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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ending March 31, 2005

For the transition period from                      to                     

Commission File Number: 000-29101

SEQUENOM, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (858) 202-9000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨

The number of shares of the Registrant’s Common Stock outstanding as of April 29, 2005 was 40,428,276.

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SEQUENOM, INC.

INDEX

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PART I - FINANCIAL INFORMATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except par value and share information)

See accompanying notes.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share information)

See accompanying notes.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

See accompanying notes.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of Presentation

The accompanying unaudited consolidated financial statements of SEQUENOM, Inc. have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of results for a full year.

The condensed balance sheet at December 31, 2004 has been derived from the audited financial statements at that date but does not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. Certain amounts in the condensed consolidated statement of operations for the three months ended March 31, 2004 have been reclassified to conform with current year presentation.

These financial statements should be read in conjunction with the audited financial statements and disclosures thereto included in SEQUENOM’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2004, as filed with the Securities and Exchange Commission (“SEC”).

(2) Segment information

During the third quarter of 2004, we terminated our internal drug discovery efforts and closed our SEQUENOM Pharmaceuticals business segment. Our outlicensing program for diagnostic and therapeutic product development and associated research activities, formerly within the SEQUENOM Pharmaceuticals business segment, is now reported within our total expense categories. All of our activities are now within one business segment and accordingly we report the consolidated results of our activities without segmental disclosure.

(3) Comprehensive Income (Loss)

Statement of Financial Accounting Standards (“SFAS”) No. 130, Reporting Comprehensive Income, requires reporting and displaying comprehensive income (loss) and its components, which, for us, includes net loss and unrealized gains and losses on investments and foreign currency translation gains and losses. In accordance with SFAS No. 130, the accumulated balance of other comprehensive income (loss) is disclosed as a separate component of stockholders’ equity. A summary of our comprehensive loss is as follows (dollars in thousands):

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(4) Net Loss Per Share

In accordance with SFAS No. 128, Earnings Per Share, basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares are comprised of incremental common shares issuable upon the exercise of stock options and warrants, and were excluded from historical diluted loss per share because of their anti-dilutive effect.

(5) Stock-Based Compensation

We account for our stock-based awards to employees in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”) and the related Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation—An Interpretation of APB Opinion No. 25. We have adopted the disclosure-only alternative of SFAS 123, Accounting for Stock-Based Compensation (“SFAS No. 123”), as amended by SFAS 148, Accounting for Stock-Based Compensation—Transition and Disclosure (“SFAS No. 148”).

Had compensation cost for stock-based awards been determined consistent with the fair value method prescribed in SFAS No. 123, our net loss would have been changed to the following pro forma amounts (dollars in thousands, except per share information):

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Options or stock awards issued to non-employees are recorded at their fair value and periodically remeasured as determined in accordance with SFAS No. 123 and EITF 96-18 Accounting for Equity Instruments with Variable Terms that are Issued For Consideration other than Employee Services Under SFAS No. 123, and recognized over the related service period.

(6) Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market value. Standard cost, which approximates actual cost, is used to value inventories. The components of inventories were (dollars in thousands):

Inventories are shown net of excess and obsolescence reserves of $3.5 million and $3.2 million at March 31, 2005 and December 31, 2004, respectively.

(7) Acquisition and Integration Costs

As of March 31, 2005, we had approximately $1.4 million remaining in accrued acquisition costs, relating to the acquisition of Gemini Genomics, plc in 2001. The remaining acquisition liability relates to facility exit costs.

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The activity in the three months ended March 31, 2005 was as follows (dollars in thousands):

(8) Restructuring charge

During the third quarter of 2004, we closed our SEQUENOM Pharmaceuticals business segment, which reduced our headcount by approximately 50 at the end of 2004 compared to our headcount prior to the restructuring. We continue with our outlicensing program to seek to capitalize on the potential value of our disease gene discoveries for diagnostic and therapeutic product development. During the first quarter of 2005, we sold certain tangible assets and recovered $0.2 million in excess of the carrying value which we had previously fully provided for as part of the restructuring charge. We do not expect to incur additional expense or recover additional amounts from exiting this activity. The total restructuring cost of $2.0 million, incurred during 2004 and the first quarter of 2005,was made up of $1.1 million of impairment charges for long-lived assets, $0.1 million of contract termination costs and $0.8 million of one-time termination benefits. We had no accrued balance at December 31, 2004 or March 31, 2005 in respect to the restructuring charge.

(9) Warranty reserves

Generally, we do not have any significant post-delivery obligations associated with our product sales. We accrue for warranty costs and other allowances at the time of shipment based on historical service expense and trends. Such amounts are not generally significant.

(10) Litigation

In November 2001, we and certain of our current or former officers and directors were named as defendants in a class action shareholder complaint filed by Collegeware USA in the U.S. District Court for the Southern District of New York (now captioned In re Sequenom, Inc. IPO Securities Litigation) Case No. 01-CV-10831. Similar complaints were filed in the same Court against hundreds of other public companies that conducted initial public offerings of their common stock in the late 1990s and 2000. In the complaint, the plaintiffs allege that our underwriters, certain of our officers and directors and we violated the federal securities laws because our registration statement and prospectus contained untrue statements of material fact or omitted material facts regarding the compensation to be received by and the stock allocation practices of the underwriters. The plaintiffs seek unspecified monetary damages and other relief. In October 2002, our officers and directors were dismissed without prejudice pursuant to a stipulated dismissal and tolling agreement with the plaintiffs. In February 2003, the court dismissed the claim against us brought under Section 10(b) of the Securities Exchange Act of 1934, without giving the plaintiffs leave to amend the complaint with respect to that claim. The court declined to dismiss the claim against us brought under Section 11 of the Securities Act of 1933.

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In June 2003, pursuant to the authorization of a special litigation committee of our Board of Directors, we approved in principle a settlement offer by the plaintiffs. In June 2004, we entered into a settlement agreement with the plaintiffs. On February 15, 2005, the Court issued a decision certifying a class action for settlement purposes and granting preliminary approval of the settlement subject to modification of certain bar orders contemplated by the settlement. In addition, the settlement is still subject to statutory notice requirements as well as final judicial approval. Management does not anticipate that the ultimate outcome of this event will have a material adverse impact on our financial position.

In August 2004, we were named as a defendant in a complaint filed by a former employee, Daniel P. Little (“plaintiff”) in the United States District Court for the Southern District of California, Case No. 04 CV 1737 J. In the complaint, the plaintiff alleges that the we have violated plaintiff’s rights under a 1957 German law, known as “Law Relating to Inventions Made by Employees”, in connection with plaintiff’s activities in Germany for Sequenom, GmbH, beginning in or about October 1995. This law provides for compensation to an employee in consideration for rights to employee inventions. Although we have made several royalty payments to plaintiff, plaintiff alleges that the amount of royalty has been in dispute as have been the triggering events. Plaintiff asserts causes of action against us including rescission, breach of contract, quantum meruit, unfair business practices, and fraud. Plaintiff further alleges that Sequenom GmbH failed to follow the mandatory process of the 1957 German law and never provided the necessary written claim of ownership of the inventions made by plaintiff while in Germany. The plaintiff seeks unspecified monetary damages and other relief including ownership and patent rights for all inventions claimed in patents to which he contributed while employed in Germany, including U.S. Patents 6,258,538, 6,569,385, and 6,602,662, which are asserted to include coverage for key elements of our MassARRAY technology, among other patents. In November 2004, the Court dismissed plaintiff’s quantum meruit, unfair business practices, and fraud claims. In November 2004, we answered the complaint, denying all material allegations. In April 2005, we entered into a settlement agreement with plaintiff providing for dismissal of the complaint with prejudice and a complete and full release of all claims against us. Dismissal of the complaint was entered by the court on April 25, 2005.

In addition, from time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business.

(11) New Accounting Pronouncements

In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4. This statement amends the guidance in ARB No. 43 Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB No. 43, Chapter 4, previously stated that “under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal to require treatment as current period charges” This statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this statement will be effective for

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inventory costs during the fiscal years beginning after June 15, 2005. We do not believe that the adoption of this statement will have a material impact on our financial condition or results of operations.

On December 16, 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment, which is a revision of SFAS No. 123. SFAS No. 123R supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS 95, Statement of Cash Flows. Generally, the approach in SFAS No. 123R is similar to the approach described in SFAS No. 123. However, SFAS No.123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. SFAS No. 123R must be adopted no later than the beginning of our next financial year. Early adoption will be permitted in periods in which financial statements have not yet been issued. We previously reported that we were required to adopt the provisions of SFAS No. 123(R) effective as of the beginning of the third quarter of 2005; however, in April 2005, the Securities and Exchange Commission adopted a new rule, which deferred our required adoption date to the beginning of the first quarter of 2006.

As permitted by SFAS No. 123, we currently account for share-based payments to employees using APB 25’s intrinsic value method and, as such, generally recognize no compensation cost for employee stock options. Accordingly, the adoption of SFAS No. 123R’s fair value method will have a significant impact on our result of operations, although it will have no impact on our overall financial position. The impact of adoption of SFAS No. 123R cannot be predicted at this time because it will depend on levels of share-based payments granted in the future and the assumptions for the variables which impact the computation. However, had we adopted SFAS No. 123R in prior periods, the impact of that standard would have approximated the impact of SFAS 123 as described in the disclosure of pro forma net income and earnings per share in Note 5 to our consolidated financial statements included elsewhere in this report.

