of any breach of this Agreement by Bayer, Nuvelo shall have the right, but not the obligation, to cure any such Bayer breach if Nuvelo in its reasonable judgment believes that Bayer’s efforts to cure that breach will not be sufficient to avoid termination of the Amgen-Nuvelo Agreement. Within thirty (30) days of Nuvelo’s cure of any such breach on Bayer’s behalf, Bayer will pay to Nuvelo any amounts paid by Nuvelo to Amgen or otherwise expended by Nuvelo to cure the default, plus an additional [*] percent ([*]%). For the avoidance of doubt, nothing in Section 13.4 or this Section 13.5 shall require Bayer to make any payments to Amgen under the Amgen-Nuvelo Agreement, and, as provided in Section 8.4, Nuvelo shall be responsible for paying any and all amounts due to Amgen under the Amgen-Nuvelo Agreement.

13.6 Disclaimers. EXCEPT AS EXPRESSLY PROVIDED HEREIN, THE LICENSE GRANTS, MATERIALS AND INFORMATION PROVIDED HEREUNDER ARE BEING PROVIDED “AS IS” AND WITHOUT ANY REPRESENTATIONS OR WARRANTIES. EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH IN THIS ARTICLE 13, NEITHER PARTY MAKES ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, OF ANY TYPE WHATSOEVER UNDER THIS AGREEMENT OR REGARDING THE MATERIALS AND INFORMATION. EACH PARTY EXPRESSLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY, OF FITNESS FOR A PARTICULAR PURPOSE OR OF NONINFRINGEMENT.

ARTICLE 14

INDEMNIFICATION

14.1 Indemnification by Nuvelo. Nuvelo hereby agrees to defend, hold harmless and indemnify (collectively “Indemnify” or be “Indemnified”) Bayer and its Affiliates, agents, directors, officers and employees (the “Bayer Indemnitees”) from and against any and all Losses resulting from any Third Party claims, suits, actions or demands arising out of (a) any of Nuvelo’s representations and warranties set forth in this Agreement being untrue in any material respect when made and/or (b) any material breach or material default by Nuvelo of its covenants, agreements or obligations under this Agreement, except to the extent such Losses result from (i) any of Bayer’s representations or warranties set forth in this Agreement being untrue in any material respect when made, or (ii) any material breach or material default by Bayer of its covenants, agreements or obligations under this Agreement. To be eligible to be so Indemnified as described in this Section 14.1, the Bayer Indemnitees will provide Nuvelo with prompt written notice of any claims, suits, actions or demands (with a description of the claim and the nature and amount of any such Loss) giving rise to the indemnification obligation pursuant to this Section 14.1 and the exclusive ability to defend such claims, suits, actions or demands (with the reasonable cooperation of Bayer Indemnitees). Nuvelo will be relieved of its obligations only if any failure by the Bayer Indemnitee to deliver prompt notice will have been prejudicial to its ability to defend such claims, suits, actions or demands. Bayer will have the right to retain its

[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

own counsel, at its own expense. Nuvelo will not settle or consent to the entry of any judgment with respect to any claim for Loss for which indemnification is sought, in a manner that would materially adversely affect Bayer, without Bayer’s prior written consent (not to be unreasonably withheld). Nuvelo’s obligation to Indemnify the Bayer Indemnitees pursuant to this Section 14.1 will not apply to the extent of any Losses (i) that arise from the negligence or intentional misconduct of any Bayer Indemnitee; (ii) that arise from Bayer’s material breach of any representation, warranty, covenant or obligation under this License Agreement; or (iii) for which Bayer is obligated to Indemnify the Nuvelo Indemnitees pursuant to Section 14.2 of this License Agreement.

14.2 Indemnification by Bayer. Bayer hereby agrees to Indemnify Nuvelo and its Affiliates, agents, directors, officers and employees (the “Nuvelo Indemnitees”) from and against any and all Losses arising from Third Party claims, suits, actions or demands resulting directly or indirectly from (a) any of Bayer’s representations and warranties set forth in this Agreement being untrue in any material respect when made and/or (b) any material breach or material default by Bayer of its covenants, agreements or obligations under this Agreement, except to the extent such Losses result from (i) any of Nuvelo’s representations and warranties set forth in this Agreement being untrue in any material respect when made, or (ii) any material breach or material default by Nuvelo of its covenants, agreements or obligations under this Agreement. To be eligible to be Indemnified as described above in this Section 14.2, the Nuvelo Indemnitees will provide Bayer with prompt written notice of any claims, suits, actions or demands (with a description of the claim and the nature and amount of any such Loss) giving rise to the indemnification obligation pursuant to this Section 14.2 and the exclusive ability to defend such claims, suits, actions or demands (with the reasonable cooperation of Nuvelo Indemnitees). Bayer will be relieved of its obligations only if any failure by the Nuvelo Indemnitee to deliver prompt notice will have been prejudicial to its ability to defend such claims, suits, actions or demands. Nuvelo will have the right to retain its own counsel, at its own expense. Bayer will not settle or consent to the entry of any judgment with respect to any claim for Loss for which indemnification is sought, in a manner that would materially adversely affect Nuvelo, without Nuvelo’s prior written consent (not to be unreasonably withheld). Bayer’s obligation to Indemnify the Nuvelo Indemnitees pursuant to this Section 14.2 will not apply to the extent of any Losses (i) that arise from the negligence or intentional misconduct of any Nuvelo Indemnitee (including but not limited to that arising from the manufacture of Licensed Product by Nuvelo), (ii) that arise from any material breach by Nuvelo of any representation, warranty, covenant or obligation under this License Agreement or (iii) for which Nuvelo is obligated to Indemnify the Bayer Indemnitees pursuant to Section 14.1 of this License Agreement.

14.3 Product Liability Claims.

(a) Bayer hereby agrees to Indemnify the Nuvelo Indemnitees from and against any and all Losses arising from Product Liability Claims in the Bayer Territory and Nuvelo hereby agrees to Indemnify the Bayer Indemnitees from and against any and all Losses arising from Product Liability Claims in the Nuvelo Territory, except as follows: Each Party shall be solely responsible for all Product Liability Claims resulting from, and to the extent allocable to, (i) such Party’s or its Affiliate’s material failure to adhere to the terms of any Development or Commercialization plan approved by the JSC, (ii) the distribution by such Party or its Affiliate of

Promotional Materials that fall outside the guidelines established by the JSC, (iii) the making of any claim or representation in respect of the Licensed Product or the respective characteristics thereof by or on behalf of such Party or its Affiliate (by members of its sales force or otherwise) that have not been approved by the JSC or which do not represent an accurate summary or explanation of the labeling of the Licensed Product or a portion thereof or (iv) Non-Conformance of the Licensed Product where, with respect to Bayer, such Non-Conformance occurred after such Licensed Product was delivered to Bayer by Nuvelo and, with respect to Nuvelo, such Non-Conformance existed at the time such Licensed Product was delivered by Nuvelo.

(b) Each Party shall give the other prompt written notice of any Product Liability Claim, but the omission of such notice shall not relieve either Party from its obligations under this Section 14.4, except to the extent the other Party can establish actual prejudice and direct damages as a result thereof. With respect to each Product Liability Claim, Nuvelo shall have the first right to defend and settle such Product Liability Claim. In the event that Nuvelo does not assume the defense of such Product Liability Claim within ninety (90) days following Nuvelo’s receipt of notice of the commencement or assertion of such Product Liability Claim, Bayer shall have the right, but not the obligation, to take the lead role in the defense of such Product Liability Claim. The Party assuming the defense of any Product Liability Claim as permitted under this Section 14.4 (the “Controlling Party”) shall consult with the other Party on all material aspects of the defense and the Parties shall cooperate fully with each other in connection therewith. The non-defending Party shall also have the right to participate in the defense of any Product Liability Claim using attorneys of its choice, at its own expense. In furtherance of the Parties’ cooperation, the Controlling Party will consult with the other Party regarding strategic decisions, including without limitation the retention of counsel and defense of each Product Liability Claim. The Controlling Party will otherwise keep the other Party fully informed of the status and progress of the defense and any settlement discussions concerning the Product Liability Claim. Any settlement of a Product Liability Claim that would admit liability on the part of any Party or its Affiliates, or that would involve any relief other than the payment of money damages within a budget previously agreed to by the Parties, shall be subject to the prior written approval of both Parties, such approval not to be unreasonably withheld or delayed. All damages and expenses (including attorney’s fees) incurred in connection with the defense of a Product Liability Claim shall be allocated between Nuvelo and Bayer in accordance with Section 14.4(a).

14.4 Insurance. During the Term and for a period of five (5) years after the expiration of this Agreement or the earlier termination thereof, each Party shall obtain and/or maintain, respectively, at its sole cost and expense, product liability insurance (including any self-insured arrangements) in amounts, respectively, which are reasonable and customary in the pharmaceutical industry for companies of comparable size and activities at the respective place of business of each Party; provided that Clinical Trial insurance policies will be required only while trials are ongoing. Such product liability insurance or self-insured arrangements shall insure against all liability, including without limitation personal injury, physical injury, or property damage arising out of, for Nuvelo, the manufacture of the Licensed Product, and for each Party, the sale, distribution, or marketing of the Licensed Product in such Party’s portion of the Territory. Such insurance will not be construed to create a limit of either Party’s liability with respect to its indemnification obligations under this Article 14. Each Party will provide the other Party with a copy of the certificate of insurance or other evidence of such insurance and/or self-insurance, upon request. Each Party will provide the other Party with written notice at least thirty (30) days prior to the cancellation, non-renewal or material change in such insurance or self-insurance that materially adversely affects the rights of the other Party hereunder.

14.5 Limitation of Liability. EXCEPT FOR A PARTY’S BREACH OF ITS OBLIGATIONS UNDER ARTICLE 12, NEITHER PARTY NOR ITS RESPECTIVE AFFILIATES, WILL BE LIABLE FOR SPECIAL, EXEMPLARY, CONSEQUENTIAL OR PUNITIVE DAMAGES, WHETHER IN CONTRACT, WARRANTY, TORT, STRICT LIABILITY OR OTHERWISE INCURRED BY THE OTHER PARTY IN CONNECTION WITH THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO DAMAGES MEASURING LOST PROFITS OR BUSINESS OPPORTUNITIES. THIS SECTION 14.6, WILL NOT BE CONSTRUED TO LIMIT EITHER PARTY’S OBLIGATIONS UNDER SECTIONS 14.1 THROUGH 14.4.

