Attached files

6. Fair Value Measurement

        The Company considers all highly liquid investments with original maturities of generally three months or less at the time of acquisition to be cash equivalents. Cash equivalents are stated at cost, which approximates fair market value. The Company classifies marketable securities as available-for-sale. These securities are carried at fair market value with unrealized gains and, to the extent deemed temporary, unrealized losses, reported as a component of other comprehensive gain or loss in stockholders' equity. Realized gains or losses on securities sold are based on the specific identification method.

        Marketable securities are considered to be impaired when a decline in fair value below cost basis is determined to be other-than-temporary. The Company evaluates whether a decline in fair value below cost basis is other-than-temporary using available evidence regarding its investments. In the event that the cost basis of a security significantly exceeds its fair value, the Company evaluates, among other factors, the duration of the period that, and extent to which, the fair value is less than cost basis, the financial health of and business outlook for the issuer, including industry and sector performance, and operational and financing cash flow factors, overall market conditions and trends, the Company's intent to sell the investment and if it is more likely than not that the Company would be required to sell the investment before its anticipated recovery. Once a decline in fair value is determined to be other-than-temporary, a write-down is recorded in the consolidated statements of operations and a new cost basis in the security is established. In April 2009, the Company adopted new accounting guidance which provides additional guidance in assessing the credit and noncredit component of an other-than-temporary impairment event for debt securities and modifies the presentation and disclosures when an other-than-temporary impairment event for debt securities has occurred. The adoption of this new accounting guidance did not have a significant impact on the Company's financial statements.

        The Company's assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2009 and September 30, 2010 are measured in accordance with FASB standards. Fair values determined by Level 1 inputs utilize observable data such as quoted prices in active markets. Fair values determined by Level 2 inputs utilize data points other than quoted prices in active markets that are observable either directly or indirectly. Fair values determined by Level 3 inputs utilize unobservable data points in which there is little or no market data, which require the reporting entity to develop its own assumptions.

        The following table represents the Company's assets and liabilities measured at fair value on a recurring basis at December 31, 2009:

        The Company's money market funds were valued at December 31, 2009 using calculated net asset values and are therefore classified as Level 2. The Company's warrant liability was valued at December 31, 2009 using a Black-Scholes model and is therefore classified as Level 3.

15

Table of Contents

HELICOS BIOSCIENCES CORPORATION (a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

6. Fair Value Measurement (Continued)

        The following table represents the Company's assets and liabilities measured at fair value on a recurring basis at September 30, 2010:

        The Company's money market funds were valued at September 30, 2010 using calculated net asset values and are therefore classified as Level 2. The Company's warrant liability was valued at September 30, 2010 using a Black-Scholes model and is therefore classified as Level 3.

        The following tables roll forward the fair value of our warrant liability, whose fair value is determined by Level 3 inputs for the 2010 period presented:

        The valuation of the warrant liability is discussed further in Note 7.

        The carrying amount of the Company's debt approximates its fair value at December 31, 2009 and September 30, 2010.

7. Common Stock and Warrant Liability

September 2009 Financing

        In September 2009, the Company entered into a securities purchase agreement with certain investors pursuant to which it (i) sold to certain existing investors a total of 1,030,028 units, each unit consisting of (a) one share of common stock (collectively, the "Shares") and (b) one warrant (collectively, the "Warrants") to purchase 0.662 shares of common stock at an exercise price equal to $2.61 per share (105% of the closing bid price of the common stock on September 15, 2009), at a purchase price equal to $2.57 per unit, and (ii) sold to certain new investors a total of 3,281,252 units, each unit consisting of (a) one share of common stock and (b) one warrant to purchase 0.50 shares of

16

Table of Contents

HELICOS BIOSCIENCES CORPORATION (a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

7. Common Stock and Warrant Liability (Continued)

common stock at an exercise price equal to $2.61 per share, at a purchase price equal to $2.24 per unit (together, the "September 2009 Offering"). The closing of the transaction occurred on September 18, 2009. In connection with the September 2009 Offering, the Company raised approximately $10.0 million in gross proceeds. After paying $646,000 in placement agent fees and offering expenses, the net proceeds were $9.4 million.

        In connection with the September 2009 Offering, the Company issued warrants to purchase an aggregate of 2,322,509 shares of common stock which become exercisable on or after the six month anniversary following the closing of the transaction. The warrants have an exercise price of $2.61 per share and have a five and a half year term. The fair value of the warrants was estimated at $4.5 million using a Black-Scholes model with the following assumptions: expected volatility of 100%, risk free interest rate of 2.49%, expected life of five and a half years and no dividends. Expected volatility was based on the volatility contractually specified in the warrant agreements. Due to a price adjustment clause included in the warrant agreements, the warrants were deemed to be a liability and, therefore, the fair value of the warrants was recorded in the liability section of the balance sheet. As such, the warrants will be revalued each reporting period, with the resulting gains and losses recorded as the change in fair value of warrant liability on the statement of operations. In connection with the December 2009 Offering, the exercise price for the warrants issued in this transaction was subsequently reduced to $0.3124 per share in accordance with the terms of the warrant. For the three month period ending September 30, 2010 the Company recorded an expense in the amount of $54,000 and for the nine month period ending September 30, 2010 the Company recorded a gain of $1.1 million, respectively, for the change in the fair value of the warrant liability. During the nine months ended September 30, 2010, 502,231 warrant shares from the September 2009 Offering were exercised into common stock at an exercise price of $0.3124.