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All statements in this report that are not historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act. These forward-looking statements can generally be identified as such because the context of the statement will include words such as “may,” “will,” “intend,” “plans,” “believes,” “anticipates,” “expects,” “estimates,” “predicts,” “potential,” “continue,” “opportunity,” “goals,” or “should,” the negative of these words or words of similar import. Similarly, statements that describe our future plans, strategies, intentions, expectations, objectives, goals or prospects are also forward-looking statements. These forward-looking statements are or will be, as applicable, based largely on our expectations and projections about future events and future trends affecting our business, and so are or will be, as applicable, subject to risks and uncertainties including but not limited to the risk factors discussed in this report, that could cause actual results to differ materially from those anticipated in the forward-looking statements. We caution investors that there can be no assurance that actual results or business conditions will not differ materially from those projected or suggested in such forward-looking statements as a result of various factors, including, but not limited to, the risk factors discussed elsewhere in Item 2 of this report under the caption “Risks and Uncertainties Related to Our Business.” Our expectations and the events, conditions, and circumstances on which these future forward-looking statements are based, will likely change.

SEQUENOM^®, SpectroCHIP^®, and MassARRAY^® are registered trademarks of SEQUENOM, Inc.

Overview

We are a genetics company committed to providing the best genetic analysis products that translate genomic science into superior solutions for biomedical research and molecular medicine. Our proprietary MassARRAY system is a high performance DNA analysis platform that efficiently and precisely measures the amount of genetic target material and variations therein. The system is able to deliver reliable and specific data from complex biological samples and from genetic target material that is available only in trace amounts. We have used our MassARRAY technology and our extensive collections of DNA samples from diseased and healthy individuals to identify disease-related genes that may predispose significant portions of the population to major diseases. Based on our discoveries, we have developed gene and diagnostic content for potential partner out-licensing and commercial development opportunities.

We completed numerous scans of the human genome and identified over 60 candidate genes indicating association with the following diseases: breast cancer, lung cancer, prostrate cancer, melanoma, schizophrenia, type II diabetes, obesity, dyslipidemia (HDL-cholesterol), hypertension, osteoarthritis and osteoporosis. In most studies we have further analyzed our initial disease-association findings in additional independent populations followed by appropriate biological confirmation experiments where feasible. Our goal is to leverage our superior technology to become a significant contributor in the development of molecular medicine, which encompasses applications often referred to as pharmacogenomics, personalized medicine, disease predisposition testing, cancer subtyping, and non-invasive prenatal testing. These fields share the

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need for analytical applications that define disease on a molecular level and with a high degree of reliability.

Genetic analysis is primarily conducted in two key biomedical research market sectors: the academic research market, where we currently focus, and the clinical analysis market, where we are trying to expand. The research market is primarily comprised of a select group of academic institutions that make initial genetic discoveries and is considered the main source of new genetic content. The clinical analysis market is significantly larger market and takes the genetic analysis a step further to establish the use of genes and genetic markers for the potential benefit of the general population.

The needs of these markets differ significantly. The academic research market, which requires highest data density per sample, is more tolerant to inconsistencies in data and error rates, and typically has a shorter window of opportunity. Sample throughput is very high. This academic research market is extremely price competitive. The clinical analysis market is typically interested in a defined number of markers per sample, is not as tolerant to inconsistencies and error rates, typically has a longer development cycle, and is less price competitive. Sample throughput requirements are not nearly as high. Considering the clinical analysis market’s requirements and the strengths of the MassARRAY system, including its high sensitivity, specificity and reproducibility, we believe there is significant opportunity to be more competitive in the clinical analysis market.

We have targeted customers conducting quality genotyping and performing fine mapping studies, candidate gene studies, comparative sequencing and gene expression analysis in the molecular medicine market. We support epigenetic analysis – the analysis of DNA methylation - and genetic trace analysis applications - the analysis of smallest amounts of genetic material in complex mixtures.

We also plan to broaden the markets to which we sell our product line. We have identified four target segments for growth: clinical research and clinical marker validation, the emerging field of molecular medicine, diagnostic service laboratories and animal testing laboratories. As part of our focus on molecular diagnostics, we plan to develop analyte specific reagents (ASRs). ASRs are tests that measure biomarkers, which are intended for use in diagnostic application for identification and quantification of an individual substance in biological specimens. In 2005, SEQUENOM plans to offer ASRs for established genetic tests, such as tests for certain Mendelian disorders.

As of March 31, 2005, our product revenues consisted of revenues from the sales of MassARRAY hardware, software, consumables and maintenance agreements. The impact of our MassARRAY Compact system and other new products and product applications on future revenues, margins, expenses, and cash flows remains uncertain and depends on many factors as described in this report under the caption “Risks and Uncertainties Related to Our Business”.

We expect revenues from our out-licensing efforts with respect to our disease gene discoveries to be minimal for the foreseeable future. To the extent that revenues are realized, if at all, they may fluctuate significantly as revenues will be based upon out-licensing of gene and target-related

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intellectual property, the occurrence of certain milestones, and successful product development and commercialization, all of which are uncertain and difficult to predict. As a result, our entitlement to, and the timing and amounts of, any licensing and milestone payments and royalty or revenue sharing payments on future diagnostic and therapeutic product sales are uncertain and difficult to predict. To achieve such revenues we will likely be dependent upon the efforts, resources and success of present and potential licensees who will need to invest significant dollar amounts in research and development efforts, clinical trials, and obtaining regulatory approvals over several years.

Since our inception, we have incurred significant losses. As of March 31, 2005, we had an accumulated deficit of $423.4 million. We expect to continue to incur losses going forward at least until the end of 2006.

Results of Operations for the Three Months Ended March 31, 2005 and 2004

Revenues

Total revenues for the three months ended March 31, 2005 declined to $4.3 million from $5.1 million for the same period in 2004.

Product revenues were derived from the sale of consumables including our SpectroCHIP bioarray chips, MassARRAY systems, maintenance agreements, sales and licensing of our proprietary software and license fees from end-users.

For the three months ended March 31, 2005 compared to the three months ended March 31, 2004, consumable revenues decreased from $3.4 million to $2.8 million, mainly due to lower average selling prices and reduced sales volumes for our chips and related consumables.

MassARRAY system hardware sales increased to $0.7 million for the three months ended March 31, 2005 from $0.6 million for the same period in 2004. MassARRAY system placements on which we can recognize revenue remained below our expectation. We continue to develop our market for clinical genetics and molecular medicine where we believe the testing accuracy and broad DNA analytical capabilities of our MassARRAY system are well suited. We expect Compact system sales to increase during the remainder of 2005.

As of March 31, 2005, we had shipped inventory with a value of $0.6 million to certain customers in respect of purchase orders or contracts received which did not meet our criteria for revenue recognition. We expect to recognize $1.3 million of revenue in respect of these shipments upon receipt of payment from these customers during the quarters ending June 30 and September 30, 2005.

Income from other product sales, including MassARRAY maintenance contracts, associated software, license fees and royalties, was $0.6 million and $0.8 million for the three months ended March 31, 2005, and 2004, respectively.

We expect that future revenues for our business will be affected by, among other things, MassARRAY product and application demand, customer budgets, new product and application

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introductions, the terms and conditions of sales contracts, including any extended or deferred payment terms, competitive conditions and government research funding.

Service revenues in the three months ended March 31, 2005 declined to zero as compared to $0.1 million of such revenues in the same period in 2004. The elimination of service revenue has resulted from our decision to discontinue pursuit of low-margin collaborative genotyping services. We do not expect service revenue to be significant in the foreseeable future. We expect revenue from present and future outlicensing of our disease gene discoveries to be minimal for the foreseeable future.

Research revenues were $0.2 million for each of the three month periods ended March 31, 2005 and 2004. The timing of research revenues depends upon our expenditures on grant research and our receipt of grant funding from sponsoring agencies. We expect grant revenue to decline during the remainder of 2005.

Cost of product and service revenues and gross margin

Cost of product revenues for the three months ended March 31, 2005 and 2004 were $2.6 million and $2.8 million, respectively. Gross margins on product sales for the three months ended March 31, 2005 and 2004 were 36% and 42%, respectively. Gross margins fell by 6% due to declining margins on hardware, software and consumable sales.

Gross margin in future periods may be affected by, among other things, reductions in the selling price for systems and consumables, lower consumable sales per MassARRAY system sold, the mix of products sold, competitive conditions, sales volumes, discounts offered, inventory reserves and required obsolescence charges , as well as royalty payment obligations on in-licensed technologies.

Cost of service revenues for the three months ended March 31, 2005 were zero compared to $0.2 million in the same period of 2004. Gross margins on service revenues are dependent on the particular contract terms of the work undertaken in each quarter.

Research and development expenses

Research and development expenses decreased to $3.2 million, for the three months ended March 31, 2005 from $5.5 million for the same period in 2004. These expenses consisted primarily of salaries and related personnel expenses, improvements to our existing products, validation of products under development, expenses relating to work performed under research contracts, and, prior to the termination of our internal drug discovery activities in July 2004, expenses related to our disease gene discovery and development programs.