ARTICLE 15

TERM AND TERMINATION

15.1 Term. This Agreement will become effective on the Effective Date and will remain in full force and effect, unless earlier terminated pursuant to this Article 15, on a country-by-country basis until there is no remaining Royalty payment obligation in any country, as set forth in Section 8.5. Upon the expiry of Bayer’s obligation to pay Royalties under this Agreement for Licensed Product in a country, Bayer will have a fully paid-up, royalty-free, license for use of joint inventions and under the Nuvelo Technology and the Nuvelo Material and Manufacturing Information to use, sell, offer to sell, have sold, import, export and otherwise exploit, transfer physical possession of and transfer title or interest in or to Licensed Product in such country, and the purchase and supply commitments of the Parties in such case will terminate except as otherwise provided in the Manufacturing Agreement, if then in effect.

15.2 Remedies for Default.

(a) If any material representation or warranty made hereunder by either Party will have been untrue in any material respect (“Representation Default”), or upon any material breach or material default of an obligation of this Agreement by a Party (“Performance Default”), the Party not in default (“Non-Defaulting Party”) must first give the other Party (“Defaulting Party”) written notice thereof (“Notice of Default”), which notice must state the nature of the Representation Default or Performance Default in reasonable detail and must request the Defaulting Party cure such Representation Default or Performance Default within sixty (60) days. During any such 60-day period after receipt or delivery of a Notice of Default under this Section 15.2(a), all of the Party’s respective rights and obligations under the affected parts of this Agreement, including but not limited to Development, manufacturing and Commercialization, will (to the extent applicable) remain in force and effect. If the Defaulting Party disputes the existence, extent or nature of any default set forth in a Notice of Default or an alleged failure to cure a default, the Parties will use good faith efforts to resolve the dispute as provided in Section 16.1, and if those good faith efforts do not resolve the dispute, Nuvelo will have the rights set forth in Section 15.2(b) in the event of a Representation Default or a Performance Default by Bayer, and Bayer will have the rights set forth in Section 15.2(c) in the event of a Representation Default or a Performance Default by Nuvelo.

(b) Bayer. In the event of a Representation Default or a Performance Default by Bayer that will not have been cured within the 60-day period set forth in Section 15.2(a) above

after receipt of a Notice of Default (or Bayer will not have presented a reasonably achievable plan to cure such Default as promptly as is reasonably practicable under the circumstances), and if efforts to resolve a dispute, if any, under Section 16.1 are unsuccessful, Nuvelo, at its option and on written notice to Bayer, may bring an action against Bayer for damages or equitable relief pursuant to Section 16.2; provided that such action shall be without prejudice to any of its other rights conferred on it by this Agreement and will be in addition to any other remedies available to it by law or in equity.

(c) Nuvelo. In the event of a Representation Default or a Performance Default by Nuvelo that will not have been cured within the 60-day period set forth in Section 15.2(a) after receipt of a Notice of Default (or Nuvelo will not have presented a reasonably achievable plan to cure such Default as promptly as is reasonably practicable under the circumstances), and, if efforts to resolve a dispute, if any under Section 16.1 are unsuccessful, Bayer, at its option and on written notice to Nuvelo, may bring an action against Nuvelo for damages or equitable relief pursuant to Section 16.2; provided that such action shall be without prejudice to any of its other rights conferred on it by this Agreement and will be in addition to any other remedies available to it by law or in equity.

(d) Subject to Section 13.4(d), if Amgen Inc. terminates the Amgen-Nuvelo Agreement due to a material breach of the Amgen-Nuvelo Agreement by Nuvelo, then at Amgen’s discretion Amgen shall have the right to terminate this Agreement or to require assignment of Nuvelo’s rights under this Agreement to Amgen. If Amgen elects to so terminate this Agreement at any time prior to [    *    ] years after the First Commercial Sale of a Licensed Product in a Major Country, Canada or Japan, then, within [    *    ] of such termination, Nuvelo shall pay to Bayer an amount equal to [    *    ] under this Agreement, including without limitation all [    *    ] prior to the date of such termination. If Amgen elects to so terminate this Agreement in any of the [    *    ] through the [    *    ] after the First Commercial Sale of a Licensed Product in a Major Country, Canada or Japan, the foregoing payment obligation shall be reduced by [    *    ] percent ([    *    ]%) per [    *    ] and if Amgen elects to so terminate this Agreement at any time after ten (10) years after the First Commercial Sale of Licensed Product in a Major Country, Canada or Japan, Nuvelo shall have no obligation to pay Bayer under this Section 15.2(d).

(e) Subject to Section 13.5, if Amgen Inc. terminates the Amgen-Nuvelo Agreement due to a breach of this Agreement by Bayer at any time prior to [    *    ] years after the First Commercial Sale of Licensed Product in any Major Country, Canada or Japan, then within [    *    ] of such termination, Bayer shall pay to Nuvelo all [    *    ] as notified by Nuvelo to Bayer in writing, together with all [    *    ] as of the effective date of such termination, whether or not such [    *    ] are otherwise payable [    *    ]. If Amgen elects to so terminate the Amgen-Nuvelo Agreement in any of the [    *    ] through the [    *    ] after the First Commercial Sale of a Licensed Product in a Major Country, Canada or Japan, the foregoing payment obligation shall be reduced by [    *    ] percent ([    *    ]%) per year, and if Amgen elects to so terminate the Amgen-Nuvelo Agreement at any time after [    *    ] after the First Commercial Sale of Licensed Product in a Major Country, Canada or Japan, Bayer shall have no obligation to pay Nuvelo under this Section 15.2(e).

[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

15.3 Bankruptcy.

(a) Either Party may terminate this Agreement if the other Party (the “Bankrupt Party”) will file in any court or agency pursuant to any statute or regulation of any state or country, a petition in bankruptcy or insolvency or for reorganization or for an arrangement or for the appointment of a receiver or trustee of the Bankrupt Party or of its assets, or if the Bankrupt Party proposes a written agreement of composition or extension of its debts, or if the Bankrupt Party will be served with an involuntary petition in bankruptcy or seeking reorganization, liquidation, dissolution, winding-up arrangement, composition or readjustment of its debts or any other relief under any bankruptcy, insolvency, reorganization or other similar act or law of any jurisdiction now or hereafter in effect, or there will have been issued a warrant of attachment, execution, or similar process against it, filed in any insolvency proceeding, and the petition will not be dismissed within ninety (90) days after the filing thereof, or if the Bankrupt Party will propose or be a party to any dissolution or liquidation, or if the Bankrupt Party will make an assignment for the benefit of creditors.

(b) All rights and licenses granted under or pursuant to this Agreement by Nuvelo or Bayer are and will otherwise be deemed to be for purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of rights to “intellectual property” as defined under Section 101 of the U.S. Bankruptcy Code. The Parties agree that each Party will retain and may fully exercise all of its rights and elections under the U.S. Bankruptcy Code. The Parties further agree that, in the event of the commencement of a bankruptcy proceeding by or against a bankrupt Party under the U.S. Bankruptcy Code, the other Party will be entitled to a complete duplicate of (or complete access to, as appropriate) any intellectual property and all embodiments of such intellectual property, and same, if not already in the other Party’s possession, will be promptly delivered to the other Party (i) upon any such commencement of a bankruptcy proceeding, upon the other Party’s written request therefor, unless the non-bankrupt Party (or a trustee on behalf of the non-bankrupt Party) elects to continue to perform all of its obligations under this Agreement or (ii) if not delivered under (i) above, upon the rejection of this Agreement by or on behalf of the non-bankrupt Party, upon written request therefor by the other Party.

15.4 Bayer Termination; Effects of Termination. Bayer may at its option, at any time during the Term, terminate this Agreement upon giving Nuvelo twelve (12) months’ written notice. If Nuvelo commits a Performance Default for failure to timely pay any Development Expenses in accordance with Section 4.7 and does not cure such Performance Default within the period set forth in Section 15.2(a) after receipt of a Notice of Default, Bayer may terminate this Agreement upon giving Nuvelo sixty (60) days’ written notice. In addition to any other remedies that may be available at law or equity, upon termination of this Agreement, the rights and obligations of the Parties will be as set forth in this Section 15.4. In addition, if Bayer terminates this Agreement under the first sentence of this Section 15.4, Bayer will continue to reimburse Nuvelo for Bayer’s share of Development Expenses under Section 4.7 incurred in conducting Global Development Programs approved by the JSC prior to the date of Bayer’s notice of termination to Nuvelo.

(a) The following provisions will remain in full force and effect after the expiration or termination of this Agreement: Article 1 (Definitions); Article 10 (Payments, Records, Audit, only with respect to accrued rights and obligations as to payments); Article 11

(Publications); Article 12 (Confidentiality); Section 13.6 (Disclaimers); Article 14 (Indemnification); Article 15 (Term and Termination); Article 16 (Dispute Resolution); and Article 17 (General).

(b) The Parties will retain their respective ownership rights as set forth in Section 9.1. Nuvelo will have the right to file, prosecute, defend and maintain Joint Patent Rights under Section 9.2 and Product Trademarks under Section 9.2, enforce Joint Patent Rights under Section 9.3 and Product Trademarks under Section 9.3 and defend any action claiming the infringement of any Third Party Patent Rights or any Third Party Trademark under Section 9.4 and to publish under Article 11.

(c) Bayer will within thirty (30) days (other than with respect to Nuvelo Material and Manufacturing Information, in which case by no later than completion of its obligations, if any, under Section 15.4(d) below) destroy, or at Nuvelo’s request return, all Nuvelo Confidential Information, Nuvelo Know-How and Nuvelo Material and Manufacturing Information (other than with respect to maintaining one (1) archival copy of Confidential Information related thereto for its legal files, for the sole purpose of determining its obligations hereunder) and will provide Nuvelo with certification by an officer of Bayer that all such materials have been destroyed or returned to Nuvelo. Nuvelo will within thirty (30) days destroy, or at Bayer’s request return, all Bayer Confidential Information and Bayer Know-How (other than with respect to maintaining one (1) archival copy of Confidential Information related thereto for its legal files, for the sole purpose of determining its obligations hereunder) and will provide Bayer with certification by an officer of Nuvelo that all such materials have been destroyed or returned to Bayer.