        In connection with the September 2009 Offering, the Company entered into a registration rights agreement (the "September 2009 Registration Rights Agreement") with each of the investors. The Registration Rights Agreement provides that the Company will file a "resale" registration statement covering all of the shares of common stock and the shares of common stock issuable upon exercise of the warrants, up to the maximum number of shares able to be registered pursuant to applicable SEC regulations, within 15 days of the closing of the September 2009 Offering. The Company currently maintains an effective registration statement relating to these shares (File No. 333-162240). Under the terms of the September 2009 Registration Rights Agreement, the Company is obligated to maintain the effectiveness of the "resale" registration statement until all securities therein are sold or are otherwise can be sold pursuant to Rule 144, without any restrictions. A cash penalty at the rate of 2% per month will be triggered for any filing or effectiveness failures or 1% in the event of suspensions of prospectus delivery or if, at any time after six months following the closing of the September 2009 Offering, the Company ceases to be current in its periodic reports with the SEC. The aggregate penalty accrued with respect to each investor may not exceed 12% of the original purchase price paid by that investor. The Company has not recorded an amount associated with the contingent obligation regarding the cash penalties as of September 30, 2010 as the Company believes that the contingent obligation to make future payments is not probable.

17

Table of Contents

HELICOS BIOSCIENCES CORPORATION (a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

7. Common Stock and Warrant Liability (Continued)

December 2009 Financing

        In December 2009, the Company entered into an Underwriting Agreement (the "Underwriting Agreement") with Thomas Weisel Partners LLC (the "Underwriter"), pursuant to which it sold to the Underwriter 6,400,000 shares of common stock and warrants to purchase up to 4,160,000 shares of common stock sold in units, at a price of $1.00 per unit ("December 2009 Offering"). Each unit consists of one share of common stock and a warrant to buy 0.65 of a share of common stock. The warrants will be exercisable for a period of five years, beginning six months after issuance, at an exercise price of $1.4385 per share. The closing of the transaction occurred on December 15, 2009. The Company received approximately $6.4 million in gross proceeds from the December 2009 Offering. After paying $718,000 in underwriting discounts, commissions and offering expenses, the net proceeds were $5.6 million.

        In connection with the December 2009 Offering, the Company issued warrants to purchase an aggregate of 4,160,000 shares of common stock. The warrants have an exercise price of $1.44 per share and have a five and a half year term. The fair value of the warrants was estimated at $2.7 million using a Black-Scholes model with the following assumptions: expected volatility of 100%, risk free interest rate of 2.43%, expected life of five and a half years and no dividends. Expected volatility was based on the volatility contractually specified in the warrant agreements. Due to a price adjustment clause included in the warrant agreements, the warrants were deemed to be a liability and, therefore, the fair value of the warrants was recorded in the liability section of the balance sheet. As such, the warrants will be revalued each reporting period, with the resulting gains and losses recorded as the change in fair value of warrant liability on the income statement. For the three month period ending September 30, 2010 the Company recorded an expense in the amount of $76,000 and for the nine month period ending September 30, 2010 the Company recorded a gain of $2.0 million, respectively, for the change in the fair value of the warrant liability.

8. Debt

        As of December 31, 2009 and September 30, 2010, the outstanding balance on a loan and security agreement was $4.9 million and $3.0 million, respectively.

        As of September 30, 2010, loan payable payments are due as follows (in thousands):

        As of September 30, 2010, the loan and security agreement did not require the Company to comply with any financial covenants.

18

Table of Contents

HELICOS BIOSCIENCES CORPORATION (a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

8. Debt (Continued)

        The loan and security agreement contains a subjective material adverse clause, which allows the debt holders to call the loans upon a material adverse event. Based on an updated assessment of the terms of the loan and security agreement, the entire balance due is classified in the current liabilities section in the accompanying balance sheet at September 30, 2010.

9. Restructuring

        On May 11, 2010, the Board of Directors of the Company approved a reduction in headcount and restructuring plan ("Restructuring Plan") which involved the consolidation and reorganization of its operations in order to reduce operating costs. The Restructuring Plan resulted in the elimination of approximately 40 positions during the second fiscal quarter of 2010. Employees directly affected by the Restructuring Plan were notified on May 13, 2010, and have been provided with severance arrangements including outplacement assistance. These actions were approved as part of the Company's repositioning strategy in the diagnostics market.

        The Company incurred restructuring charges relating to one-time termination benefits of approximately $667,000 in the second quarter of 2010, of which $543,000 was recorded in research and development expense and $124,000 was recorded in selling, general and administrative expense. These charges represent employee severance and termination costs as well as facility consolidation costs, which were partially paid out during the second quarter of 2010. In the third quarter the Company reversed $118,000 of severance expenses in connection with an employee waiving his severance in exchange for the Company waiving elements of their non-compete agreement. The Company expects that payments associated with the restructuring provision will end in the fourth quarter of 2010.