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The decrease in expenses of $2.3 million primarily relates to reduced headcount costs of $1.1 million, $0.3 million lower operating consumable expenses, reduced depreciation charges of $0.9 million, and other cost savings of $0.2 million, offset by $0.1 million higher facility costs and lower absorption into cost of goods sold of $0.1 million.

Selling and marketing expenses

Selling and marketing expenses for the three months ended March 31, 2005 and 2004 were $2.5 million and $2.8 million, respectively. These expenses consisted primarily of salaries and related expenses for sales and marketing, customer support, and business development personnel and their related department expenses. The $0.3 million was due to a reduction in travel expenses and external marketing consultant expenses.

General and administrative expenses

General and administrative expenses for the three months ended March 31, 2005 and 2004 were $3.4 million and $3.3 million, respectively. These expenses consisted primarily of salaries and related expenses for legal, finance and human resource personnel, and their related department expenses.

The increase of $0.1 million for the three months ended March 31, 2005 from the same period in 2004 was due to severance costs of $0.5 million resulting from the departure of our former CEO, an increase of $0.3 million in audit and financial consulting expenses due to Sarbanes-Oxley reporting requirements, and $0.2 million increase in taxes and recruiting fees, partially offset by a reduction in legal-related expenses of $0.3 million, staff bonus accruals lower by $0.2 million, reduced insurance expenses of $0.1 million due to premium reductions, reduction in depreciation expense of $0.1 million as an increasing proportion of our asset base is fully depreciated, and an increase of costs absorbed into cost of goods sold of $0.2 million. We expect general and administrative expenses during the remainder of 2005 to be lower than in 2004.

Restructuring charges

During the third quarter of 2004, we closed our SEQUENOM Pharmaceuticals business segment. During the first quarter of 2005, we sold certain tangible assets and recovered $0.2 million in excess of the carrying value which we had previously fully provided for as part of the restructuring charge. We do not expect to incur additional expense or recover additional amounts from the closure of our SEQUENOM Pharmaceuticals business segment.

Amortization of acquired intangibles

In connection with the acquisition of Gemini Genomics, plc in 2001 we acquired approximately $18.7 million of intangible assets, including clinical data collections and patent rights. In connection with the acquisition of Axiom Biotechnologies, Inc. in 2002 we acquired approximately $0.5 million of intangible assets, including patent rights, human cell banks, and assay technology, which were fully impaired following the closure of our internal drug discovery

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program in July 2004. The remaining intangible assets are being amortized over three to five years.

Amortization of deferred stock-based compensation

During the year ending December 31, 2004, we issued 736,500 shares of restricted stock awards with a weighted average grant date fair value of $0.87 per share to certain executive officers and employees. The awards vest one year from the grant date. The deferred compensation for these restricted stock awards is based on the number of shares granted multiplied by the fair market value of the stock on the date of grant and then amortized as stock-based compensation expense over the vesting period of the restricted stock.

Net interest income

Net interest income was $0.1 million and $0.1 million, respectively, for the three months ended March 31, 2005 and 2004, as increasing interest rates and reduced levels of debt compensated for lower average investment balances.

Deferred income tax benefit

The deferred tax benefit of $0.2 million and $0.3 million for the three months ended March 31, 2005 and 2004, respectively, is due to the tax effects related to amortization on our intangible assets, including clinical data collections and patent rights acquired from Gemini Genomics.

Liquidity and Capital Resources

As of March 31, 2005, cash, cash equivalents, short-term investments and restricted cash totaled $31.4 million compared to $37.9 million as of December 31, 2004. Our cash reserves are held in a variety of interest-bearing instruments including investment-grade corporate bonds, commercial paper and money market accounts.

Short term

We consider the material drivers of our cash flow to be sales volumes, inventory management and operating expenses. Our principal sources of liquidity are our cash, cash equivalents and short-term investments. Cash used in operations for the three months ended March 31, 2005 was $4.7 million compared to $6.5 million for the same period in 2004. The use of cash was a result of the net loss of $7.4 million for the three months ended March 31, 2005, adjusted for non-cash depreciation and amortization of $1.4 million, approximately $0.2 million of deferred income tax benefit, $0.2 million of deferred compensation amortization and other non-cash items, increases in accounts receivable and other current asset balances of $0.7 million, increases of $1.6 million in accounts payable and accrued expenses, and $0.4 million of deferred revenue and other liabilities. At our current and anticipated level of operating loss, we expect to continue to incur an operating cash outflow on a quarterly basis. As a result, our cash, cash equivalents and marketable security balances will decline. If the current trend of cash use continues, we will need additional capital by the end of 2006 to support our activities.

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Investing activities, other than the changes in our short-term investments and restricted cash, used $0.9 million in cash during the first three months of 2005 due mainly to purchases of equipment to loan to potential customers under a marketing program initiated in 2005.

Net cash used by financing activities was $0.9 million for the three months ended March 31, 2005. Financing activities during the first three months of 2005 included net payments of $1.0 million for long-term debt and capital leases and the receipt of proceeds from the exercise of stock options and employee stock purchase plan purchases of approximately $44,000.

Long Term

When we require additional funds, general market conditions or the then-current market price of our common stock may not support capital raising transactions such as an additional public or private offering of our common stock or other securities. If additional funds are required and we are unable to obtain them on a timely basis or on terms favorable to us, we may be required to cease or reduce further commercialization of our products, to cease or reduce certain research and development projects, to sell some or all of our technology or assets or to merge all or a portion of our business with another entity.

If we raise additional funds by selling shares of our capital stock or other equity-based instruments, the ownership interest of our stockholders will be diluted.

The following table summarizes our contractual obligations as of March 31, 2005:

Future operating lease commitments have not been reduced by future sublease rental income aggregating $1.5 million.

Based on our current plans, we believe our cash, cash equivalents and short-term investments will be sufficient to fund our operating expenses, debt obligations and capital requirements at least through 2006. However, the actual amount of funds that we will need will be determined by many factors, some of which are beyond our control, and we may need funds sooner than currently anticipated. These factors include but are not limited to:

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We have a $6.5 million bank line of credit provided by the Union Bank of California, of which $4.4 million is available for borrowing and expires on May 31, 2005. The line of credit agreement requires us to comply with various financial and restrictive covenants. Financial covenants include requirements that we maintain certain levels of unrestricted cash and net tangible asset balances. At September 30, 2004, we were in breach of one of the covenants of our loan secured over certain fixed assets, which requires us to have in excess of $40 million of unrestricted cash and short-term investments. We remedied the breach by providing the lender with a letter of credit for $0.9 million. At March 31, 2005, and December 31, 2004 we were in compliance with all covenants. We have no commitments for any additional financings.

Risks and Uncertainties Related to Our Business

The following is a summary of the many risks we face in our business. You should carefully read these risks and uncertainties in evaluating our business.

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We have a limited operating history.

We are a relatively new company and, for the most part, our technologies, particularly our internally discovered disease gene discoveries are at an early stage of discovery and development. We have experienced limited success in partnering with collaborators to further research, develop, and commercialize our disease genes. We may not be successful in researching, developing, or commercializing these targets under our present collaborations and we may not be successful in entering into any new collaborations involving our disease gene discoveries. We also have a limited history of product sales and we continue to commercialize new products and create new applications for our products. We have recently changed our business focus to pursue diagnostic applications for our MassARRAY technology in the clinical analysis market and in the fields of molecular medicine, including pharmacogenomics, personalized medicine, disease predisposition testing, cancer subtyping, and non-invasive prenatal testing. We have limited or no experience in these applications of our technology and operating in these markets. You should evaluate us in the context of the uncertainties and complexities affecting an early stage company developing products and applications for the life science industries and experiencing the challenges associated with entering into new markets that are highly competitive. We need to make significant investments to ensure our products perform properly and are cost-effective and we will likely need to apply for and obtain certain regulatory approvals to sell our products for diagnostic and therapeutic applications and it is uncertain whether such approvals will be granted. Even if we develop products for commercial use and obtain all necessary regulatory approval, we may not be able to develop products that are accepted in the genomic, diagnostic, clinical research, pharmaceutical or other markets or the emerging field of molecular medicine and that can be marketed and sold successfully.

We have a history of operating losses, anticipate future losses and may never become profitable.

We have experienced significant operating losses in each period since our inception. At March 31, 2005, our accumulated deficit was approximately $423.4 million. These losses have resulted principally from expenses incurred in research and development, from selling, general and administrative expenses associated with our operations, our significant lease obligations, and the write-down to the carrying value of acquired goodwill and intangibles. We expect to incur operating losses in the future as a result of expenses associated with research and product development, production, marketing and selling, general and administrative expenses and our significant lease obligations, as well as expenses associated with consolidating and completing the integration of any business or technology that we may acquire in the future. Our general and administrative expenses are likely to increase as we seek to comply with evolving standards for corporate governance and public disclosure. To achieve profitability, we would need to generate significant additional revenue with significant gross margins. It is uncertain when, if ever, we will become profitable, or cash-flow positive. Even if we were to become profitable, we might not be able to sustain or increase profitability on a quarterly or annual basis.

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Our operating results may fluctuate significantly.