(d) Bayer will promptly transfer to Nuvelo ownership of all Regulatory Filings and Regulatory Approvals then in Bayer’s name for all Licensed Product and will notify the appropriate Regulatory Authorities and take any other action reasonably necessary to effect such transfer of ownership. Bayer will assign to Nuvelo Bayer’s right, title and interest in the Product Trademarks. Bayer will grant to Nuvelo a paid up, royalty-free, non-exclusive, worldwide license under Bayer’s copyrights in all Promotional Materials. If ownership of a Regulatory Filing or Regulatory Approval in any country cannot be transferred from Bayer to Nuvelo, Bayer will grant to Nuvelo an exclusive right of access and reference to the Regulatory Filing or Regulatory Approval in the country in order to enable Nuvelo to become a sponsor and party of record of an IND. If such right of access and reference is not sufficient to permit Nuvelo to file a Drug Approval Application and receive Regulatory Approval or to Develop, manufacture or Commercialize Licensed Product, Bayer will provide Nuvelo with any and all information necessary for Nuvelo to carry out such activities.

(e) Nuvelo will have the right to use Bayer’s Trademarks in the selling of any existing inventory of Licensed Product(s) and to use Promotional Materials it then has on hand, but only if Nuvelo promptly creates new Promotional Materials (which do not use Bayer’s corporate name and/or logo), with no obligation of accounting to Bayer. The license granted by Bayer to Nuvelo under Section 2.3 will survive termination of this Agreement by Nuvelo under Section 15.2 or Section 15.3, except that the rights conferred thereunder will become worldwide upon such termination.

(f) Bayer will within thirty (30) days (other than with respect to Third Party agreements entered into pursuant to Section 2.4, in which case by no later than completion of its obligations if any under Section 15.4(g) below), at the request of Nuvelo, assign (if assignable under its terms) to Nuvelo all of Bayer’s rights and obligations under any then-existing Third Party licenses having a license grant limited specifically to Licensed Product, regarding the use, selling, offering to sell, and importing, exporting or otherwise transferring physical possession of or otherwise transferring title in or to Licensed Product and will not (until receiving notice of whether or not Nuvelo desires such an assignment) terminate or amend any such Third Party license. Otherwise, Bayer will, at the request of Nuvelo, sublicense (if sublicensable under its terms) to Nuvelo all of Bayer’s rights and obligations under any then-existing Third Party licenses regarding the use, selling, offering to sell, and importing, exporting or otherwise transferring physical possession of or otherwise transferring title in or to Licensed Product and will not (until receiving notice of whether or not Nuvelo desires such a license) terminate or amend any Third Party license. The assignment or sublicense will be made for no additional consideration and be under the same terms and conditions as the underlying agreement.

(g) If Nuvelo becomes entitled to terminate this Agreement at any time after the First Commercial Sale of Licensed Product in the Bayer Territory, Bayer will, in no event in excess of ninety (90) days after Nuvelo’s delivery of notice of termination to Bayer (other than with respect to obligations which explicitly exceed such 90-day period), conduct an orderly transition of rights and responsibilities from Bayer to Nuvelo or to a Third Party, as the case may be. Further, Bayer will cooperate and assist Nuvelo to effect any such transition of rights and responsibilities in an orderly, reasonable and businesslike manner. The assistance will include, but not be limited to (i) making its personnel and other resources reasonably available to Nuvelo, as necessary and (ii) transferring copies of all relevant information, files or data containing Information and all Materials to Nuvelo.

(h) Except as expressly set forth in this Section 15.4, all other rights and obligations under this Agreement will terminate upon termination of this Agreement in accordance with this Article 15.

15.5 Accrued Rights. Termination, relinquishment or expiration of any licenses under this Agreement for any reason in accordance with this Article 15 will be without prejudice to any rights which will have accrued to the benefit of either Party or any liability incurred by either Party prior to the effective date of termination, relinquishment or expiration, and will not preclude either Party from pursuing all rights and remedies it may have hereunder or at law or in equity with respect to any breach of this Agreement nor prejudice either Party’s right to obtain performance of any obligation.

ARTICLE 16

DISPUTE RESOLUTION

16.1 Disputes. The Parties recognize that disputes as to certain matters may from time to time arise during the term of this Agreement that relate to either Party’s rights or obligations hereunder. It is the objective of the Parties to establish procedures to facilitate the resolution of disputes arising from, concerning or in any way relating to this Agreement in an expedient manner by mutual cooperation and without resort to litigation. To accomplish this objective, the Parties agree to follow the procedures set forth in this Article 16 if and when a dispute arises under this Agreement.

(a) The Parties will undertake good faith efforts to resolve any dispute in good faith. In the event the Parties will be unable to resolve such dispute, either Party may, by written notice to the other Party, have any dispute between the Parties referred to the Chief Executive Officer of Nuvelo and the Head of the Pharmaceutical Division of Bayer who shall meet for attempted resolution by good faith negotiations within thirty (30) days after such matter is referred to such officers. In the event such designated officers are not able to resolve such dispute within such thirty (30)-day period, then either of such designated officers may, but shall not be obligated to, request, within five (5) business days after the expiration of such period, that the Parties attempt non-binding mediation of any such matter for a period not to exceed thirty (30) days. Upon any such request, the Parties shall participate in good faith in such non-binding mediation. If the matter remains unresolved after such thirty (30)-day mediation period, or if neither of such designated officers so requests such non-binding mediation, then any such unresolved matter shall be resolved as set forth in Section 16.1(b) or Section 16.1(c), as applicable.

(b) Any Expert Matter shall be resolved by expedited arbitration by an Expert as follows:

(1) Upon written request by either Party to the other Party, the Parties shall promptly negotiate in good faith to appoint an appropriate Expert. If the Parties are not able to agree within five (5) days after the receipt by a Party of the written request in the immediately preceding sentence, the CPR Institute for Dispute Resolution, or such other similar entity as the Parties may agree, shall be responsible for selecting an Expert within seven (7) days of being approached by a Party. The fees and costs of the Expert and the CPR Institute for Dispute Resolution (or such other entity) shall be borne equally by Nuvelo and Bayer.

(2) Within fifteen (15) days after the designation of the Expert, the Parties shall each simultaneously submit to the Expert and one another a written statement of their respective positions on such disagreement. Each Party shall have five (5) business days from receipt of the other Party’s submission to submit a written response thereto, which shall include any scientific and technical information in support thereof. The Expert shall have the right to meet with the Parties, either alone or together, as necessary to make a determination.

(3) No later than thirty (30) days after the designation of the Expert, the Expert shall make a determination and shall provide the Parties with a written statement setting forth the basis of the determination. The decision of the Expert shall be final, binding and conclusive, absent manifest error.

(c) Any unresolved dispute that is not an Expert Matter shall, at the election of either Party, be decided by litigation in accordance with Section 16.2. Notwithstanding the above, either Party will be entitled at all times and without delay to seek equitable relief, provided that such relief is sought exclusively from a court as provided in Section 16.2.

16.2 Governing Law; Judicial Resolution. Resolution of all disputes arising out of or related to this Agreement, or the performance, enforcement, breach or termination of this Agreement and any remedies relating thereto, will be governed by and construed under the substantive laws of the State of New York as applied to agreements executed and performed entirely in the State of New York by residents of the State of New York, without regard to conflicts of law rules. Subject to Section 16.1, each Party irrevocably and unconditionally consents to the exclusive jurisdiction of the courts of general jurisdiction of the State of New York and the United States District Court for the Southern District of New York (collectively, the “Courts”), for any action, suit or proceeding (other than appeals therefrom) solely for a dispute arising out of this Agreement, and agrees not to commence any action, suit or proceeding (other than appeals therefrom) solely for disputes arising out of this Agreement except in such courts. Submission to United States jurisdiction is for the limited purpose of disputes arising out of this Agreement and does not create general jurisdiction. Each party hereby consents to the jurisdiction of the Courts and waives any other venue to which it may be entitled by virtue of domicile or otherwise.

16.3 Patent and Trademark Dispute Resolution. Notwithstanding the above Section 16.2, as between the Parties, any dispute, controversy or claim relating to the scope, validity, enforceability, inventorship or ownership of intellectual property rights shall be submitted by either Party to a court of competent jurisdiction in the country in which such rights apply.

ARTICLE 17

GENERAL

17.1 Force Majeure. Both Parties will be excused from the performance of their obligations under this Agreement to the extent that such performance is prevented by Force Majeure and the nonperforming Party promptly provides notice of the prevention to the other Party. Such excuse will be continued so long as the condition constituting Force Majeure continues and the nonperforming Party uses reasonable efforts to remove the condition. When such circumstances arise, the Parties will discuss what, if any, modification of the terms of this Agreement may be required in order to arrive at an equitable solution. Notwithstanding anything to the contrary, failure to fulfill payment obligations may only be excused under this Section 17.1 if the actual payment process is affected by the Force Majeure.

17.2 Notices. Any notice required or permitted to be given under this Agreement will be in writing, will specifically refer to this Agreement and will be deemed to have been sufficiently given for all purposes if mailed by first class certified or registered mail, postage prepaid, express delivery service or personally delivered or, if sent by facsimile, electronic transmission is confirmed. Unless otherwise notified in writing, the mailing addresses and fax numbers for notice of the Parties will be as described below.

For Bayer:	Bayer HealthCare AG
	Division Pharmaceuticals
	D-51368 Leverkusen
	Attention: Business Development and Licensing
	Facsimile: +49-202-36-5646
	With a copy to:
	Bayer HealthCare AG CAO-Law and Patents D-51368 Leverkusen Attention: General Counsel Facsimile: +49-214-82986
For Nuvelo:	Nuvelo Inc.
	201 Industrial Road, Suite 310 San Carlos, Ca 94070
	Attention: Chief Executive Officer
	With a copy to: General Counsel

17.3 Maintenance of Records. Each Party will keep and maintain all records required by law or regulation with respect to Licensed Product and will make copies of such records available to the other Party upon request.

17.4 No Strict Construction. This Agreement has been prepared jointly and will not be strictly construed against either Party.