        A summary of restructuring activity is as follows:

        On September 15, 2010, the Board of Directors of the Company approved a reduction in headcount and restructuring plan (the "September Restructuring Plan") which involved the consolidation and reorganization of its operations in order to reduce operating costs. The September Restructuring Plan resulted in the elimination of approximately 14 positions during the third fiscal quarter of 2010. Employees directly affected by the September Restructuring Plan were notified on September 16, 2010, and have been provided with severance arrangements including outplacement assistance. These actions were approved as part of the Company's repositioning strategy in the diagnostics market.

19

Table of Contents

HELICOS BIOSCIENCES CORPORATION (a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

9. Restructuring (Continued)

        The Company incurred restructuring charges relating to one-time termination benefits of approximately $172,000 in the third quarter of 2010, all of which was recorded in research and development expense. These charges represent employee severance and termination costs. The Company expects that payments associated with the restructuring provision will continue into the first quarter of 2011.

        A summary of restructuring activity is as follows:

10. Impairment of Long Lived Assets

        During the third quarter of 2010, the Company altered its business direction as a result of its inability to raise funding to support the repositioning of the Company in the genetic analysis markets. As a result, the Company redirected its efforts to focus on a technology licensing and enforcement program to monetize the value of its intellectual property portfolio and to deploy its limited resources by concentrating its research and development efforts in targeted areas designed to achieve tangible proof-of-concept goals, which may enable the Company to seek partnership opportunities with companies interested in next-generation sequencing, or to pursue other funding and strategic alternatives.

        As a result of this altered business direction the Company undertook an analysis of the ongoing carrying value of its long lived assets. The Company determined that the ongoing value of certain laboratory equipment was equivalent to its liquidation value, which the Company estimated was approximately ten percent of the original purchase price based on the value realized by other similarly situated life science companies that have been forced to realize value through a liquidation process.

        Based on this analysis, during the three months ended September 30, 2010, the Company recorded an impairment charge related to long lived assets of approximately $1.9 million, of which approximately $1.8 million was related to assets used in research and development and approximately $0.1 million was related to assets used for selling, general and administrative purposes. These charges were derived from the net book value of the assets. The remaining book values of the Company's long lived assets are equivalent to ten percent of the purchase price for certain laboratory equipment and the remaining unamortized value of certain intangible assets related to acquired intellectual property.

20

Table of Contents

HELICOS BIOSCIENCES CORPORATION (a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

11. Subsequent Events

Bridge Financing and Senior Debt Restructuring

        The Company entered the fourth quarter of 2010 without any prospects of securing long-term financing from outside investors. An Independent Committee of the Board evaluated the alternatives available to the Company and determined that a bridge financing lead by certain inside investors was in the best interests of the Company's stakeholders in view of the Company's current financial and operating condition, and would best position the Company to continue operations for the remainder of 2010 and into 2011. The Independent Committee met multiple times to consider the alternatives and reached the conclusion that the bridge financing was the best alternative for generating value for stakeholders. As a result, the Company entered into an insider bridge loan facility with two of the four venture capital firms which decided to participate in the bridge financing and whose representatives are members of the Board. In connection with this transaction, the Company entered into a Subordinated Secured Note Purchase Agreement (the "Note Purchase Agreement") with investment funds affiliated with Atlas Venture and Flagship Ventures (the "Purchasers"), pursuant to which the Company has agreed to sell to the Purchasers, and the Purchasers have agreed to purchase, up to an aggregate of $4,000,000 of convertible promissory notes (the "Notes"), a portion of which is committed and a portion of which is optional (the "Bridge Debt Financing"). Upon the effective date of the Note Purchase Agreement, the Purchasers purchased Notes having an aggregate principal amount of $333,333. Subject to the Company's continued compliance with the terms of the Note Purchase Agreement, including that there not be an event of default thereunder, upon notice from the Company the Purchasers are committed to purchase an aggregate of an additional $333,333 of Notes in each of five subsequent closings, for a total aggregate committed amount of $2,000,000. The Purchasers also have the right, but not the obligation, upon the Company's request to purchase up to an additional $2,000,000 of Notes on or before December 31, 2012.

        The Notes will accrue interest at a rate of 10% per annum plus a risk premium as described below. The outstanding principal and any unpaid accrued interest on all of the Notes shall be due and payable in full (i) upon demand by the Purchasers, which demand shall be no earlier than December 31, 2012, (ii) upon the Company receiving at least $10,000,000 in proceeds from a subsequent equity financing, (iii) upon a change of control of the Company or (iv) upon an event of default. A Purchaser may elect to convert principal and interest outstanding under any of the Notes upon the closing of any future round of equity or debt financing of the Company into shares, and at the per share price, of the securities issued at such financing. Simultaneous with execution of the Note Purchase Agreement, the Company and the requisite parties entered into an Amendment to the Amended and Restated Investor Rights Agreement, dated as of March 1, 2006, by and among the Company and the parties specified therein, including the Purchasers (the "IRA Amendment"), pursuant to which the Purchasers will be entitled to demand and piggyback registration rights consistent with the terms of the Purchasers existing registration rights for any securities issued upon conversion of the Notes.