Our revenues and results of operations may fluctuate significantly, depending on a variety of factors, including the following:

Further, our revenues and operating results are difficult to predict because they depend on the number, timing and type of MassARRAY system placements that we make during the year, the number, timing and types of software licensed or sold, and the quantity and timing of consumables sales for the installed base of systems. Changes in the relative mix of our

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MassARRAY system and consumables sales can have a significant impact on our gross margin, as consumable sales typically have margins significantly higher than MassARRAY system sales. In recent quarters, our sales mix has been comprised of a greater proportion of higher-margin consumable sales. Our revenues and operating results are also difficult to predict because they depend upon, for example as is the case with our collaboration with Procter & Gamble Pharmaceuticals, the completion of milestones and the duration of and progress made under collaborative research and commercialization programs with partners. The absence of or delay in generating revenues could cause significant variations in our operating results from year to year and could result in increased operating losses.

We believe that period-to-period comparisons of our financial results will not necessarily be meaningful. You should not rely on these comparisons as an indication of our future performance. If our operating results in any future period fall below the expectations of securities analysts and investors, our stock price will likely fall.

We have a history of generating a large percentage of our revenue at the end of each quarterly accounting period.

Due to the way that many customers in our target markets allocate and spend their budgeted funds for acquisition of our products, a large percentage of our sales are booked at the end of each quarterly accounting period. Because of this timing of our sales, we may not be able to reliably predict order volumes and our quarterly revenues. A sales delay of only a few days may significantly impact our quarter-to-quarter comparisons. If our quarterly revenues fall below the expectations of securities analysts and investors, our stock price may decline. Similarly, if we are unable to ship our customer orders on time, or if extended payment terms are required, there could be a material adverse effect on revenues for a given quarter.

We will need additional capital in the future to support our growth, which will result in dilution to our stockholders.

Based on our current plans, we believe our cash, cash equivalents and short-term investments will be sufficient to fund our operating expenses, debt obligations and capital requirements through 2006. However, the actual amount of funds that we will need will be determined by many factors, some of which are beyond our control, and we may need funds sooner than currently anticipated. These factors include but are not limited to:

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When we require additional funds, general market conditions or the then-current market price of our common stock may not support capital raising transactions such as an additional public or private offering of our common stock or other securities. If additional funds are required and we are unable to obtain them on a timely basis or on terms favorable to us, we may be required to cease or reduce further commercialization of our products, to cease or reduce certain research and development projects, to sell some or all of our technology or assets or business units or to merge all or a portion of our business with another entity. If we raise additional funds by selling shares of our capital stock, the ownership interest of our stockholders will be diluted.

A reduction in revenues from sales of MassARRAY products would harm our business.

The continued decline in the demand for MassARRAY systems and consumables continues to reduce our total revenues. We expect that sales of MassARRAY systems and consumables will account for most of our total revenues for the foreseeable future. The sales cycles of our new MassARRAY Gene Expression application and MassARRAY Compact system are longer than planned and are consistent with the sales cycles for our other products. Also, over the past year, competitors have offered low priced fee-for-service genotyping services and technologies to the DNA analysis marketplace. These factors and the following factors, among others, would reduce the demand for MassARRAY products:

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Our revenues are subject to the risks faced by pharmaceutical, diagnostic, and biotechnology companies and governmental and other research institutions.

We expect that our revenues in the foreseeable future will be derived primarily from MassARRAY system products provided to pharmaceutical and biotechnology companies, laboratories, and governmental and other research institutions. Our operating results could fluctuate substantially due to reductions and delays in research and development expenditures by these customers. These reductions and delays could result from factors such as:

None of these factors are within our control. We have announced that we plan to broaden the markets to which we sell our products and applications and to continue to develop new applications and products for use in new markets. We may target customers in clinical research and clinical marker validation, the emerging field of molecular medicine, diagnostic service laboratories and animal testing and food safety labs. We have limited or no experience operating in these potential markets and, as a result, may be unable to develop products and applications that allow us to penetrate these markets or successfully generate any revenue from sales in these markets. We will have limited ability to forecast future demand for our existing and any new products and applications in these markets.

We depend on sales of our consumable chips and other MassARRAY consumables for a significant portion of our revenues.

Sales of our consumable chips and other consumables for the MassARRAY system are an important source of revenue. We have a relatively small sales force compared to our competitors. We may need to expand our sales organization in order to increase our sales.

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Revenues from MassARRAY consumables totaled approximately $13.2 million or 59% of our total revenues for the year ended December 31, 2004, and approximately 65% or $2.8 million of our total revenues for the three month period ended March 31, 2005. Factors which may limit the use of our consumable chips and other consumables include:

If our customers are unable to adequately prepare samples for our MassARRAY system, the overall market demand for our products would decline.

Before using the MassARRAY system, customers must prepare samples by following several steps that are subject to human error, including DNA isolation and DNA amplification. If DNA samples are not prepared appropriately, or the proposed assays are too complex, the MassARRAY system may not generate a reading or a correct reading. If our customers experience these difficulties, they might achieve lower levels of throughput than specified for the system. If our customers are unable to generate expected levels of throughput, they might not continue to purchase our consumables, they could express their discontent with our products to others, or they could collaborate with others to jointly benefit from the use of our products. Any or all of these actions would reduce the overall market demand for our products. From time to time, we have experienced customer complaints regarding data quality and difficulty in processing more complex assays.

The sales cycles for our products and for licensing our SNP and gene target discoveries are lengthy, and we may expend substantial funds and management effort with no assurance of successfully selling our products or services or licensing our SNP and gene target discoveries.

The sales cycles for our MassARRAY system products are typically lengthy, and for our Gene Expression application and MassARRAY Compact system, the sales cycles have been longer than originally planned. It now appears that the sales cycles for the Gene Expression application and MassARRAY Compact system are similar to that of our other products, rather than being shorter, and that the lower price point for the MassARRAY Compact system has not resulted in a shorter sales cycle as we had originally expected. The sales cycle for licensing our SNP and gene target discoveries is also typically lengthy. Our sales efforts and our licensing efforts require the effective demonstration of the benefits, value, and differentiation and validation of our products, services, and discoveries, to, and significant training of, multiple personnel and departments within a potential customer. We may be required to negotiate agreements containing terms unique to each prospective customer or licensee which would lengthen the sales cycle. We may expend substantial funds and management effort with no assurance that we will sell our products

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or services or license our discoveries. In addition, this lengthy sales cycle makes it more difficult for us to accurately forecast revenue in future periods and may cause revenues and operating results to vary significantly in such periods.

We may not be able to successfully adapt our products for commercial applications.

A number of potential applications of our MassARRAY technology may require significant enhancements in our core technology. If we are unable to complete the development, introduction or scale-up of any product, or if any of our new products or applications, such as gene expression analysis, do not achieve a significant level of market acceptance, our business, financial condition and results of operations could be seriously harmed. We may fail to sustain the market acceptance of our products that have been already established, such as our MassARRAY systems, or of new products and applications. Sustaining or achieving market acceptance will depend on many factors, including demonstrating to customers that our technology is cost competitive or superior to other technologies and products that are available now or that may become available in the future. We believe that our revenue growth and profitability will substantially depend on our ability to overcome significant technological challenges and successfully introduce our newly developed products, applications and services into the marketplace.

We have limited commercial production capability and experience and may encounter production problems or delays, which could result in lower revenue.

We partially assemble the MassARRAY system and partially manufacture our consumable chips and MassARRAY kits. To date, we have only produced these products in moderate quantities. Our customers require that we comply with current good manufacturing practices that we may not be able to meet. We may not be able to maintain acceptable quality standards as we continue or ramp up production. To achieve anticipated customer demand levels, we will need to scale-up our production capability and maintain adequate levels of inventory while manufacturing our products at a reasonable cost. We may not be able to produce sufficient quantities to meet market demand or manufacture our product at a reasonable cost. If we cannot achieve the required level and quality of production, we may need to outsource production or rely on licensing and other arrangements with third parties. This reliance could reduce our gross margins and expose us to the risks inherent in relying on others. We might not be able to successfully outsource our production or enter into licensing or other arrangements with these third parties, which would adversely affect our business.

We depend on third-party products and services and limited sources of supply to develop and manufacture our products.

We rely on outside vendors to supply certain products and the components and materials used in our products. Some of these products, components and materials are obtained from a single supplier or a limited group of suppliers. Our MassARRAY system is comprised of several components, of which the following are currently obtained from a single supplier: Bruker Daltonics, Inc. supplies our mass spectrometers, Samsung Electronics Co., Ltd. supplies our

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nanodispensers (also known as pintools), and Majer Precision Engineering, Inc. supplies the pins for the pintools. Amersham Biosciences Corp. is the sole supplier of an enzyme called Thermosequenase. Our consumable chips are supplied by Samsung Electronics Co., Ltd. and also by Process Specialties, Inc. Other than our agreement with Bruker Daltonics, Inc. which expires in 2006, we do not have long-term agreements with these vendors. We have experienced quality problems with and delays in receiving wafers used to produce our consumable chips, and also had technical difficulties with our pin-tool nanoliter dispenser device. We have also experienced software and operational difficulties with our MassARRAY Compact system. Our reliance on outside vendors generally and a sole or a limited group of suppliers in particular involves several risks, including:

We may not derive any revenues from our gene discovery programs.