17.5 Assignment. Other than as set forth in Section 2.4 with respect to Bayer’s right to grant Sublicenses under this Agreement and in Sections 13.4(d) and 15.2(d) with respect to the possible assignment of Nuvelo’s rights under this Agreement to Amgen, Inc., neither Party may assign or transfer this Agreement or any rights or obligations hereunder without the prior written consent of the other, except that a Party may make such an assignment without the other Party’s consent to Affiliates or to an entity that acquires all or substantially all of the assets of such Party to which this Agreement pertains, whether in a merger, consolidation, reorganization, acquisition, sale or otherwise, so long as such entity shall assume (expressly in writing or by operation of law) the performance of all of the terms of this Agreement. Notwithstanding the foregoing, Nuvelo shall provide written notice to Bayer of any proposed acquisition by a Third Party of all or substantially all of the assets of Nuvelo to which this Agreement pertains sufficiently in advance of any such acquisition as to allow Bayer a reasonable opportunity to make a counteroffer to such Third Party acquisition. This Agreement will be binding on the successors and assigns of the assigning Party, and the name of a Party appearing herein will be deemed to include the name(s) of such Party’s successors and permitted assigns to the extent necessary to carry out the intent of this Agreement. Any assignment or attempted assignment by either Party in violation of the terms of this Section 17.5 will be null and void and of no legal

effect. The assigning Party will forward to the other Party a copy of those portions of each fully executed assignment agreement that relate to the assumption of the rights and responsibilities of the assigning Party, within sixty (60) days of the execution of such assignment agreement.

17.6 Performance by Affiliates. Each of Nuvelo and Bayer acknowledge that obligations under this Agreement may be performed by Affiliates of Nuvelo and Bayer. Each of Nuvelo and Bayer guarantee performance of this Agreement by its Affiliates, notwithstanding any assignment to Affiliates in accordance with Section 17.5 of this Agreement. Wherever in this Agreement the Parties delegate responsibility to Affiliates or local operating entities, the Parties agree that the Affiliates/entities may not make decisions inconsistent with this Agreement, nor amend the terms of this Agreement or act contrary to its terms in any way. Bayer will forward to Nuvelo a copy of each fully executed sublicense agreement within sixty (60) days of the execution. In case any Affiliate of a Party materially breaches this Agreement, the non-breaching Party will have the right to bring a cause of action directly against the other Party whether or not its Affiliate is named as a defendant in that action.

17.7 Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which will be deemed an original but all of which together will constitute one and the same instrument.

17.8 Severability. If any one or more of the provisions of this Agreement are held to be invalid or unenforceable by any court of competent jurisdiction from which no appeal can be or is taken, such provisions will be considered severed from this Agreement and will not serve to invalidate any remaining provisions hereof. The Parties will make a good faith effort to replace any invalid or unenforceable provision with a valid and enforceable one such that the objectives contemplated by the Parties when entering this Agreement, as evidenced by the terms of this Agreement in accordance with Section 17.8, may be realized.

17.9 Headings. The headings for each Article and Section in this Agreement have been inserted for convenience of reference only and are not intended to limit or expand on the meaning of the language contained in the particular Article or Section. Unless otherwise specified, (a) references in this Agreement to any Article, Section or Exhibit will mean references to such Article, Section or Exhibit of this Agreement, (b) references in any Section to any clause are references to such clause of such Section, and (c) references to any agreement, instrument or other document in this Agreement refer to such agreement, instrument or other document as originally executed or, if subsequently varied, replaced or supplemented from time-to-time, as so varied, replaced or supplemented and in effect at the relevant time of reference thereto.

17.10 Further Actions. Each Party agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.

17.11 Independent Contractors. The relationship between Bayer and Nuvelo created by this Agreement is one of independent contractors. This Agreement does not create any agency, distributorship, employee-employer, partnership, joint venture or similar business relationship between the parties. Neither Party is a legal representative of the other Party, and neither Party

can assume or create any obligation, representation, warranty or guarantee (express or implied) on behalf of the other Party for any purpose whatsoever. Each Party will use its own discretion and will have complete and authoritative control over its employees and the details of performing its obligations under this Agreement.

17.12 No Benefit of Third Parties. The representations, warranties, covenants and agreements set forth in this Agreement are for the sole benefit of the Parties hereto and their successors and permitted assigns, and they will not be construed as conferring any rights on any Third Parties.

17.13 Use of Name. Except as expressly provided in this Agreement, no Party hereto will use, and no rights are granted in or to, the names or Trademarks (including the names “Nuvelo” and “Bayer”), physical likeness, employee names or owner symbol of the other Party for any purpose (including, without limitation, private or public securities placements) without the prior written consent of the affected Party, such consent not to be unreasonably withheld or delayed so long as the use of such name is limited to an objective statement of fact rather than for endorsement purposes. Neither Party will use any Trademark which either substantially resembles or is confusingly similar to, misleading or deceptive with respect to, or which dilutes any of the other Party’s Trademarks in connection with the subject matter of this Agreement.

17.14 No Waiver. Any delay in enforcing a Party’s rights under this Agreement or any waiver as to a particular default or other matter will not constitute a waiver of such Party’s rights to the future enforcement of its rights under this Agreement, except with respect to an express written and signed waiver relating to a particular matter for a particular period of time.

17.15 Export Requirements. It is understood and acknowledged that the transfer of certain commodities and technical data may be subject to United States laws and regulations controlling the export of such commodities and technical data, including all Export Administration Regulations of the United States Department of Commerce. Each Party hereby agrees and by entering into this Agreement gives written assurance that it will comply with all United States laws and regulations controlling the export of commodities and technical data within Information and Materials, that it will be solely responsible for any violation of any such laws and regulations by itself, its Affiliates or its Sublicensees, and that it will indemnify, defend and hold the other Party harmless from any liability in the event of any legal action of any nature occasioned by such violation, pursuant to Section 14.1 (in the case of Nuvelo) or Section 14.2 (in the case of Bayer).

17.16 Entire Agreement; Amendment. Except for the Mutual Confidential Disclosure Agreement dated November 15, 2005 between the Parties, this Agreement (including all Exhibits) sets forth the complete, final and exclusive agreement and all the covenants, promises, agreements, warranties, representations, conditions and understandings between the Parties hereto and supersedes and terminates all prior agreements and understandings between the Parties. This Agreement may only be modified or supplemented in a writing expressly stated for this purpose and signed by an authorized officer of each Party (i.e., it may not be modified by any purchase order, change order, acknowledgment, order acceptance, standard terms of sale, invoice or the like).

17.17 Exhibits. All Exhibits referenced herein and attached hereto are incorporated in this Agreement by reference.

IN WITNESS WHEREOF, the Parties have executed this Agreement in duplicate originals by their duly authorized representatives as of the Effective Date.

NUVELO, INC.		BAYER HEALTHCARE AG
By:	/s/ Ted W. Love	By:
Print Name:	Ted W. Love	Print Name:
Title:	Chairman & CEO	Title:
		By:
		Print Name:
		Title:

IN WITNESS WHEREOF, the Parties have executed this Agreement in duplicate originals by their duly authorized representatives as of the Effective Date.

NUVELO, INC.	BAYER HEALTHCARE AG
By:	By:	/s/ Rey
Print Name:	Print Name:	Rey
Title:	Title:	BHC General Counsel
	By:	/s/ ppa Joachim Neipp
	Print Name:	Neipp
	Title:	BHC-PH Vice President Finance

EXHIBIT A

DEFINED TERMS

A.1 “Affiliate” means, with respect to a Party, an individual, a partnership, a joint venture, a corporation, or any other entity or any combination of the aforementioned entities that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such Party. For purposes of this definition, “control” will mean the possession, direct or indirect, of the power to cause the direction of the management and policies of a Party, whether through ownership of more than fifty percent (50%) of the voting securities of such Party, by contract or otherwise.

A.2 “Alfimeprase” means the polypeptide having the amino acid sequence which is set forth in Exhibit B.

A.3 “Amgen-Nuvelo Agreement” means the license agreement by and between Amgen Inc. and Nuvelo, Inc. dated 4 November 2004.

A.4 “Bayer Know-How” means all Information and Materials Controlled by Bayer during the term of this Agreement necessary or useful to manufacture, Develop or Commercialize of Licensed Product, including but not limited to the following information: (1) all Bayer-sponsored collaborator data and results (subject to any contractual confidentiality obligations of Bayer to Third Parties regarding such results); (2) any regulatory data which Bayer provides to Nuvelo; and (3) such information which Bayer expressly designates in writing it intends to include as Bayer Know-How under this Agreement.

A.5 “Bayer Patent Rights” means Bayer’s rights in those Patent Rights Controlled by Bayer during the term of this Agreement that would, but for the licenses granted by Bayer to Nuvelo under this Agreement, be directly or contributorily infringed by the manufacture, use or sale of Licensed Product.

A.6 “Bayer Technology” means all Bayer Patent Rights and Bayer Know-How and Bayer’s interest in the Joint Patent Rights and Joint Know-How.

A.7 “Bayer Territory” means all countries in the world except for the United States.

A.8 “Bayer Territory Drug Laws” means all laws, rules and regulations that are applicable to the manufacture, use, sale, and promotion of pharmaceutical products for human use in the Bayer Territory and that materially affect Bayer’s performance under this Agreement, including any such laws, rules or regulations that correspond to any US Drug Laws.

A.9 “Clinical Trial” means any Phase 1 Clinical Trial, Phase 2 Clinical Trial, Phase 3 Clinical Trial or Phase 4 Clinical Trial.

A. 10 “Commercialize” or “Commercialization” means all activities relating to the promotion, marketing, advertisement, sale, reimbursement and distribution of Licensed Product, and other pre-launch and post-launch marketing and sale activities for Licensed Product for all indications.

A-1

A.11 “Commercially Reasonable Efforts” means the level of efforts and resources required to Develop, manufacture and Commercialize, as applicable, a Licensed Product in a sustained manner consistent with the efforts a similarly situated biopharmaceutical company (in the case of Nuvelo) or pharmaceutical company (in the case of Bayer) would typically devote to a product of similar market potential at a similar stage in its product life, profit potential or strategic value resulting from its own research efforts, based on conditions then prevailing. Commercially Reasonable Efforts will be determined on a country-by-country (each country including its territories) basis for a particular Licensed Product, and it is anticipated that the level of effort will change over time reflecting changes in the status of the Licensed Product and the country (including its territories) involved. Commercially Reasonable Efforts requires that the Party, at a minimum: (a) promptly assign responsibility for such obligations to specific employee(s) who are held accountable for progress and monitor such progress on an ongoing basis; (b) set and consistently seek to achieve specific and meaningful objectives for carrying out such obligations; and (c) consistently make and implement decisions and allocate resources designed to advance progress with respect to such objectives.

A.12 “Competitive Product” means any [    *    ] other than Licensed Product, that [    *    

*
*
*	]

A.13 “Confidential Information” means all Information received by either Party from the other Party pursuant to this Agreement, other than that portion of such Information which:

(a) is publicly disclosed by the disclosing Party, either before or after it becomes known to the receiving Party;

(b) was known to the receiving Party, without obligation to keep it confidential, prior to when it was received from the disclosing Party;

(c) is subsequently disclosed to the receiving Party by a Third Party lawfully in possession thereof without obligation to keep it confidential;

(d) has been publicly disclosed other than by the disclosing Party and without breach of an obligation of confidentiality with respect thereto; or

(e) has been independently developed by the receiving Party without the aid, application or use of Confidential Information, as demonstrated by competent written proof.