        The Company's obligations under the Notes are subordinated to the indebtedness incurred by the Company under the Loan and Security Agreement among the Company, certain lenders (the "Lenders") and General Electric Capital Corporation ("GE"), as agent, dated as of December 31, 2007, as amended (the "Loan Agreement"). The Company's obligations under the Notes are secured by a security interest on all of the Company's assets, including its intellectual property, that, with regard to

21

Table of Contents

HELICOS BIOSCIENCES CORPORATION (a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

11. Subsequent Events (Continued)

all of the Company's assets other than the cause of action that is the subject of the intellectual property litigation against Pacific Biosciences, Illumina and Life Technologies (and any recovery therefrom) (the "Cause of Action"), is junior to the Lenders' first priority security interest under the Loan Agreement, and with regard to the Cause of Action, is junior to the Lenders' first priority security interest under the Loan Agreement and the second priority security interest of the Company's outside legal counsel that is representing the Company in the Cause of Action (the "Outside IP Litigation Counsel").

        As an inducement for the Purchasers to purchase the Notes, the Company entered into a Risk Premium Payment Agreement, dated as of November 16, 2010, with the Purchasers (the "Risk Premium Agreement") simultaneous with the execution of, and as required by, the Note Purchase Agreement. Under the terms of the Risk Premium Agreement, the Company has agreed to pay the Purchasers the following portions of the consideration the Company receives (the "Payment Consideration") in Liquidity Transactions, as defined below: (i) until the aggregate Payment Consideration equals $10 million, 60% of the Payment Consideration; (ii) for aggregate Payment Consideration from $10 million to $20 million, 50% of the Payment Consideration; (iii) for aggregate Payment Consideration from $20 million to $30 million, 40% of the Payment Consideration; (iv) for aggregate Payment Consideration from $30 million to $40 million, 30% of the Payment Consideration; and (v) for aggregate Payment Consideration in excess of $40 million, 10% of the Payment Consideration (any such payments, "Risk Premium Payments"). For purposes of determining amounts payable under the Risk Premium Agreement, the Payment Consideration will not include amounts the Company uses to first satisfy specified existing obligations, including obligations under the Loan Agreement, under professional contingency arrangements (including the contingency fee arrangement between the Company and the Outside IP Litigation Counsel relating to the Cause of Action) and obligations that may arise under existing technology license agreements (the "Existing IP Licensing Agreements") between the Company and each of Arizona Technology Enterprises, Roche Diagnostics GMBH and Roche Diagnostics Corporation, and California Institute of Technology, (as previously disclosed by the Company, under the existing IP Licensing agreements, the Company is obligated to pay license fees in connection with the licensing, sublicensing, legal settlements, or sales of specified intellectual property or services provided to third parties ranging from a single digit percentage up to one-half of the income from those activities). For purposes of the Risk Premium Agreement and subject to various provisions therein, the following shall constitute Liquidity Transactions: (A) the receipt by the Company of payments from third parties relating to the intellectual property portfolio of the Company, including payments received as a license or other settlement in patent infringement litigation brought by the Company ("IP Licensing Events"); (B) a merger of the Company in which there is a change of control; and (C) the sale or exclusive license by the Company of all or substantially all of its assets or intellectual property.

        In connection with the Bridge Debt Financing, on November 16, 2010, the Company, GE and the Lenders executed the Fourth Amendment to the Loan and Security Agreement, dated November 16, 2010 (the "Fourth Amendment"). Pursuant to the Fourth Amendment, GE and the Lenders waived various existing events of default and consented to the Company's incurrence of indebtedness and grant of a junior security interest to the Purchasers under the Note Purchase Agreement. The Company amended warrants previously issued to the Lenders to re-price the Warrants from $4.80 to $0.01 and GE and the Lenders agreed to defer a $200,000 payment due January 31, 2011 to the term loan maturity date. In addition, subject to the Company's continued compliance with the terms of the Loan

22

Table of Contents

HELICOS BIOSCIENCES CORPORATION (a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

11. Subsequent Events (Continued)

Agreement, including that there not be an event of default thereunder, GE and the Lenders agreed to defer up to five additional principal monthly payments with respect to the term loan. Also pursuant to the Fourth Amendment, the Company agreed to grant the Lenders a first priority security interest in all of the Company's intellectual property and to pay the Lenders an additional $50,000 to $200,000 (depending upon how many principal payments are deferred) upon the full repayment of all outstanding amounts due with respect to the term loans. Under the terms of the Loan and Security Agreement prior to its amendment by the Fourth Amendment, the scope of the Lenders' first priority security interest included all of the Company's assets other than intellectual property.

        In connection with the Bridge Debt Financing and the Fourth Amendment and as security for the Company's obligations under its contingency fee arrangement with Outside IP Litigation Counsel relating to the Cause of Action, the Company and the Outside IP Litigation Counsel entered into a Subordinated Security Agreement pursuant to which the Company agreed to grant the Outside IP Litigation Counsel a second priority security interest in the Cause of Action. Under the terms of the contingency fee arrangement, the Company is obligated to pay outside IP Litigation Counsel up to 40% of the proceeds paid to the Company in connection with the settlement, judgement, or other resolution of the Cause of Action or certain business transactions resulting from or relating to the Cause of Action.