Our gene target discoveries are very early stage discoveries and we may not be able to license them and even if we do license them, they may not result in revenues for us and may not result in marketable products. Our technologies and approach to gene discovery may not enable any licensee to successfully identify the specific genes that cause or predispose individuals to the complex diseases that were the targets of our efforts. The diseases we targeted are generally believed to be caused by a number of genetic and environmental factors. It may not be possible to address such diseases through gene-based therapeutic or diagnostic products. Even if specific genes are identified, our discoveries may not lead to the development of commercial products, or otherwise generate revenue.

We and our licensees and collaborators may not be successful in developing or commercializing therapeutic, diagnostic or other products using our products, services or discoveries.

Development of therapeutic or diagnostic products by our licensees and development of diagnostic or other products by us or our collaborators are subject to risks of failure inherent in the development and commercial viability of any such product, such as demand for such product. These risks further include the possibility that such product would:

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If a licensee discovers therapeutic or diagnostic products or we or a collaborator discover diagnostic or other products using our technology, products, services or discoveries, we may rely on that licensee or collaborator (hereafter referred to as “partner”) for product development, regulatory approval, manufacturing and marketing of those products before we can realize revenue and some or all of the milestone payments, royalties or other payments we may be entitled to under the terms of the licensing or collaboration agreement. If we are unable to successfully achieve milestones or our partners fail to develop successful products, we will not earn the revenues contemplated. Our agreements may allow our partners significant discretion in electing whether to pursue any of these activities. We cannot control the amount and timing of resources our partners may devote to our programs or potential products. As a result, we cannot be certain that our partners will choose to develop or commercialize any products or will be successful in doing so. In addition, if a partner is involved in a business combination, such as a merger or acquisition, or changes its business focus, its performance under its agreement with us may suffer and, as a result, we may not generate any revenues or only limited revenues from the royalty, milestone and similar payment provisions contained in our agreement with that partner.

We may not successfully obtain regulatory approval of any therapeutic, diagnostic or other product which we or our licensing or collaborative partners develop.

The Food and Drug Administration, or FDA, must approve any drug product before it can be marketed in the United States. A drug product must also be approved by regulatory agencies of foreign governments before the product can be sold outside the United States. Before a new drug application can be filed with the FDA, the potential product must undergo preclinical testing and clinical trials. In addition, products that we or our collaborators develop in the molecular medicine, diagnostic or other markets, depending on their intended use, may be regulated as medical devices by the FDA and comparable agencies of other countries and require either premarket approval (PMA) or 510(k) clearance from the FDA, prior to marketing. The 510(k) clearance process usually takes from three to twelve months from submission, but can take longer. The premarket approval process is much more costly, lengthy, uncertain and generally takes from six months to two years or longer from submission. In addition, commercialization of any therapeutic, diagnostic or other product that our licensees or collaborators or we develop would depend upon successful completion of preclinical testing and clinical trials. Preclinical testing and clinical trials are long, expensive and uncertain processes, and we do not know whether we, our licensees or any of our collaborators, would be permitted or able to undertake

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clinical trials of any potential products. It may take us or our licensees or collaborators many years to complete any such testing, and failure could occur at any stage. Preliminary results of trials do not necessarily predict final results, and acceptable results in early trials may not be repeated in later trials. A number of companies in the pharmaceutical industry, including biotechnology companies, have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. Delays or rejections of potential products may be encountered based on changes in regulatory policy for product approval during the period of product development and regulatory agency review. If our projects reach clinical trials, we or our licensees or collaborators could decide to discontinue development of any or all of these projects at any time for commercial, scientific or other reasons.

If the validity of the consents from volunteers were to be challenged, we could be forced to stop using some of our resources, which would hinder our gene discovery outlicensing efforts and our diagnostic product development efforts.

We have attempted to ensure that all clinical data and genetic and other biological samples that we receive from our subsidiaries and our clinical collaborators have been collected from volunteers who have provided our collaborators or us with appropriate consents for the data and samples provided for purposes which extend to include our gene discovery outlicensing activities and diagnostic product development activities. We have attempted to ensure that data and samples that have been collected by our clinical collaborators are provided to us on an anonymous basis. We have also attempted to ensure that the volunteers from whom our data and samples are collected do not retain or have conferred on them any proprietary or commercial rights to the data or any discoveries derived from them. Our clinical collaborators are based in a number of different countries, and to a large extent we rely upon our clinical collaborators for appropriate compliance with the voluntary consents provided and with local law and regulation. That our data and samples come from and are collected by entities based in different countries results in complex legal questions regarding the adequacy of consents and the status of genetic material under a large number of different legal systems. The consents obtained in any particular country could be challenged in the future, and those consents could prove invalid, unlawful or otherwise inadequate for our purposes. Any findings against us or our clinical collaborators could deny us access to or force us to stop using some of our clinical or genetic resources which would hinder our gene discovery outlicensing efforts and our diagnostic product development efforts. We could become involved in legal challenges which could consume a substantial proportion of our management and financial resources.

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If we cannot obtain licenses to patented SNPs and genes, we could be prevented from obtaining significant revenue or becoming profitable.

The U.S. Patent and Trademark Office has issued and continues to issue patents claiming SNP and gene discoveries and their related associations and functions. If certain SNPs and genes are patented, we will need to obtain rights to those SNPs and genes to develop, use and sell related assays and other types of products or services utilizing such SNPs and genes. Required licenses may not be available on commercially acceptable terms. If we were to fail to obtain licenses to certain patented SNPs and genes, we might never achieve significant revenue from our gene discovery outlicensing efforts or from diagnostic product development.

If the medical relevance of SNPs is not demonstrated or is not recognized by others, we may have less demand for our products and services and may have less opportunity to enter into diagnostic and therapeutic product development and commercialization collaborations with others.

Some of the products we hope to develop involve new and unproven approaches or involve applications in markets that we are only beginning to explore. They are based on the assumption that information about genes and SNPs may help scientists better understand complex disease processes. Scientists generally have a limited understanding of the role of genes and SNPs in diseases, and few products based on gene discoveries have been developed. We cannot be certain that genetic information will play a key role in the development of drugs and diagnostics or other products in the future, or that any genetic-based findings would be accepted by diagnostic, pharmaceutical or biotechnology companies or by any other potential market or industry segment. If we or our customers or collaborators are unable to generate valuable information that can be used to develop these drugs and diagnostics or other products, the demand for our products, applications and services will be reduced and our business will be harmed.

We may not be able to form and maintain the collaborative relationships that our business strategy requires and such relationships may lead to disputes over technology rights.

We form research collaborations and licensing arrangements with collaborators to operate our business successfully. To succeed, we will have to maintain our existing relationships and establish additional collaborations. Our current strategy includes pursuing partnering opportunities with larger companies interested in or involved in the development of pharmaceutical and diagnostic products to potentially advance our disease gene discoveries and related targets toward drug or diagnostic development. We cannot be sure that we will be able to establish any additional research collaborations, licensing arrangements or other partnerships necessary to develop and commercialize products or that we can do so on terms favorable to us. If we are unable to establish these collaborations or licensing arrangements, we may not be able to successfully develop any drug or diagnostic or other products or applications and generate any milestone, royalty or other revenue from sales of these products or applications. If our collaborations or licensing arrangements are not successful or we are not able to manage multiple collaborations successfully, our programs will suffer and we may never generate any revenue from sales of products under these collaborative or licensing arrangements. If we increase the number of collaborations or licensing agreements, it will become more difficult to manage the

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various relationships successfully and the potential for conflicts among the collaborators and licensees will increase. Conflicts with our collaborators or licensees, or other factors may lead to disputes over technology rights which may adversely effect our business.

In addition, our government grants provide the government certain license rights to inventions resulting from funded work. Our business could be harmed if the government exercises those rights.

If we do not succeed in obtaining development and marketing rights for products developed in collaboration with others, our revenue and profitability could be reduced.

Our business strategy includes, in part, the development of diagnostic and other products in collaboration with others, or utilizing the technology of others, and we intend to obtain commercialization or royalty rights to those products. If we are unable to obtain rights to those products, or are unable to do so on favorable financial terms, our revenue and profitability could be reduced. To date, we have initiated limited activities towards commercializing products developed in collaboration with, or utilizing the technology of, others. Even if we obtain commercialization rights, commercialization of products may require resources that we do not currently possess and may not be able to develop or obtain, or commercialization may be financially unattractive based upon the revenue-sharing terms offered by potential licensors or provided for in the relevant agreement.

Ethical, privacy or other concerns about the use of genetic information could reduce demand for our products and services.

Genetic testing has raised ethical issues regarding privacy and the appropriate uses of the resulting information. For these reasons, governmental authorities may limit or otherwise regulate the use of genetic testing or prohibit testing for genetic predisposition to certain conditions, particularly for those that have no known cure. Such concerns may lead individuals to refuse to use genetics tests even if permitted. Any of these scenarios could reduce the potential markets for our products and services, which would seriously harm our business, financial condition and results of operations.

If we breach any of the terms of our license or supply agreements, or these agreements are otherwise terminated or modified, the termination or modification of such agreements could result in our loss of access to critical components and could delay or suspend our commercialization efforts.