A.14 “Control” or “Controlled” means, with respect to any material, information or intellectual property right, that a Party owns or has a license to such item or right, and possesses the ability to grant the other party access, a license or sublicense as applicable in or to such item or right as provided for herein without violating the terms of any agreement or other arrangement with any Third Party.

[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

A-2

A.15 “Country Specific Trial” means any Clinical Trial relating to Licensed Product that is conducted or sponsored by a Party in its portion of the Territory and that is not a Global Development Program.

A.16 “Development” or “Develop” means all non-clinical and clinical activities including without limitation, all Clinical Trials, undertaken for Licensed Product to file a Drug Approval Application and obtain Regulatory Approval of Licensed Product. For the avoidance of doubt, these activities will include drug development activities, including among other things: animal pharmacology, toxicology, statistical analysis and report writing, CMC activities, manufacturing process development, and the manufacture of non-clinical and clinical supplies, product approval and registration, and regulatory affairs related to the foregoing. When used as a verb, “Develop” means to engage in Development.

A.17 “Development Expense” means expenses incurred by a Party or for its account on or after January 1, 2006, which are specifically attributable to the Development of Licensed Product, including, without limitation:

(a) costs of non-clinical design and evaluation of Licensed Product, and costs of studies on the toxicological, pharmacokinetic, metabolic or clinical aspects of Licensed Product (such costs include the costs of any consultants or other Third Parties engaged by a Party to conduct such design or evaluation);

(b) costs of manufacturing clinical supplies of Licensed Product and, to the extent included in an approved budget for a Global Development Program or otherwise approved by the JSC, costs of process development, CMC activities and scale up of Licensed Product manufacturing; provided, that such costs shall not be included in the transfer price charged pursuant to the Manufacturing Agreement;

(c) costs of conducting Clinical Trials on Licensed Product including the manufacturing cost of clinical supplies of the Licensed Product, regulatory compliance, quality control, medical affairs, clinical operations and study subject recruitment;

(d) costs of preparing, submitting, reviewing or developing data or information for the purpose of submission to a Regulatory Authority to obtain approval to commence Clinical Trials or to obtain Regulatory Approval for Licensed Product;

(e) fees, including FDA user fees, associated with Regulatory Submissions and Regulatory Filings in the United States or the Bayer Territory or other U.S. and foreign governmental requirements related to Licensed Product;

A-3

(f) costs of Third Party licenses under Patents or other intellectual property rights reasonably necessary to develop Licensed Product, but excluding any payments to Amgen Inc. under the Amgen-Nuvelo Agreement; and

(g) such other costs directly related to Development that are included in or contemplated by Development plans or annual Development budgets approved by the JSC;

(h) direct project expenses incurred by third parties being invoiced for services or materials for use in Development of Licensed Products;

(i) Licensed Product related FTEs; and

(j) excludes the Parties’ overhead expenses to the extent not included in FTE Costs.

For purposes of calculating a Party’s internal Development Expenses, the cost of each Party’s FTEs shall be calculated using an FTE rate of $[    *    ] for a U.S. based FTE and using an FTE rate of €[    *    ] for a Bayer Territory based FTE, which shall include the costs associated with the FTE’s compensation, benefits, and all associated support and overhead. Beginning with calendar year 2007, the foregoing FTE rates shall be subject to an annual increase at the beginning of each calendar year by the percentage increase, if any, in the Consumer Price Index for all Urban Consumers for all Items, using index base 1982-84=100 (“CPIU”), as published by the Bureau of Labor Statistics of the United States Department of Labor for the calendar month most recently preceding such calendar year over the CPIU for the same calendar month in the immediately preceding calendar year.

A.18 “Dollar” means a United States dollar, and “$” will be interpreted accordingly.

A.19 “Drug Approval Application” means an application for Regulatory Approval required before commercial sale or use of a Licensed Product as a drug or to treat a particular indication in a regulatory jurisdiction, including without limitation: (a) (i) a Biologics License Application (BLA) pursuant to 21 C.F.R. 601.2, submitted to the FDA, or any successor application or procedure and (ii) any counterpart of a U.S. BLA in another country in the Bayer Territory; and (b) all supplements and amendments, including supplemental BLAs (and any foreign counterparts), that may be filed (e.g., to expand the label) with respect to the foregoing.

A.20 “Expert” means a mutually acceptable, disinterested, conflict-of-interest-free individual not affiliated or consulting with either Party with such scientific, technical and regulatory experience with respect to the development of thrombolytic products as is necessary to resolve a dispute. The Expert shall not be or have been at any time an Affiliate, employee, consultant, officer or director of either Party or any of its respective Affiliates.

A.21 “Expert Matter” means any matter that is referred for resolution to an Expert by mutual agreement of the Parties.

A.22 “FDA” means the United States Food and Drug Administration, or any successor thereto.

[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

A-4

A.23 “FTE” means the equivalent of one person working full time for one 12-month period in a Development, regulatory or other relevant capacity, approximating [    *    ] hours per year. For clarity, however, a single U.S. based individual who works more than [    *    ] hours in a single year shall be treated as one FTE regardless of how many hours in excess of [    *    ] hours he or she works in the year. For a Bayer Territory based individual, the number of hours worked in a single year to be considered as one FTE will be mutually agreed on by the Parties.

A.24 “Field Force” means pharmaceutical sales representatives and medical science liaisons or their equivalents.

A.25 “First Commercial Sale” means, on a country-by-country basis in the Bayer Territory, the initial transfer by Bayer or its Affiliates or Sublicensees under this Agreement of a Licensed Product to a non-Sublicensee Third Party in exchange for cash or some equivalent to which value can be assigned for the purpose of determining Net Sales, following Regulatory Approval to market such Licensed Product in a country.

A.26 “Force Majeure” means any occurrence beyond the reasonable control of a Party that prevents or substantially interferes with the performance by such Party of any of its obligations hereunder, if such occurs by reason of any act of God, flood, fire, explosion, earthquake, breakdown of plant, shortage of critical equipment, loss or unavailability of manufacturing facilities or material, strike, lockout, labor dispute, casualty or accident, or war, revolution, civil commotion, acts of public enemies, blockage or embargo, or any injunction, law, order, proclamation, regulation, ordinance, demand or requirement of any government or of any subdivision, authority or representative of any such government, inability to procure or use materials, labor, equipment, transportation, or energy sufficient to meet manufacturing needs without the necessity of allocation, or any other cause whatsoever, whether similar or dissimilar to those above enumerated, beyond the reasonable control of such Party, if and only if the Party affected will have used reasonable efforts to avoid such occurrence and to remedy it promptly if it will have occurred.

A.27 “GAAP” means United States generally accepted accounting principles.

A.28 “Global Development Programs” means (a) with respect to the acute peripheral arterial occlusion and catheter occlusion indications, those Clinical Trials relating to Licensed Product sponsored by Nuvelo that are in progress but not complete as of the Effective Date, including HA-004, HA-005, HA-006, HA-007, and HA-008 and (b) with respect to stroke, deep vein thrombosis, or any other indications approved by the JSC, those Clinical Trials recommended by the JDC and approved by the JSC that are part of an integrated clinical development program whose primary goal is to generate data that the Parties anticipate at the time of trial design to be required to obtain Regulatory Approval of Licensed Product in the United States, the Major Countries, Canada and Japan. “Global Development Programs” also includes such CMC activities, manufacturing process development and manufacture of clinical supplies of Licensed Product as are approved by the JSC. Global Development Programs may be conducted entirely or partially within the United States, or completely within the Bayer Territory. “Global Development Programs” excludes pricing studies and studies conducted for formulary approval.

[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

A-5

A.29 “IND” means an Investigational New Drug application or its equivalent outside the United States.

A.30 “Information” means all tangible and intangible techniques, technology, practices, trade secrets, inventions (whether patentable or not), methods, knowledge, know-how, conclusions, skill, experience, test data and results (including pharmacological, toxicological and clinical test data and results), analytical and quality control data, results or descriptions, software and algorithms.

A.31 “Initiation” means the administration of Licensed Product to the first patient in a Global Development Program or a Country Specific Trial.

A.32 “Joint Know-How” means Information and Materials characterized, conceived, developed, derived, generated or identified jointly by employees of or consultants to Bayer and employees of or consultants to Nuvelo from the Effective Date through the Term.

A.33 “Joint Patent Rights” means all Patent Rights that claim or disclose Joint Know-How.

A.34 “Knowledge” means a Party’s and its Affiliates’ understanding in good faith of the relevant facts and information after due inquiry and reasonable investigation, resulting from the reasonable conduct of its business affairs, but without the requirement of performing an investigation with respect to any such facts and information by reason of the execution of this Agreement. Needs additional detail

A.35 “Licensed Product” means Alfimeprase formulated for administration in humans.

A.36 “Losses” means liabilities, costs, fees, expenses and/or losses, including without limitation reasonable legal costs and expenses and attorneys’ fees for outside counsel.

A.37 “Major Country” means France, Germany, Italy, United Kingdom or Spain.

A.38 “Materials” means biological materials including, but not limited to, Licensed Product, screens, animal models, cell lines, cells, nucleic acids, receptors and reagents.

A.39 “Net Sales” means all revenues recognized in accordance with GAAP from the sale or other disposition of Licensed Product by Bayer or its Affiliates or Sublicensees to a non-Sublicensee Third Party after deducting returns and allowances (actually paid or allowed) including, but not limited to, prompt payment and volume discounts, price reductions, including government reimbursement programs in the Bayer Territory similar to Medicare and Medicaid and similar types of rebates, chargebacks from wholesalers of Licensed Product (whether in cash or trade), and rebates, when included in gross sales, but not including taxes when assessed on income derived from such sales. Amounts received by Bayer or its Affiliates for the sale of Licensed Product among Bayer or its Affiliates for resale or for transfer of Licensed Product to a Sublicensee for resale will not be included in the computation of Net Sales hereunder.