        In approving the transactions relating to the Bridge Debt Financing and the Fourth Amendment, the Board of Directors of the Company approved a management incentive plan pursuant to which participants in the plan will be entitled to receive, in the aggregate, an amount equal to 7.5% of the Payment Consideration resulting from IP Licensing Events (which, as noted above, represents gross proceeds from IP Licensing Events less various contractual and contingent payments described above) (the "Management Incentive Plan"). The specific terms of the Management Incentive Plan, administration and all payments to be made to management thereunder will be under the control and direction of the Compensation Committee of the Board of Directors of the Company.

        The agreements and arrangements described above and all of the transactions contemplated by those agreements were approved by an independent committee of the Board of Directors of the Company. In addition, Noubar B. Afeyan, PhD, who is the founder, a Managing Partner and the Chief Executive Officer of Flagship Ventures, and Peter Barrett, who is a Partner of Atlas Venture, abstained from the vote of the Board of Directors of the Company approving the transactions.

NASDAQ Delisting

        On June 28, 2010, the Company received a letter from The NASDAQ Stock Market LLC ("NASDAQ") advising that for the previous 30 consecutive business days, the Company failed to comply with the minimum market value of listed securities ("MVLS") requirement for continued listing on the NASDAQ Global Market pursuant to NASDAQ Marketplace Rule 5450(b)(2)(A) and that the Company did not otherwise satisfy the criteria for continued listing pursuant to NASDAQ Marketplace Rule 5450(b). NASDAQ stated in its letter that in accordance with NASDAQ Marketplace Rule 5810(c)(3)(C), the Company will be provided 180 calendar days, or until December 27, 2010, to regain compliance with the MVLS continued listing requirement. MVLS is calculated by multiplying the total shares outstanding by the daily closing bid price. The NASDAQ letter also states that if, at any time before December 27, 2010, the MVLS of the Company's common stock closes at $50,000,000

23

Table of Contents

HELICOS BIOSCIENCES CORPORATION (a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(unaudited)

11. Subsequent Events (Continued)

or more for a minimum of 10 consecutive business days, the NASDAQ staff will provide the Company with written notification that it has achieved compliance with the MVLS continued listing requirement and the matter will be closed. On October 12, 2010, the Company received a delisting determination letter from NASDAQ due to the Company's failure to regain compliance with the NASDAQ Global Market's minimum bid price requirement for continued listing as set forth in Listing Rule 5450(a)(1). In addition, the Company has not yet held its annual meeting of stockholders for fiscal 2010 which is an additional requirement for Helicos to comply with in order to maintain its continued listing on NASDAQ. Based on the unlikely ability of the Company to meet the NASDAQ MLVS requirements due to the state of its finances and near-term business prospects, on November 12, 2010, the Company withdrew its appeal to NASDAQ. As a result, the Company's securities were delisted from the NASDAQ Global Market and the trading of the Company's common stock was suspended before the opening of business on November 16, 2010, and a Form 25-NSE will be filed with the Securities and Exchange Commission which will remove the Company's securities from listing and registration on The NASDAQ Stock Market. The Company has been advised by Pink OTC Markets Inc., which operates an electronic quotation service for securities traded over-the-counter ("OTC"), that its securities are immediately eligible for quotation on the OTCQB. The OTCQB is a market tier for OTC traded companies that are registered and reporting with the Securities and Exchange Commission. The Company has also been advised that its shares will continue to trade under the symbol HLCS. Investors can now view real time stock quotes for HLCS at http://www.otcmarkets.com.

        Please see Part II, Item 1A, in this Form 10-Q, for risks related to ownership of the Company's common stock.

Qualified Therapeutic Discovery Project Grant Funds

        The Company has been awarded three federal grants totaling approximately $722,000 under the Patient Protection and Affordable Care Act of 2010, of which $470,000 will be received during the fourth quarter of 2010 and the balance will be received during the first half of 2011 provided that the Company continues to qualify for funding under the program. The grants were awarded under the Qualified Therapeutic Discovery Project (QDTP) aimed towards producing products that diagnose diseases or determine molecular factors related to diseases by developing molecular diagnostics to guide therapeutic decisions.

24

Table of Contents

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

Forward-Looking Statements

        This quarterly report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In particular, statements contained in this Form 10-Q, including but not limited to, statements regarding our future results of operations and financial position, business strategy and plan prospects, projected revenue or costs and objectives of management for future research, development or operations, are forward-looking statements. These statements relate to our future plans, objectives, expectations and intentions and may be identified by words such as "may," "will," "should," "expects," "plans," "anticipates," "intends," "targets," "projects," "contemplates," "believes," "seeks," "goals," "estimates," "predicts," "potential" and "continue" or similar words. Readers are cautioned that these forward- looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified below, under Part II, Item 1A. "Risk Factors" and elsewhere herein. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.