We have sourced or licensed components of our technology from other parties. For example, Bruker Daltonics supplies our mass spectrometers, Samsung Electronics supplies our pintools, Majer Precision Engineering supplies the pins for the pintools, and Samsung Electronics and Process Specialties both supply our consumable chips. Our failure to maintain continued supply of such components, particularly in the case of sole suppliers, or the right to use these components would seriously harm our business, financial condition and results of operations. Other than our agreement with Bruker Daltonics which expires in 2006, we do not have long-term agreements with these vendors that provide for a continued supply of these components for

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fixed terms that extend beyond one year. With respect to our agreements with suppliers, our agreements with Samsung have indefinite duration but may be terminated without cause by either party at any time, provided the terminating party has provided the other party 12 months advance written notice, and our agreement with Bruker Daltonics may not be terminated without cause by either party prior to its expiration in 2006. Changes to or termination of our agreements with these parties could result in the loss of access to these aspects of our technology and could impair, delay or suspend our commercialization efforts. While we negotiate for agreement periods or notice of termination periods that provide us reasonable periods of time to secure alternative supplies (such as 12 months advance notice of termination under our agreements with Samsung Electronics), and require that such agreements may not be terminated without advance notice arbitrarily or without good reason, such as uncured breach or insolvency, such provisions may not provide us with adequate time to secure alternative supplies or otherwise provide us with adequate protection.

If we breach covenants in our equipment lease or other credit facilities or are otherwise in default under these credit facilities, our lenders may accelerate the maturity dates of our outstanding indebtedness or take other actions under these facilities which would have a material adverse effect on our financial condition and operations.

We had an aggregate of $7.3 million of outstanding indebtedness under our equipment lease and other credit facilities as of March 31, 2005. These credit facilities include positive and restrictive covenants such as requirements that we maintain certain levels of unrestricted cash and net tangible asset balances At September 30, 2004, we were in breach of one of the covenants of our loan secured over certain fixed assets, which requires us to have in excess of $40 million of unrestricted cash and short-term investments. We remedied the breach by providing the lender with a letter of credit for $0.9 million. At March 31, 2005, we were in compliance with all covenants. If we breach certain covenants in our equipment lease or other credit facilities or are otherwise in default under these credit facilities, our lenders may accelerate the maturity dates of our outstanding indebtedness, impose restrictions on our cash balances or take other actions under these facilities which would have a material adverse effect on our financial condition and operations.

We may not successfully integrate acquired businesses.

We may acquire additional businesses or technologies, or enter into other strategic transactions. Managing acquisitions entails numerous operational and financial risks, including:

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We may not be able to successfully compete in the biotechnology industry.

The biotechnology industry is highly competitive. We expect to compete with a broad range of companies in the United States and other countries that are engaged in the development and production of products, applications, services and strategies to analyze genetic information and strategies to develop and commercialize therapeutic, diagnostic and other products for customers in the clinical research and clinical marker validation and molecular medicine fields as well as diagnostic service laboratories, animal testing & food safety labs and customers in other markets. They include:

Many of our competitors have much greater financial, technical, research, marketing, sales, distribution, service and other resources than we do. Our competitors may offer broader product lines, services and have greater name recognition than we do. Several companies are currently making or developing products that compete with our products. Our competitors may develop or market technologies or products that are more effective or commercially attractive than our current or future products, or that may render our technologies or products obsolete.

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We may potentially compete with our customers, which may adversely affect our business.

We have sold over 110 MassARRAY systems worldwide to pharmaceutical companies, academic research centers and government laboratories. Some of our customers use our DNA analysis products to perform genetics studies on their own disease populations for potential diagnostic and drug target identification in the same or similar manner as we have done. Although there are many potential disease applications, our customers’ target diseases may overlap with those that we have chosen to pursue. In such cases we may potentially compete against our customers. Competition from our customers may adversely affect our or our collaborators’ ability to successfully commercialize therapeutic or diagnostic products.

Our ability to compete in the market may decline if we lose some of our intellectual property rights.

Our success will depend on our ability to obtain and protect patents on our technology and to protect our trade secrets. Our patent applications may not result in the issue of patents in the United States or other countries. Our patents may not afford meaningful protection for our technology and products. Others may challenge our patents, and as a result, our patents could be narrowed or invalidated or become unenforceable. Competitors may develop products similar to ours that do not conflict with our patents. Others may develop products for use with the MassARRAY system in violation of our patents, or by operating around our patents or license agreements, which could reduce sales of our consumables. To protect or enforce our patent rights, we may initiate interference proceedings, oppositions, or litigation against others. For example, in December 2001, we filed a complaint for declaratory judgment of patent non-infringement and invalidity against Myriad Genetics, Inc., in response to letters received from Myriad and its attorneys in which Myriad asserted its belief that we were engaging in activities that infringed Myriad’s purported patent rights under a specific U.S. patent. In March 2002, we entered into a settlement agreement under which we acquired ownership of such patent rights and all parties agreed to dismiss the lawsuit with prejudice, and such dismissal was subsequently ordered by the court. As a result of the settlement, our products and services were not affected. However, these activities are expensive, take significant time and divert management’s attention from other business concerns. The patent position of biotechnology companies generally is highly uncertain and involves complex legal and factual questions that are often the subject of litigation. No consistent policy has emerged from the U.S. Patent and Trademark Office or the courts regarding the breadth of claims allowed or the degree of protection afforded under biotechnology patents. There is a substantial backlog of biotechnology patent applications at the U.S. Patent and Trademark Office, and the approval or rejection of patent applications may take several years.

Our success will depend partly on our ability to operate without infringing on or misappropriating the proprietary rights of others.

We may be accused of infringing on the patent rights or misappropriating the proprietary rights of others. From time to time, we receive letters from companies regarding their issued patents and patent applications alleging or suggesting possible infringement. Generally these letters are offers to license and fail to provide adequate evidence or state the basis for a reasonable claim that we are engaging in any infringing activity. In addition, in August 2004, we were named as a defendant in a complaint filed by a former employee, who asserts a claim for ownership and

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patent rights for all inventions claimed in patents to which he contributed while employed in Germany. These patents are asserted to include coverage for key elements of our MassARRAY technology, among other patents. In April 2005, we entered into a settlement with the plaintiff providing for dismissal of the complaint with prejudice and a complete and full release of all claims against us. Dismissal of the complaint was entered by the court on April 25, 2005. A description of the claims asserted by the plaintiff are included in Item 1 of Part II of this report. Intellectual property litigation is costly, and, even if we prevail, the cost of such litigation would adversely affect our business, financial condition and results of operations. Litigation is also time consuming and would divert management’s attention and resources away from our operations and other activities. If we were not to prevail in any litigation, in addition to any damages we would have to pay, we could be required to stop the infringing activity or obtain a license. Any required license might not be available to us on acceptable terms. Some licenses might be non-exclusive, and our competitors could have access to the same technology licensed to us. If we were to fail to obtain a required license or were unable to design around a patent, we would be unable to sell or continue to develop some of our products, which would have a material adverse affect on our business, financial condition and results of operations.

The rights we rely upon to protect the intellectual property underlying our products may not be adequate, which could enable others to use our technology and reduce our ability to compete with them.

We require our employees, consultants, advisors and collaborators to execute confidentiality agreements and in certain cases, assignment or license agreements. We cannot guarantee that these agreements will provide us with adequate intellectual property ownership or protection against improper or unauthorized use or disclosure of confidential information or inventions. In some situations, these agreements may conflict with or be subject to the rights of others with whom our employees, consultants, advisors or collaborators have prior employment or consulting relationships. In some situations, these agreements or relationships may conflict with or be subject to foreign law which may provide us with less favorable rights or treatment than under U.S. law. Others may gain access to our inventions, trade secrets or independently develop substantially equivalent proprietary materials, products, information and techniques.

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If we cannot attract and retain highly-skilled personnel, our growth might not proceed as rapidly as we intend.

The success of our business will depend on our ability to identify, attract, hire, train, retain, maintain, and motivate highly skilled personnel, particularly sales, scientific, medical and technical personnel, for our future success. Competition for highly skilled personnel is intense, and we might not succeed in attracting and retaining these employees. If we cannot attract and retain the personnel we require, we would not be able to expand our business as rapidly as we intend. In particular, if we lose Charles R. Cantor, PhD, our Chief Scientific Officer and a director, Andreas Braun, MD, PhD, our Chief Medical Officer, or Stephen Zaniboni, our acting Chief Executive Officer and Chief Financial Officer, or other members of our management team, we may not be able to find suitable replacements and our business may be harmed as a result. In February of 2005, our former President and Chief Executive Officer resigned from his positions with us. Our Board of Directors is searching for a permanent replacement. We may be unable to attract and retain a suitable replacement. In the interim, our acting Chief Executive Officer may face challenges in serving as both the principal executive officer of the Company as well as the principal financial officer, particularly in light of the demands placed on management to meet Sarbanes Oxley 404 compliance deadlines and attend to other operational and strategic matters with these additional responsibilities. We have employment agreements with each of our officers. However, we do not carry “key person” insurance covering any of our officers or other employees.

If we do not effectively manage our business as it evolves, it could affect our ability to pursue opportunities and expand our business.