A-6

Solely for the purpose of calculating Net Sales of Licensed Products, if Bayer or its Affiliate or Sublicensee sells such Licensed Products in the form of a combination product containing any Licensed Product and one or more active ingredients or a delivery device (whether combined in a single formulation or package, as applicable, or formulated or packaged separately but sold together for a single price) (a “Combination Product”), Net Sales of such Combination Product for the purpose of determining the Royalty due to Nuvelo pursuant to this Agreement will be calculated by multiplying actual Net Sales of such Combination Product as determined in the first paragraph of this definition of “Net Sales” by the fraction A/(A+B) where A is the invoice price of such Licensed Product if sold separately, and B is the total invoice price of the other active ingredient(s) or the delivery device in the combination if sold separately. If, on a country-by-country basis, such other active ingredient or ingredients or delivery device in the Combination Product are not sold separately in such country, but the Licensed Product component of the Combination Product is sold separately in such country, Net Sales for the purpose of determining royalties due to Nuvelo pursuant to this Agreement for the Combination Product shall be calculated by multiplying actual Net Sales of the Combination Product by the fraction A/C where A is the invoice price of the Licensed Product component if sold separately, and C is the invoice price of the Combination Product. If, on a country-by-country basis, the Licensed Product component is not sold separately in that country, Net Sales for the purposes of determining royalties due to Nuvelo pursuant to this Agreement for the Combination Product shall be D/(D+E) where D is the fair market value of the portion of the Combination Products that contains the Licensed Product and E is the fair market value of the portion of the Combination Products containing the other active ingredient(s) or delivery device included in such Combination Product as such fair market values are determined by mutual agreement of the Parties.

A.40 “Non-Conformance” shall mean the failure of the Licensed Product to conform to specifications for the Licensed Product as set forth in the Manufacturing Agreement or as otherwise agreed upon in writing by the Parties.

A.41 “Nuvelo Know-How” means all Information and Materials Controlled by Nuvelo prior to or during the Term necessary or useful for the Development or Commercialization of Licensed Product, including but not limited to the following information: (1) information disclosed in the IND for Alfimeprase as of the Effective Date; (2) information disclosed as of the Effective Date in any IND supplements for Alfimeprase; (3) all Nuvelo-sponsored collaborator data and results (subject to any contractual confidentiality obligations of Nuvelo to Third Parties regarding such results); (4) any regulatory data which Nuvelo provides to Bayer; and (5) such information which Nuvelo expressly designates in writing it intends to include as Nuvelo Know-How under this Agreement. Nuvelo Know-How does not include Nuvelo Material and Manufacturing Information.

A.42 “Nuvelo Material and Manufacturing Information” means the most current version of (i) the Materials (other than Licensed Product); and (ii) the Information pertaining to the manufacture of Licensed Product including, without limitation, Information contained in the CMC section of any applicable Regulatory Filings or Information regarding Nuvelo’s manufacturing facility.

A-7

A.43 “Nuvelo Patent Rights” means Nuvelo’s rights in those Patent Rights Controlled by Nuvelo during the term of this Agreement that would, but for the licenses granted by Nuvelo to Bayer under this Agreement, be directly or contributorily infringed by the manufacture, use or sale of Licensed Product. Nuvelo Patent Rights shall include, without limitation, Nuvelo’s rights in those Patent Rights Controlled by Nuvelo on the Effective Date with respect to the Licensed Product and listed in Exhibit C.

A.44 “Nuvelo Technology” means all Nuvelo Patent Rights and Nuvelo Know-How and Nuvelo’s interest in the Joint Patent Rights and Joint Know-How.

A.45 “Nuvelo Territory” means the United States (as defined below).

A.46 “Patent Rights” means (i) a pending application for a patent, including without limitation any provisional, converted provisional, continued prosecution application, continuation, divisional or continuation-in-part thereof; or (ii) an issued, unexpired patent (with the term “patent” being deemed to encompass, without limitation, an inventor’s certificate) which has not been held invalid or unenforceable by a court of competent jurisdiction from which no appeal can be taken or has been taken within the required time period, including without limitation any substitution, extension, registration, confirmation, reissue, re-examination, renewal or any like filing thereof.

A.47 “Phase 1 Clinical Trial(s)” means those clinical trials conducted in patients or normal volunteers and designed to determine the metabolism and pharmacologic actions of Licensed Product in humans, the side effects associated with Licensed Product, early evidence on effectiveness, structure-activity relationships, or mechanism of action in humans, and that satisfy the requirements of 21 CFR 312.21(a) (or its successor regulation) or the equivalent thereof in any jurisdiction outside the United States.

A.48 “Phase 2 Clinical Trial(s)” means those clinical trials that are designed to establish the safety and preliminary efficacy of Licensed Product for its intended use, and to define warnings, precautions, and adverse reactions that are associated with the drug in the dosage range to be prescribed and that satisfy the requirements of 21 CFR 312.21(b) (or its successor regulation) or the equivalent thereof in any jurisdiction outside the United States.

A.49 “Phase 3 Clinical Trial(s)” means those clinical trial(s) that satisfy the provisions of 21 CFR 321.21(c) and any successor regulation, or the equivalent thereof in any jurisdiction outside the United States, and are designed to gather additional evidence of safety and efficacy of Licensed Product to support Regulatory Approval and to evaluate the overall risks and benefits of a Licensed Product.

A.50 “Phase 4 Clinical Trial(s)” means those clinical trial(s), conducted pre-or post-launch of a Licensed Product that may be required for approval or maintenance of a Drug Approval Application or that may be conducted by discretion. “Phase 4 Clinical Trials” may include safety or surveillance studies, pharmacoeconomic studies, pharmacoepidemiology studies or investigator sponsored studies.

A-8

A.51 “Product Liability Claim” means any Third Party claim, suit, action or demand that arises as a result of use of the Licensed Product during the Term that results in personal injury or death.

A.52 “Product Trademark” means any trademarks and trade names (and trademark applications (whether or not registered) together with all goodwill associated therewith, and any renewals, extensions or modifications thereto), trade dress and packaging which (a) are owned by or Controlled by either Party and (b) are applied to or used with Licensed Product or any Promotional Materials.

A.53 “Promotional Materials” means all sales representative training materials and all written, printed, graphic, electronic, audio or video matter including, but not limited to, journal advertisements, sales visual aids, direct mail, direct-to-consumer advertising, Internet postings, broadcast advertisements, and sales reminder aids (e.g., scratch pads, pens and other such items) intended for use or used by a Party in connection with any promotion of Licensed Product, except for (i) the Regulatory Authority-approved full prescribing information for a Licensed Product, including any required patient information and (ii) all labels and other written, printed or graphic matter upon any container, wrapper, or any package insert or outsert utilized with or for a Licensed Product.

A.54 “Recall” means an event, incident or circumstance that may result in the need for a “recall” or “market withdrawal” (as those terms are defined in U.S. regulations in 21 C.F.R. 7.3 or other similar national, state or local law or regulations) or field alert or field correction of Licensed Product or any lot thereof.

A.55 “Regulatory Approval” means any approvals (including supplements, amendments, pre- and post-approvals, reimbursement approval and price approvals), licenses, registrations or authorizations of any national, supra-national, regional, state or local regulatory agency, department, bureau, commission, council or other governmental entity, including the FDA or equivalent foreign Regulatory Authorities, necessary for the distribution, use or sale of Licensed Product in a regulatory jurisdiction. Regulatory Approval does not include any site license for a Nuvelo manufacturing facility.

A.56 “Regulatory Authority” means the FDA or any foreign counterpart of the FDA.

A.57 “Regulatory Filings” means collectively, Indus, establishment license applications (ELAs) and drug master files (DMFs), applications for designation of a Licensed Product as an “Orphan Product” under the Orphan Drug Act, or any other similar filings (including any foreign equivalents and further including any related correspondence and discussions), and all data contained therein, as may be required by the FDA or equivalent foreign Regulatory Authorities for the Development, manufacture or Commercialization of a Licensed Product.

A.58 “Royalty” or “Royalties” means those amounts payable as royalties by Bayer to Nuvelo pursuant to Section 8.3 of this Agreement.

A.59 “Sublicensee” means a Third Party to whom Bayer will have granted a license or sublicense under Bayer’s rights pursuant to Section 2.4 to sell, offer for sale, or import Licensed

A-9

Product in one or more Sublicense Countries. Solely for the purpose of any compensation payable to Nuvelo hereunder, “Sublicensee” will include a Third Party to whom Bayer or another Sublicensee will have granted the right to distribute Licensed Product wherein such distributor pays to Bayer or such other Sublicensee a royalty based upon the revenues received by the distributor for the sale of Licensed Product, but will not include (i) any Third Party who receives an implied license to use a unit of Licensed Product arising by operation of law, as a consequence of the purchase of said unit of Licensed Product or (ii) any Third Party where Bayer or another Sublicensee sells Licensed Product at a fixed transfer price to such distributor for resale by such distributor and Bayer is not compensated based on the resale price of such Licensed Product by such distributor.

A.60 “Sublicense Countries” means all countries in the Bayer Territory other than those countries in the European Community, Australia, Canada, Japan and the People’s Republic of China.

A.61 “Term” has the meaning set forth in Section 15.1.

A.62 “Territory” means, collectively, the Bayer Territory and the Nuvelo Territory.

A.63 “Third Party” means any individual, or entity other than Nuvelo or Bayer or an Affiliate of either of them.

A.64 “Third Party Payment” means all upfront payments, milestone payments, license fees, royalties or other payments, payable to any Third Party under any Third Party Agreement, other than the Amgen-Nuvelo Agreement, deemed necessary by Bayer to use, sell, offer to sell, and import, export or otherwise transfer physical possession of or otherwise transfer title in Licensed Product.

A.65 “Trademark” means any and all corporate names, trade names, service marks, logos or trademarks and trademark applications (whether or not registered) together with all good will associated therewith, and any renewals, extensions or modifications thereto either filed or used.

A.66 “United States” or “US” means the United States of America, together with its territories and possessions.

A.67 “US Drug Laws” means all United States federal and state laws, rules and regulations applicable to the manufacture, use, sale, and promotion of pharmaceutical products for human use in the United States, including without limitation the United States Food, Drug and Cosmetics Act and all rules regulations promulgated thereunder.

A.68 “Valid Claim” means (i) an unexpired claim of an issued patent within the Nuvelo Patent Rights and Joint Patent Rights that has not been found to be unpatentable, invalid or unenforceable by a court or other authority in the country of the patent, from which decision no appeal is taken or can be taken; or (ii) a claim of a pending application within the Nuvelo Patent Rights and Joint Patent Rights, wherein such pending application claims a first priority no more than ten (10) years prior to the date upon which pendency is determined.