Business Overview

        Helicos BioSciences Corporation is a life sciences company focused on innovative genetic analysis technologies. Our proprietary True Single Molecule Sequencing (tSMS)™ technology enables rapid analysis of genetic material by directly sequencing single molecules of DNA or single DNA copies of RNA (cDNA) and our newest approach of direct sequencing of RNA. Our tSMS approach differs from current methods of sequencing DNA or RNA because it analyzes individual molecules of DNA directly instead of analyzing a large number of copies of the molecule produced through complex sample preparation techniques. Our tSMS technology eliminates the need for costly, labor-intensive and time-consuming sample preparation techniques, such as amplification or cloning, which are required by other methods to produce a sufficient quantity of genetic material for analysis.

        Our Helicos® Genetic Analysis Platform is designed to obtain sequencing information by repetitively performing a cycle of biochemical reactions on individual DNA or RNA molecules and imaging the results after each cycle. The platform consists of an instrument called the HeliScope® Single Molecule Sequencer, an image analysis computer tower called the HeliScope™ Analysis Engine, associated reagents, which are chemicals used in the sequencing process, and disposable supplies.

        As previously disclosed in our quarterly and periodic reports with the Securities and Exchange Commission, in the first quarter of 2010, we began a process of considering alternatives to our long-term strategic focus, including a repositioning of our business in the genetic analysis markets. As a result of this process, on June 25, 2010, we announced that we had launched our diagnostics business and that we were in early stages of validating molecular diagnostic (MDx) tests that utilize our HeliScope Sequencer. To date, our research and development team has made progress in developing two prototype tests. The first test is for the detection of gene mutations indicative of a woman's increased risk of developing hereditary breast or ovarian cancer. The second prototype is a non-invasive prenatal diagnostic test. Nevertheless, despite this scientific progress, and a lengthy and comprehensive financing initiative supported by a nationally recognized investment bank during the second and third quarter of 2010, we were unable to secure any long-term equity financings or financing arrangements with strategic partners during the third quarter of 2010. We have had numerous meetings with prospective investors and corporate partners and have not been able to secure a bona-fide offer for financing or a strategic transaction. In addition, we have had very limited commercial activity to date during fiscal 2010. Further, as of September 30, 2010 and November 10, 2010, we only had $1.9 million and $1.8 million, respectively, in cash and cash equivalents.

25

Table of Contents

        As previously disclosed, on May 11, 2010, our Board of Directors (the "Board") approved a reduction in headcount and restructuring plan (the "May Restructuring Plan") which involved the consolidation and reorganization of our operations in order to reduce operating costs. The May Restructuring Plan resulted in the elimination of approximately 40 positions during the second fiscal quarter of 2010. In order to further reduce operating costs and preserve cash, on September 15, 2010, our Board of Directors (the "Board") approved a subsequent reduction in headcount and restructuring plan (the "September Restructuring Plan") which involved the consolidation and reorganization of our operations. The September Restructuring Plan eliminated approximately 14 positions during the third quarter of 2010. We entered the fourth quarter of 2010 with approximately 24 employees. In addition, during the third quarter of 2010, as a result of the inability to complete the financing referenced above and the subsequent change in business direction, we recorded charges of $2.6 million in connection with a write-off of certain of our inventory that is no longer used in the business and $1.9 million in connection with the impairment of certain long-lived assets.

        Going forward, we plan to deploy our limited resources by focusing on intellectual property monetization and concentrating our research and development efforts in targeted areas designed to achieve tangible proof-of-concept goals, which may enable us to seek partnership opportunities with companies interested in next-generation sequencing, or to pursue other funding and strategic alternatives. As of the date of this filing, we do not have adequate resources and will need to generate additional funding from various sources including contract sequencing service projects, strategic collaborations and licensing activities. On October 14, 2010, we announced the launch of a technology licensing program for our Single Molecule Sequencing and Sequencing-by-Synthesis intellectual property. We plan to defend our intellectual property rights through licensing and enforcement strategies. In this regard, on October 22, 2010, we filed an amended complaint against Pacific Biosciences by naming Illumina, Inc. and Life Technologies Corporation as additional defendants. The amended lawsuit alleges that the defendants willfully infringe our patents in suit by using their respective technologies, sequencing systems and products which we allege are within the scope of one or more claims of our patents in suit. We are seeking a permanent injunction enjoining the defendants from further infringement as well as monetary and punitive damages, costs and attorneys' fees, interest and other relief as determined by the Court. See Part II, Item 1 Legal Proceedings for more information.

        In September 2009, we raised approximately $9.4 million, after deducting placement agent fees and offering expenses, through the issuance of 4,311,280 shares of common stock and warrants to acquire up to 2,322,509 shares of common stock for an exercise price of $2.61 per share. In December 2009, we raised approximately $5.7 million, after deducting placement agent fees and offering expenses, through the issuance of 6,400,000 shares of common stock and warrants to acquire up to 4,160,000 shares of common stock for an exercise price of $1.44 per share.