Evolution in our business has placed and may continue to place a significant strain on our personnel, facilities, management systems and resources. We will need to continue to improve our operational and financial systems and managerial controls and procedures and train and manage our workforce. We will have to maintain close coordination among our various departments. If we fail to effectively manage the evolution of our business, it could affect our ability to pursue business opportunities, expand our business, and sell our products and applications in new markets.

We are subject to risks associated with our foreign operations.

We expect that a significant portion of our sales will continue to be made outside the United States. Approximately $11.7 million or 52% and $2.2 million or 52% of our sales were made outside of the United States in the year ended December 31, 2004 and three months ended March 31, 2005, respectively. A successful international effort will require us to develop relationships with international customers and collaborators. We may not be able to identify, attract, retain, or maintain suitable international customers or collaborators. Expansion into international markets will require us to establish and grow foreign operations, hire additional personnel to run these operations and maintain good relations with our foreign customers and collaborators. International operations involve a number of risks not typically present in domestic operations, including:

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Our international operations are also subject to the risks associated with the imposition of legislation and regulations relating to the import or export of high technology products. We cannot predict whether tariffs or restrictions upon the importation or exportation of our products will be implemented by the United States or other countries.

If our production and laboratory facilities are damaged, our business would be seriously harmed.

Our only production facility is located in San Diego, California, where we also have laboratories. Damage to our facilities due to war, fire, natural disaster, power loss, communications failure, terrorism, unauthorized entry or other events could prevent us from conducting our business for an indefinite period, could result in a loss of important data or cause us to cease development and production of our products. We cannot be certain that our limited insurance to protect against business interruption would be adequate or would continue to be available to us on commercially reasonable terms, or at all.

Responding to claims relating to improper handling, storage or disposal of hazardous chemicals and radioactive and biological materials which we use could be time consuming and costly.

We use controlled hazardous and radioactive materials in the conduct of our business, as well as biological materials that have the potential to transmit disease. The risk of accidental contamination or injury from these materials cannot be completely eliminated. If an accident with these substances occurs, we could be liable for any damages that result, which could seriously harm our business. Additionally, an accident could damage our research and manufacturing facilities and operations, resulting in delays and increased costs. Such damage and any expense resulting from delays, disruptions or any claims may not be covered by our insurance policies.

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We may not have adequate insurance if we become subject to product liability or other claims.

Our business exposes us to potential product liability and other types of claims. We have product and general liability insurance that covers us against specific product liability and other claims up to an annual aggregate limit of $5 million. Any claim in excess of our insurance coverage would have to be paid out of our cash reserves, which would have a detrimental effect on our financial condition. It is difficult to determine whether we have obtained sufficient insurance to cover potential claims. Also, we cannot assure you that we can or will maintain our insurance policies on commercially acceptable terms, or at all.

Our stock price has been and may continue to be volatile, and your investment could suffer a decline in value.

The trading price of our common stock has been volatile and could be subject to wide fluctuations in price in response to various factors, many of which are beyond our control, including but not limited to:

The stock market in general, and the Nasdaq National Market and the market for life sciences companies in particular, have experienced extreme price and volume fluctuations that may have been unrelated or disproportionate to the operating performance of the listed companies. There have been dramatic fluctuations in the market prices of securities of biotechnology and pharmaceutical companies. These price fluctuations may be rapid and severe and may leave investors little time to react. Broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance. Sharp drops in the market price of our common stock expose us to securities class-action litigation. Such litigation could result in substantial expenses and a diversion of management’s attention and resources, which would seriously harm our business, financial condition and results of operations. For example, in November 2001, we and certain of our current or former officers and directors were named as defendants in a class action shareholder complaint filed by Collegeware USA, which alleged that the underwriters in our initial public offering, certain of our officers and directors and we violated the federal securities laws because our registration statement and prospectus contained untrue statements of material fact or omitted material facts regarding the compensation to be received by and the stock allocation practices of the underwriters. Similar complaints were filed

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against hundreds of other public companies that conducted initial public offerings of their common stock in the late 1990s and 2000. Additional information regarding this complaint and the settlement pending before the court is included under Item 1 of Part II of this report.

Our Stock May Be Delisted From The Nasdaq National Market

The NASDAQ National Market imposes, among other requirements, listing maintenance standards as well as minimum bid and public float requirements. In recent months our common stock has traded below $1.00 per share and the closing bid price of our common stock has often been below $1.00 per share. If the closing bid price of our common stock falls below $1.00 per share for 30 consecutive trading days, Nasdaq automatically sends a non-compliance informing us of the details of non-compliance. Once the warning letter is received, we have 180 days to return to compliance, or we may request listing on the NASDAQ Small Cap Market. We may then be granted an additional 180 days to return to compliance. If we do not return to compliance after the second 180 day period, NASDAQ will issue a letter informing us that NASDAQ will delist our common stock from the NASDAQ Market. We can then request a hearing with NASDAQ to discuss the issue. If our stock were delisted, the ability of our stockholders to sell their common stock would be negatively affected.

Our management has concluded that our internal controls over financial reporting were not effective as of December 31, 2004 and that our disclosure controls and procedures were not effective as of December 31, 2004. As a result of the ineffectiveness of our disclosure controls and procedures as of December 31, 2004 and the material weaknesses in our internal controls, investor confidence and our stock price may be adversely affected.

Section 404 of the Sarbanes-Oxley Act of 2002, or SOX, requires that we establish and maintain an adequate internal control structure and procedures for financial reporting and assess on an on-going basis the design and operating effectiveness of our internal control structure and procedures for financial reporting.

We have identified a number of deficiencies in our internal controls over financial reporting that we have reported as constituting material weaknesses and concluded that our internal controls over financial reporting were not effective as of December 31, 2004. In addition, we have concluded that our disclosure controls and procedures were not effective as of December 31, 2004 to provide reasonable assurance that information we are required to disclose in our reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported accurately. Our independent auditors also issued an adverse opinion on the effectiveness of our internal control over financial reporting as of December 31, 2004. The material weaknesses that have been identified relate to the internal controls regarding recording and analysis of revenue transactions with unusual terms, accrued liability account reconciliation and analyses processes, financial statement close and reporting procedures, controls with respect to our German subsidiary and recording and review over fixed assets. A more complete description of these deficiencies is included in Item 9A of our Annual Report on Form 10-K/A filed with the Securities Exchange Commission on April 29, 2005 and Item 4 of this report. We cannot assure you that additional material weaknesses or significant deficiencies in our internal controls will not be discovered in the future.

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Although we continue to document and evaluate our internal controls over financial reporting and seek to remediate matters as necessary or appropriate, we cannot be assured that we will successfully correct any such material weaknesses in our internal controls over financial reporting and disclosure controls and procedures. Any failure to remediate the material weaknesses reported by our independent auditors or to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results, cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. Our business and our ability to obtain additional financing on favorable terms could be materially and adversely affected.

We are incurring and will continue to incur, substantial additional expense and diversion of management’s time as a result of performing ongoing internal control systems evaluation, testing and remediation required in order to comply with the requirements of Section 404 of SOX. These expenses have had an adverse impact on our operating results.

We have adopted anti-takeover provisions that may limit the ability of another party to acquire us and may prevent or frustrate any stockholder’s attempt to change the direction or management of us and that could cause our stock price to decline.

Various provisions of our certificate of incorporation and bylaws and Delaware law may discourage or prevent a third party from acquiring us, even if doing so would benefit our stockholders. In addition, these provisions may prevent or frustrate any stockholder attempt to change our direction or management. These provisions provide for, among other things, a classified board of directors, by which approximately one third of the directors are elected each year, advance notice requirements for proposals that can be acted upon at stockholder meetings and limitations on who may call stockholder meetings. In October 2001, we adopted a stockholder rights plan. Pursuant to our stockholders rights plan, each share of our outstanding common stock has an associated preferred share purchase right. The rights will not trade separately from our common stock until, and are exercisable only upon, the acquisition or potential acquisition by a person or group of or the tender offer for 15% or more of our common stock. In October 2004, we entered into an agreement with Siemens AG whereby we agreed to provide Siemens with written notice of written offers from a third party involving the sale of, transfer of, or license to, all or substantial parts of our assets or the acquisition of the majority of our shares, and agreed to consider any written bid for the same or substantially the same assets or shares submitted by Siemens for a 30 business day period following such notification. As a result of these provisions, we could delay, deter or prevent a takeover attempt or third party acquisition that our stockholders consider to be in their best interests, including a takeover attempt that results in the payment of a premium for our common stock. Our board of directors, without further approval of the stockholders, is authorized to issue “blank check” preferred stock and to fix the dividend rights and terms, conversion rights, voting rights, redemption rights and terms, liquidation preferences and any other rights, preferences, privileges and restrictions applicable to this preferred stock. The issuance of preferred stock could adversely affect the voting power of the holders of our common stock, making it more difficult for a third party to gain control of us, discouraging premium bids for our common stock or otherwise adversely affecting the market price of our common stock.

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Changes in stock option accounting treatment will adversely affect our results of operations.

Changes in stock option accounting treatment commencing July 1, 2005 will require us to account for employee stock options as compensation expense in our financial statements. In December 2004, the Financial Accounting Standard Board, or FASB, issued a new statement, which requires all share-based payments to employees, including grants of employee stock options and restricted stock awards, to be recognized as expense in the financial statements based on their fair values. The new rules will be effective for us beginning in the first quarter of 2006. We are currently evaluating option and restricted stock valuation methodologies and assumptions permitted by the FASB for purposes of implementing the change in accounting treatment. This change will materially and adversely affect our reported results of operations and our timing to achieve profitability. For an illustration of the effect of such a change in our recent results of operations, see Note 5 of the Notes to our consolidated financial statements included elsewhere in this report.