A-10

EXHIBIT B

PROTEIN SEQUENCE OF ALFIMEPRASE

RN	259074-76-5 ZREGISTRY
CN	3-203-Fibrolase [3-serine] (Agkistrodon contortrix contortrix recombinant) (9CI) (CA INDEX NAME)
FS	PROTEIN SEQUENCE
SQL	201
NTE

type	location		description
bridge bridge bridge	Cys-116 Cys-156 Cys-158	- Cys-196 - Cys-180 - Cys-163	disulfide bridge disulfide bridge disulfide bridge

SEQ	1	SFPQRYVQLV	VADHRMNTK	YNGDSDKIRQ	WVHQIVHTIN	EIYRPLNIQF
	51	TLVGLEIWSN	QDLITVTSVS	HDTLASFGNW	RETDLLRRQR	HDNAQLLTAI
	101	DFDGDTVGLA	YVGGMCQLKH	STGVIQDHSA	INLLVALTMA	HELGHNLGMN
	151	HDGNQCHCGA	NSCVMAAMLS	DQPSKLFSDC	SKKDYQTFLT	VNNPQCILNK
	201	P
SEQ3	1	Ser-Phe-Pro-Gln-Arg-Tyr-Val-Gln-Leu-Val-
	11	Ile-Val-Ala-Asp-His-Arg-Met-Asn-Thr-Lys-
	21	Tyr-Asn-Gly-Asp-Ser-Asp-Lys-Ile-Arg-Gln-
	31	Trp-Val-His-Gln-Ile-Val-Asn-Thr-IlE-Asn-
	41	Glu-Ile-Tyr-Arg-Pro-Leu-Asn-Ile-Gln-Phe-
	51	Thr-Leu-Val-Gly-Leu-Glu-Ile-Trp-Ser-Asn-
	61	Gln-Asp-Leu-Ile-Thr-Val-Thr-Ser-Val-Ser-
	71	His-Asp-Thr-Leu-Ala-Ser-Phe-Gly-Asn-Trp-
	81	Arg-Glu-Thr-Asp-Leu-Leu-Arg-Arg-Gln-Arg-
	91	His-Asp-Asn-Ala-Gln-Leu-Leu-Thr-Ala-Ile-
	101	Asp-Phe-Asp-Gly-Asp-Thr-Val-Gly-Leu-Ala-
	111	Tyr-Val-Gly-Gly-Met-Cys-Gln-Leu-Lys-His-
	121	Ser-Thr-Gly-Val-Ile-Gln-Asp-His-Ser-Ala-
	131	Ile-Asn-Leu-Leu-Val-Ala-Leu-Thr-Met-Ala-
	141	His-Glu-Leu-Gly-His-Asn-Leu-Gly-Met-Asn-
	151	His-Asp-Gly-Asn-Gln-Cys-His-Cys-Gly-Ala-
	161	Asn-Ser-Cys-Val-Met-Ala-Ala-Met-Leu-Ser-
	171	Asp-Gln-Pro-Ser-Lys-Leu-Phe-Ser-Asp-Cys-
	181	Ser-Lys-Lys-Asp-Tyr-Gln-Thr-Phe-Leu-Thr-
	191	Val-Asn-Asn-Pro-Gln-Cys-Ile-Leu-Asn-Lys-
	201	Pro

B-1

EXHIBIT C

NUVELO PATENT RIGHTS AS OF THE EFFECTIVE DATE

PATENTS

COUNTRY	TITLE	PATENT #
ALBANIA	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	01133
ARMENIA	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	004627
AUSTRALIA	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	769313
AUSTRIA	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	1220685
AZERBAIJAN	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	004627
BELARUS	PHARMACEUTICAL COMPOSITIONS OF FlBRINOLYTIC AGENT	004627
BELGIUM	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	1220685
CYPRUS	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	1220685
DENMARK	PHARMACEUTICAL COMPOSITIONS OF FlBRINOLYTIC AGENT	1220685
EURASIAN PATENT OFFICE	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	004627
EUROPEAN PATENT OFFICE	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	1220685
FEDERATION OF RUSSIA	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	004627
FINLAND	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	1220685
FRANCE	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	1220685
GERMANY	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	1220685
GREAT BRITAIN	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	1220685
GREECE	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	1220685
HONG KONG	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	HK1049112
IRELAND	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	1220685
ITALY	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	1220685
KAZAKHSTAN	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	004627
KYRGYZSTAN	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	004627
LATVIA	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	1220685

PATENTS

COUNTRY	TITLE	PATENT #
LITHUANIA	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	1220685
LUXEMBOURG	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	1220685
MACEDONIA	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	P-20040168
MEXICO	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	230347
MOLDOVA	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	004627
MONACO	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	1220685
NETHERLANDS	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	1220685
NEW ZEALAND	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	518007
NEW ZEALAND	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	530959
PORTUGAL	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	1220685
ROMANIA	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	1220685
SINGAPORE	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	88065
SLOVENIA	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	1220685
SOUTH AFRICA	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	2002/2400
SPAIN	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	ES2218228 T3
SWEDEN	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	1220685
SWITZERLAND	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	1220685
TAJIKISTAN	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	004627
TURKMENISTAN	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	004627
ALBANIA	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	AL-P-2005-01519
AUSTRALIA	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	767827
AUSTRIA	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	1224298
BELGIUM	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	1224298
CYPRUS	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	1224298
DENMARK	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	1224298

PATENTS

COUNTRY	TITLE	PATENT #
EURASIAN PATENT OFFICE	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	005944
EUROPEAN PATENT OFFICE	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	1224298
FINLAND	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	1224298
FRANCE	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	1224298
GERMANY	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	60019147.8
GREAT BRITAIN	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	1224298
GREECE	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	3053219
HONG KONG	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	HK1049351
IRELAND	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	1224298
ITALY	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	1224298
LATVIA	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	1224298
LITHUANIA	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	1224298
LUXEMBOURG	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	1224298
MACEDONIA	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	1224298
MONACO	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	1224298
NETHERLANDS	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	1224298
NEW ZEALAND	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	517951
PORTUGAL	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	1224298
ROMANIA	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	1224298
SINGAPORE	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	87654
SLOVENIA	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	P-200030687
SPAIN	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	ES2240167 T3
SOUTH AFRICA	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	2002/2206
SWEDEN	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	1224298

PATENTS

COUNTRY	TITLE	PATENT #
SWITZERLAND	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	1224298
AUSTRIA	METHOD FOR LOCALIZED ADMINISTRATION OF FIBRINOLYTIC METALLOPROTEINASES	E298585
BELGIUM	METHOD FOR LOCALIZED ADMINISTRATION OF FIBRINOLYTIC METALLOPROTEINASES	1239873
CYPRUS	METHOD FOR LOCALIZED ADMINISTRATION OF FIBRINOLYTIC METALLOPROTEINASES	1239873
DENMARK	METHOD FOR LOCALIZED ADMINISTRATION OF FIBRINOLYTIC METALLOPROTEINASES	1239873
EUROPEAN PATENT OFFICE	METHOD FOR LOCALIZED ADMINISTRATION OF FIBRINOLYTIC METALLOPROTEINASES	1239873
FINLAND	METHOD FOR LOCALIZED ADMINISTRATION OF FIBRINOLYTIC METALLOPROTEINASES	1239873
FRANCE	METHOD FOR LOCALIZED ADMINISTRATION OF FIBRINOLYTIC METALLOPROTEINASES	1239873
GERMANY	METHOD FOR LOCALIZED ADMINISTRATION OF FIBRINOLYTIC METALLOPROTEINASES	600211118.08
GREAT BRITAIN	METHOD FOR LOCALIZED ADMINISTRATION OF FIBRINOLYTIC METALLOPROTEINASES	1239873
GREECE	METHOD FOR LOCALIZED ADMINISTRATION OF FIBRINOLYTIC METALLOPROTEINASES	EP/27757
HONG KONG	USE OF FIBRINOLYTIC METALLOPROTEINASES FOR THE THERAPEUTIC TREATMENT OF A BLOOD CLOT	HK1050845
IRELAND	METHOD FOR LOCALIZED ADMINISTRATION OF FIBRINOLYTIC METALLOPROTEINASES	1239873
ITALY	METHOD FOR LOCALIZED ADMINISTRATION OF FIBRINOLYTIC METALLOPROTEINASES	1239873
LITHUANIA	METHOD FOR LOCALIZED ADMINISTRATION OF FIBRINOLYTIC METALLOPROTEINASES	1239873
LUXEMBOURG	METHOD FOR LOCALIZED ADMINISTRATION OF FIBRINOLYTIC METALLOPROTEINASES	1239873

PATENTS

COUNTRY	TITLE	PATENT #
MACEDONIA	METHOD FOR LOCALIZED ADMINISTRATION OF FIBRINOLYTIC METALLOPROTEINASES	1239873
NETHERLANDS	METHOD FOR LOCALIZED ADMINISTRATION OF FIBRINOLYTIC METALLOPROTEINASES	1239873
PORTUGAL	METHOD FOR LOCALIZED ADMINISTRATION OF FIBRINOLYTIC METALLOPROTEINASES	1239873
ROMANIA	METHOD FOR LOCALIZED ADMINISTRATION OF FIBRINOLYTIC METALLOPROTEINASES	1239873
SLOVENIA	METHOD FOR LOCALIZED ADMINISTRATION OF FIBRINOLYTIC METALLOPROTEINASES	1239873
SOUTH AFRICA	METHOD FOR TREATMENT OF INDWELLING CATHETER OCCLUSION USING FIBRINOLYTIC METALLOPROTEINASES	2005/0610
SPAIN	METHOD FOR TREATMENT OF INDWELLING CATHETER OCCLUSION USING FIBRINOLYTIC METALLOPROTEINASES	1239873
SWEDEN	METHOD FOR LOCALIZED ADMINISTRATION OF FIBRINOLYTIC METALLOPROTEINASES	1239873
SWITZERLAND	METHOD FOR LOCALIZED ADMINISTRATION OF FIBRINOLYTIC METALLOPROTEINASES	1239873
TURKEY	METHOD FOR LOCALIZED ADMINISTRATION OF FIBRINOLYTIC METALLOPROTEINASES	2005/03702

PATENT APPLICATIONS

COUNTRY	TITLE	PATENT #
AUSTRALIA	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	2004201694
BRAZIL	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	Pl 0014420-7
BULGARIA	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	106578
CANADA	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	2385966
CHINA	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	00816379.0
CZECH REPUBLIC	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	PV 2002-1033
EURASIAN PATENT OFFICE	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	200400182
EUROPEAN PATENT OFFICE	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	04007657.2