        We entered the fourth quarter of 2010 without any prospects of securing long-term financing from outside investors. An Independent Committee of the Board evaluated the alternatives available to us and determined that a bridge financing lead by certain inside investors was in the best interests of our stakeholders in view of our current financial and operating condition, and would best position us to continue operations for the remainder of 2010 and into 2011. The Independent Committee met multiple times to consider the alternatives and reached the conclusion that the bridge financing was the best alternative for generating value for stakeholders. As a result, we entered into an insider bridge loan facility with two of the four venture capital firms which decided to participate in the bridge financing and whose representatives are members of the Board. In connection with this transaction, we entered into a Subordinated Secured Note Purchase Agreement (the "Note Purchase Agreement") with investment funds affiliated with Atlas Venture and Flagship Ventures (the "Purchasers"), pursuant to which we have agreed to sell to the Purchasers, and the Purchasers have agreed to purchase, up to an aggregate of $4,000,000 of convertible promissory notes (the "Notes"), a portion of which is committed

26

Table of Contents

and a portion of which is optional. As an inducement for the Purchasers purchase of the Notes, we entered into a Risk Premium Payment Agreement, dated as of November 16, 2010, with the Purchasers (the "Risk Premium Agreement") simultaneous with the execution of, and as required by, the Note Purchase Agreement. See Note 11, Subsequent Events, in the Notes to Consolidated Financial Statements, in this Form 10-Q, for a description of the Bridge Financing and Senior Debt Restructuring.

        Although we believe that the HeliScope Sequencer has unique utility across a broad array of MDx tests, due to significant financial and resource constraints, we have discontinued the plan to develop our own genetic testing laboratory certified under the Clinical Laboratory Improvement Amendments of 1988 (CLIA). Nevertheless, we still believe that diagnostics applications may benefit from the specific features of our System, including the platform's ability to sequence non-amplified natural DNA and RNA directly, quantitative accuracy, high throughput, ability to use small sample quantities in simple and cost effective preparation methods, as well as lack of biases typically seen with sample amplification.

        Notwithstanding recent workforce reductions, restructurings, and the bridge financing, we may not have sufficient funds to pursue our new business priorities. We will require significant additional capital in the first half of 2011 to continue our operations. As a result, we are no longer able to remain current in making payments to trade vendors and other unsecured creditors when such payments are due and, despite the restructuring of our credit facility with GE Capital discussed above, this inability to remain current increases the likelihood that GE Capital could declare a default under the credit facility in the near-term, including with regard to solvency. These workforce reductions, as well as curtailed financial resources, will further impact our ability to implement our business priorities. In addition, these constraints have caused us to significantly scale back service support and reagent supply to our current installed base. We have also significantly curtailed collaborative activities with other parties. Nevertheless, we believe that these actions will preserve our viability and provide additional time to execute our new business priorities.

        Since inception, we have incurred losses and have not generated positive cash flows from operations. We expect our losses to continue for a considerable period of time. These losses, among other things, have had and will continue to have an adverse effect on our working capital, total assets and stockholders' equity. As of September 30, 2010 and November 10, 2010, we had $1.9 million and $1.8 million, respectively, in cash and cash equivalents. We will, during the first half of 2011, require significant additional capital to continue our operations. Because our present capital resources are not sufficient to fund our planned operations for a twelve month period as of the date of the Annual Report on Form 10-K for the year ended December 31, 2009, our current financial resources raise substantial doubt about our ability to continue as a going concern.

        Our future capital requirements will depend on many factors, and we may require additional capital beyond our currently anticipated amounts. Any such required additional capital may not be available on reasonable terms, if at all, given our prospects, the current economic environment and restricted access to capital markets. The continued depletion of our resources may make future funding more difficult or expensive to attain. Additional equity financing may be dilutive to our stockholders; debt financing, if available, may involve significant cash payment obligations and covenants that restrict our ability to operate as a business; and strategic partnerships may result in royalties or other terms which reduce our economic potential from any adjustments to our existing long-term strategy. If we are unable to execute our operations according to our plans or to obtain additional financing, we may be forced to cease operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the amount of reclassification of liabilities, or any adjustment that might be necessary should we be unable to continue as a going concern.

27

Table of Contents

        On June 28, 2010, we received a letter from The NASDAQ Stock Market LLC ("NASDAQ") advising that for the previous 30 consecutive business days, we failed to comply with the minimum market value of listed securities ("MVLS") requirement for continued listing on the NASDAQ Global Market pursuant to NASDAQ Marketplace Rule 5450(b)(2)(A) and that we did not otherwise satisfy the criteria for continued listing pursuant to NASDAQ Marketplace Rule 5450(b). NASDAQ stated in its letter that in accordance with NASDAQ Marketplace Rule 5810(c)(3)(C), we will be provided 180 calendar days, or until December 27, 2010, to regain compliance with the MVLS continued listing requirement. MVLS is calculated by multiplying the total shares outstanding by the daily closing bid price. The NASDAQ letter also states that if, at any time before December 27, 2010, the MVLS of our common stock closes at $50,000,000 or more for a minimum of 10 consecutive business days, the NASDAQ staff will provide us with written notification that we have achieved compliance with the MVLS continued listing requirement and the matter will be closed. On October 12, 2010, we received a delisting determination letter from NASDAQ due to our failure to regain compliance with the NASDAQ Global Market's minimum bid price requirement for continued listing as set forth in Listing Rule 5450(a)(1). In addition, we have not yet held our annual meeting of stockholders for fiscal 2010 which is an additional requirement for us to comply with in order to maintain our continued listing on NASDAQ. Based on our unlikely ability to meet the NASDAQ MVLS requirements due to the state of our finances and near-term business prospects, on November 12, 2010, we withdrew our appeal to NASDAQ and, therefore, our securities were delisted from the NASDAQ Global Market and the trading of our common stock was suspended before the opening of business on November 16, 2010, and a Form 25-NSE will be filed with the Securities and Exchange Commission which will remove our securities from listing and registration on The NASDAQ Stock Market. We have been advised by Pink OTC Markets Inc., which operates an electronic quotation service for securities traded over-the-counter ("OTC"), that our securities are immediately eligible for quotation on the OTCQB. The OTCQB is a market tier for OTC traded companies that are registered and reporting with the Securities and Exchange Commission. We have also been advised that our shares will continue to trade under the symbol HLCS. Investors can now view real time stock quotes for HLCS at http://www.otcmarkets.com.