Available Information

Copies of our public filings are available on our Internet website at http://www.sequenom.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We will supply a copy of this Quarterly Report on Form 10-Q, and any other periodic or current reports, without charge. To request a copy, please contact Investor Relations, SEQUENOM, Inc., 3595 John Hopkins Court, San Diego, CA, 92101, USA.

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Short-Term Investments

The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our investments without significantly increasing risk. Some of the securities that we invest in may have market risk. This means that a change in prevailing interest rates may cause the fair value of the principal amount of the investment to fluctuate. For example, if we hold a security that was issued with a fixed interest rate at the then-prevailing rate and the prevailing interest rate later rises, the fair value of the principal amount of our investment will probably decline. To minimize this risk in the future, we intend to maintain our portfolio of cash equivalents and short-term investments in a variety of securities, including commercial paper, money market funds, government and non-government debt securities rated BBB or above by Standard & Poors. Our investment policy includes a minimum quality rating for all new investments. If an investment we hold falls below this level, we research the reasons for the fall and determine if we should continue to hold the investment in order to minimize our exposure to market risk of the investment. We have not experienced any significant losses in our investment portfolio as a result of rating changes. The average duration of all of our investments has generally been less than one year. Due to the short-term nature of these investments, we believe we have no material exposure to interest rate risk arising from our investments. Therefore, no quantitative tabular disclosure is provided.

Foreign currency rate fluctuations

We have foreign subsidiaries whose functional currencies are the Great British Pound (“GBP”) and the Euro (“EUR”). The subsidiaries’ accounts are translated from the relevant functional currency to the US dollar using the current exchange rate in effect at the balance sheet date, for balance sheet accounts, and using the average exchange rate during the period for revenues and expense accounts. The effects of translation are recorded as a separate component of stockholders’ equity. Our subsidiaries conduct their business with customers in local currencies. Exchange gains and losses arising from these transactions are recorded using the actual exchange differences on the date of the transaction. We have not taken any action to reduce our exposure to changes in foreign currency exchange rates, such as options or futures contracts, with respect to transactions with our subsidiaries or transactions with our customers where the invoicing currency is not the US dollar.

The table below sets forth our currency exposure (i.e., those transactional exposures that give rise to the net currency gains and losses recognized in the income and expenditure account) on our net monetary assets and liabilities. These exposures consist of our monetary assets and liabilities that are not denominated in the functional currency used by us or our subsidiary or affiliate having the asset or liability.

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A movement of 10% in the US dollar to Euro exchange rate would create an unrealized gain or loss of approximately $60,000. A movement of 10% in the US dollar to pound exchange rate would create an unrealized gain or loss of approximately $40,000.

We had no off balance sheet, or unrecognized, gains and losses in respect of financial instruments used as hedges at the beginning or end of the period ended March 31, 2005. We had no deferred gains or losses during the period covered.

Inflation

We do not believe that inflation has had a material adverse impact on our business or operating results during the periods presented.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported on a timely basis and that such information is accumulated and communicated to management, including our principal executive officer who is also our principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure.

We carry out an evaluation, under the supervision and with the participation of our management, including our principal executive officer who is also our principal financial officer, of the effectiveness of the design and operation of disclosure controls and procedures as of the end of each quarterly and annual period pursuant to Exchange Act Rule 13a-15.

Based upon our evaluation prior to the filing of our annual report on Form 10-K, our management concluded that our disclosure controls and procedures were not effective as of December 31, 2004 because of material weaknesses in internal control over financial reporting, as described below in “Internal Control over Financial Reporting.”

Further, based upon our evaluation prior to the filing of this quarterly report, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were still not effective as of March 31, 2005 to provide reasonable assurance that financial information we are required to disclose in our reports under the Securities Exchange Act of 1934 was recorded, processed, summarized and reported accurately.

Since December 31, 2004, our management has been reviewing and evaluating the disclosure controls and procedures with the goal of strengthening such controls and procedures as expeditiously as possible. These efforts are discussed in more detail below in “Remediation Plan.” Our management believes we must further evaluate and test the operational effectiveness of our disclosure controls and procedures and further evaluate whether additional enhancements to disclosure controls and procedures may be required prior to reaching further conclusions regarding the effectiveness of our disclosure controls and procedures.

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While our management’s efforts to evaluate, test and enhance disclosure controls and procedures are ongoing, our management believes that the condensed consolidated financial statements included in this quarterly report present fairly in all material respects the financial condition and results of operations for the company for the periods presented.

Internal Control over Financial Reporting

As we reported in our Form 10-K/A for the year ended December 31, 2004, filed with the Securities and Exchange Commission on April 29, 2005, in connection with our management assessment of the effectiveness of the Company’s internal control over financial reporting for the year ended December 31, 2004, we identified the following material weaknesses:

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Remediation Plan

Based on our findings that our disclosure controls and procedures were not effective at December 31, 2004 and March 31, 2005 and that we had material weaknesses in internal controls over financial reporting at December 31, 2004, we have been and continue to be engaged in efforts to improve our internal controls and procedures and we expect that these efforts will address the weaknesses during the remainder of 2005.

These efforts include the following:

We have communicated to the Audit Committee the material weaknesses identified in our internal control over financial reporting and that our disclosure controls and procedures were not effective. Management, with the oversight of the Audit Committee, is committed to effective

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remediation of known material weaknesses and significant deficiencies and to improvements in our disclosure controls and procedures as quickly as possible.

Changes in Internal Control over Financial Reporting

Other than improvements described in our remediation plan above, there have been no changes in our internal control over financial reporting during the quarter ended March 31, 2005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on our findings that our disclosure controls and procedures and our internal controls over financial reporting were not effective, we continue to take steps to improve our internal controls and procedures

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PART II – OTHER INFORMATION

In November 2001, we and certain of our current or former officers and directors were named as defendants in a class action shareholder complaint filed by Collegeware USA in the U.S. District Court for the Southern District of New York (now captioned In re Sequenom, Inc. IPO Securities Litigation) Case No. 01-CV-10831. Similar complaints were filed in the same Court against hundreds of other public companies that conducted initial public offerings of their common stock in the late 1990s and 2000. In the complaint, the plaintiffs allege that our underwriters, certain of our officers and directors and we violated the federal securities laws because our registration statement and prospectus contained untrue statements of material fact or omitted material facts regarding the compensation to be received by and the stock allocation practices of the underwriters. The plaintiffs seek unspecified monetary damages and other relief. In October 2002, our officers and directors were dismissed without prejudice pursuant to a stipulated dismissal and tolling agreement with the plaintiffs. In February 2003, the court dismissed the claim against us brought under Section 10(b) of the Securities Exchange Act of 1934, without giving the plaintiffs leave to amend the complaint with respect to that claim. The court declined to dismiss the claim against us brought under Section 11 of the Securities Act of 1933.

In June 2003, pursuant to the authorization of a special litigation committee of our Board of Directors, we approved in principle a settlement offer by the plaintiffs. In June 2004, we entered into a settlement agreement with the plaintiffs. On February 15, 2005, the Court issued a decision certifying a class action for settlement purposes and granting preliminary approval of the settlement subject to modification of certain bar orders contemplated by the settlement. In addition, the settlement is still subject to statutory notice requirements as well as final judicial approval. Management does not anticipate that the ultimate outcome of this event will have a material adverse impact on our financial position.

In August 2004, we were named as a defendant in a complaint filed by a former employee, Daniel P. Little (“plaintiff”) in the United States District Court for the Southern District of California, Case No. 04 CV 1737 J. In the complaint, the plaintiff alleges that the we have violated plaintiff’s rights under a 1957 German law, known as “Law Relating to Inventions Made by Employees”, in connection with plaintiff’s activities in Germany for Sequenom, GmbH, beginning in or about October 1995. This law provides for compensation to an employee in consideration for rights to employee inventions. Although we have made several royalty payments to plaintiff, plaintiff alleges that the amount of royalty has been in dispute as have been the triggering events. Plaintiff asserts causes of action against us including rescission, breach of contract, quantum meruit, unfair business practices, and fraud. Plaintiff further alleges that Sequenom GmbH failed to follow the mandatory process of the 1957 German law and never provided the necessary written claim of ownership of the inventions made by plaintiff while in Germany. The plaintiff seeks unspecified monetary damages and other relief including ownership and patent rights for all inventions claimed in patents to which he contributed while employed in Germany, including U.S. Patents 6,258,538, 6,569,385, and 6,602,662, which are asserted to include coverage for key elements of our MassARRAY technology, among other patents. In November 2004, the Court dismissed plaintiff’s quantum meruit, unfair business practices, and fraud claims. In November 2004, we answered the complaint, denying all material

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allegations. In April 2005, we entered into a settlement agreement with plaintiff providing for dismissal of the complaint with prejudice and a complete and full release of all claims against us. Dismissal of the complaint was entered by the court on April 25, 2005.

In addition, from time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business.

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SIGNATURE

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

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