PATENT APPLICATIONS

COUNTRY	TITLE	PATENT #
HONG KONG	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	05100485.7
HUNGARY	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	P0202654
ISRAEL	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	148842
JAPAN	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	2001-527816
NEW ZEALAND	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	540967
NORWAY	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	0020021500
POLAND	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	P-355016
SERBIA & MONTENEGRO	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	P-233/02
SINGAPORE	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	200400542-7
SLOVAK REPUBLIC	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	424-2002
SOUTH KOREA	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	10-2002-7004128
WIPO	PHARMACEUTICAL COMPOSITIONS OF FIBRINOLYTIC AGENT	PCT/US00/27022
AUSTRALIA	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	2004200776
BRAZIL	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	PI 0014414-2
BULGARIA	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	106577
CANADA	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	2386185
CHINA	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	00816321.9
CZECH REPUBLIC	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	PV 2002-1034
EURASIAN PATENT OFFICE	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	200400290
EUROPEAN PATENT OFFICE	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	05006771.9
HONG KONG	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	N/A
HUNGARY	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	P0202650
ISRAEL	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	148787
JAPAN	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	2001-528597
MEXICO	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	PA/a/2002/003126
MEXICO	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	PA/a/2004/012436

PATENT APPLICATIONS

COUNTRY	TITLE	PATENT #
NEW ZEALAND	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	530114
NORWAY	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	20021501
POLAND	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	P-355017
SERBIA & MONTENEGRO	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	P-225/02
SERBIA & MONTENEGRO	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	P-596/04
SINGAPORE	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	200401889-1
SLOVAK REPUBLIC	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	PV0423-2002S
SOUTH KOREA	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	10-2002-7004225
WIPO	FIBRINOLYTICALLY ACTIVE POLYPEPTIDE	PCT/US00/27029
AUSTRALIA	METHOD FOR LOCALIZED ADMINISTRATION OF FlBRINOLYTIC METALLOPROTEINASES	24346/01
CANADA	METHOD FOR LOCALIZED ADMINISTRATION OF FIBRINOLYTIC METALLOPROTEINASES	2394613
EUROPEAN PATENT OFFICE	METHOD FOR LOCALIZED ADMINISTRATION OF FIBRINOLYTIC METALLOPROTEINASES	05013933.6
HONG KONG	METHOD FOR LOCALIZED ADMINISTRATION OF FIBRINOLYTIC METALLOPROTEINASES	N/A
JAPAN	METHOD FOR LOCALIZED ADMINISTRATION OF FIBRINOLYTIC METALLOPROTEINASES	2001-544901
MEXICO	METHOD FOR LOCALIZED ADMINISTRATION OF FIBRINOLYTIC METALLOPROTEINASES	PA/a/2002/006024
WIPO	METHOD FOR LOCALIZED ADMINISTRATION OF FIBRINOLYTIC METALLOPROTEINASES	PCT/US00/34143
AUSTRALIA	METHOD FOR TREATMENT OF INDWELLING CATHETER OCCLUSION USING FIBRINOLYTIC METALLOPROTEINASES	2003279258
BRAZIL	METHOD FOR TREATMENT OF INDWELLING CATHETER OCCLUSION USING FIBRINOLYTIC METALLOPROTEINASES	PI 0312149-6

PATENT APPLICATIONS

COUNTRY	TITLE	PATENT #
CANADA	METHOD FOR TREATMENT OF INDWELLING CATHETER OCCLUSION USING FIBRINOLYTIC METALLOPROTEINASES	2489997
CHINA	METHOD FOR TREATMENT OF INDWELLING CATHETER OCCLUSION USING FIBRINOLYTIC METALLOPROTEINASES	03819829.0
CZECH REPUBLIC	METHOD FOR TREATMENT OF INDWELLING CATHETER OCCLUSION USING FIBRINOLYTIC METALLOPROTEINASES	PV2005-23
EURASIAN PATENT OFFICE	METHOD FOR TREATMENT OF INDWELLING CATHETER OCCLUSION USING FIBRINOLYTIC METALLOPROTEINASES	200500065
EUROPEAN PATENT OFFICE	METHOD FOR TREATMENT OF INDWELLING CATHETER OCCLUSION USING FIBRINOLYTIC METALLOPROTEINASES	03742133.6
HONG KONG	METHOD FOR TREATMENT OF INDWELLING CATHETER OCCLUSION USING FIBRINOLYTIC METALLOPROTEINASES	05105128.9
ISRAEL	METHOD FOR TREATMENT OF INDWELLING CATHETER OCCLUSION USING FIBRINOLYTIC METALLOPROTEINASES	165834
JAPAN	METHOD FOR TREATMENT OF INDWELLING CATHETER OCCLUSION USING FIBRINOLYTIC METALLOPROTEINASES	2004-516120
MEXICO	METHOD FOR TREATMENT OF INDWELLING CATHETER OCCLUSION USING FIBRINOLYTIC METALLOPROTEINASES	PA/a/2004/012847
NEW ZEALAND	METHOD FOR TREATMENT OF INDWELLING CATHETER OCCLUSION USING FIBRINOLYTIC METALLOPROTEINASES	537454
NORWAY	METHOD FOR TREATMENT OF INDWELLING CATHETER OCCLUSION USING FIBRINOLYTIC METALLOPROTEINASES	20050328
PHILIPPINES	METHOD FOR TREATMENT OF INDWELLING CATHETER OCCLUSION USING FIBRINOLYTIC METALLOPROTEINASES	1-2004-502094

PATENT APPLICATIONS

COUNTRY	TITLE	PATENT #
POLAND	METHOD FOR TREATMENT OF INDWELLING CATHETER OCCLUSION USING FIBRINOLYTIC METALLOPROTEINASES	N/A
SERBIA & MONTENEGRO	METHOD FOR TREATMENT OF INDWELLING CATHETER OCCLUSION USING FIBRINOLYTIC METALLOPROTEINASES	P-31/05
SINGAPORE	METHOD FOR TREATMENT OF INDWELLING CATHETER OCCLUSION USING FIBRINOLYTIC METALLOPROTEINASES	200407561-0
SLOVAK REPUBLIC	METHOD FOR TREATMENT OF INDWELLING CATHETER OCCLUSION USING FIBRINOLYTIC METALLOPROTEINASES	PV 5003-2005
SOUTH KOREA	METHOD FOR TREATMENT OF INDWELLING CATHETER OCCLUSION USING FIBRINOLYTIC METALLOPROTEINASES	10-2004-7020869
WIPO	METHOD FOR TREATMENT OF INDWELLING CATHETER OCCLUSION USING FIBRINOLYTIC METALLOPROTEINASES	PCT/US03/19702

EXHIBIT D

BAYER’S EXCLUSIONS TO COMPETITIVE PRODUCTS

[ATTACHED]

EXHIBIT D

[    *    ]

[*] Certain confidential information contained in this document, marked by brackets has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

EXHIBIT E

SUMMARY OF BUDGET FOR GLOBAL DEVELOPMENT PROGRAMS IN 2006

[ATTACHED]

Alfimeprase Expenses (December Update)

Future Expenses

figures are (‘000)

	2006			2006
	Q1	Q2	Q3	Q4	Total
Clinical / Regulatory
•      PAO/CO	[		*
•      DVT/ Stroke			*
•      FTE Allocation ($)			*
•      FTE Equivalent (#)			*
Manufacturing
•      Bulk Drug Substance (Avecia)			*
•      Final Drug Product Production [    *    ]			*
•      Stability & Product Characterization [    *    ]			*
•      Other Product Characterization, Process Validation,
Clinical Packaging & Distribution			*
•      Consultants			*
•      Headcount Related			*
•      FTE Allocation ($)			*
•      FTE Equivalent (#)			*
Capital & Software
•      SAS/CDM/Safety Database			*
•      Formulation tanks & Other Capital			*
G&A (Allocation)	—	—	—	—	—
Total cost			*		]

Notes:

2006 expenses based on a $[    *    ] FTE rate

[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, as amended.

Alfimeprase Financials (Dec Update)

EX-21.1

Exhibit 21.1

LIST OF SUBSIDIARIES

AS OF DECEMBER 31, 2005

1. Hyseq Diagnostics, Inc., a Nevada corporation.

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Nuvelo, Inc.:

We consent to the incorporation by reference in the registration statements on Form S-3 (Nos. 333-131392, 333-128316, 333-126591, 333-118821, 333-112209, 333-106873, 333-103257, 333-90458 and 333-70134) and the registration statements on Form S-8 (Nos. 333-115747, 333-108563, 333-103055, 333-101276, 333-96313, 333-91471, 333-68172, 333-68170, 333-53089, 333-53087, 333-41663, 333-39194 and 333-08978) of Nuvelo, Inc. and subsidiary of our reports dated March 15, 2006, with respect to the consolidated balance sheets of Nuvelo, Inc. and subsidiary as of December 31, 2005 and 2004 and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for each of the years in the three-year period ended December 31, 2005, management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2005, and the effectiveness of internal control over financial reporting as of December 31, 2005, which reports appear in the December 31, 2005 annual report on Form 10-K of Nuvelo, Inc.

/s/    KPMG LLP

San Francisco, California

March 15, 2006

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Ted W. Love, certify that:

1. I have reviewed this annual report on Form 10-K of Nuvelo, Inc.;

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

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

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

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

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

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

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation 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: March 15, 2006

/s/    TED W. LOVE        

Ted W. Love

Chairman of the Board and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Gary S. Titus, certify that:

1. I have reviewed this annual report on Form 10-K of Nuvelo, Inc.;

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

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

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

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

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

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

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation 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: March 15, 2006

/s/    GARY S. TITUS        

Gary S. Titus

Vice President and acting Chief Financial Officer

EX-32.1

Exhibit 32.1

NUVELO, INC.

CERTIFICATION PURSUANT TO

18 U.S.C. SEC. 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

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

(1) The Company’s Annual Report on Form 10-K for the period ended December 31, 2005, to which this Certification is attached as Exhibit 32.1 (the “Annual Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act, and

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

In Witness Whereof, the undersigned have set their hands hereto as of the 15th day of March, 2006.

/s/    TED W. LOVE	/s/    GARY S. TITUS
Ted W. Love Chairman of the Board and Chief Executive Officer	Gary S. Titus Vice President and acting Chief Financial Officer

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

Date: March 15, 2006