        Please see Part II, Item 1A, in this Form 10-Q, for risks related to ownership of our common stock.

        We were incorporated in Delaware in May 2003 under the name RareEvent Medical Corporation, renamed Newco LS6, Inc. in September 2003 and ultimately renamed Helicos BioSciences Corporation in November 2003. Our activities to date have consisted primarily of conducting research and development. Accordingly, we are considered to be in the development stage at December 31, 2009, as defined by the Financial Accounting Standards Board ("FASB"). Our fiscal year ends on December 31, and we operate as one reportable segment. Our corporate offices are located at One Kendall Square, Building 700, Cambridge, Massachusetts 02139.

Financial Overview

Product revenue

        Product revenue for the nine months ended September 30, 2009 primarily consists of $1,800,000 in revenue from the sale of two instrument systems and $377,000 of revenue recognized from the sale of proprietary reagents to customers. Product revenue for the nine months ended September 30, 2010 primarily consists of $341,000 of revenue recognized from the sale of proprietary reagents to customers.

Grant revenue

        In September 2006, we were awarded a grant from the National Human Genome Research Institute ("NHGRI"), a branch of the National Institutes of Health ("NIH"), pursuant to which were eligible to receive reimbursement of our research expenses of up to $2.0 million through August 2009.

28

Table of Contents

In connection with this award we recognized $454,000 in revenue during the nine months ended September 30, 2009. We have fully expended all available funds under this grant as of December 31, 2009.

        In September 2009, we were awarded another grant from the NHGRI, pursuant to which we are eligible to receive reimbursement of our research expenses of up to $2.9 million through August 2011. The two year grant is part of the Sequencing Technology Development Program representing one of NHGRI's signature projects for the American Recovery and Reinvestment Act's effort to jumpstart the economy and create or save millions of jobs. This project, a part of NIH's "Grand Opportunities" program, is designed to support large-scale, high impact research projects that are expected to accelerate critical scientific breakthroughs and enable growth and investment in biomedical research and development. In connection with this award we recognized $1,150,000 in revenue for the nine months ended September 30, 2010 and $11,000 in revenue for the nine months ended September 30, 2009.

        In April 2010, we were awarded an RO1 Research Project Grant from the NHGRI, pursuant to which we are eligible to receive reimbursement for our research expenses of up to $1.6 million through February 2013. We are pursuing research related to direct RNA sequencing under this grant. In connection with this award, we recognized $149,000 in revenue for the nine months ended September 30, 2010.

        In April 2010, we completed a collaborative study that was sponsored by The Children's Oncology Group, under which we were reimbursed for our research expenses of approximately $200,000 in July 2010. The purpose of the study was to generate large-scale datasets and obtain novel information that would allow deeper insights into cancer genomes with a focus on Ewing's Sarcoma. In connection with this study, we recognized approximately $200,000 in revenue for the nine months ended September 30, 2010.

        In June 2010, we were awarded a Phase 1 Small Business Innovation Research grant from the NHGRI under which we will be pursuing research related to the development of methods to sequence patient DNA and RNA samples at an attomole level. The phase 1 portion of the grant provides funding for eligible research expenses of up to $146,000 through November 2010. Following the completion of phase 1, we may be eligible for additional funding under this grant. In connection with this award we recognized $26,000 in revenue for the nine months ended September 30, 2010.

Cost of product revenue

        Cost of product revenue for the nine months ended September 30, 2010 consists of costs associated with the sale of proprietary reagents.

Research and development expenses

        Research and development expenses consist of costs associated with scientific research activities, and engineering development efforts. Such costs primarily include salaries, benefits and stock-based compensation; lab and engineering supplies; investment in equipment; consulting fees; and facility related costs, including rent and depreciation. During the nine months ended September 30, 2009 and 2010, research and development expenses also included labor and overhead costs associated with the under-utilization of the manufacturing facility as well as provisions for the write-off of excess inventory.

        Substantially all research and development expenses since our inception were in connection with the launch of the initial version of the Helicos® Genetic Analysis System and we believe that we had incurred the substantial majority of the development costs associated with the commercial launch of the first generation of the Helicos System through December 2007. However, additional costs were incurred

29

Table of Contents

during 2008, 2009 and the first nine months of 2010 to both maintain and enhance the initial version of the Helicos System in addition to development of new and different genetic analysis assays.

        Research and development expenses for the nine months ended September 30, 2009 and 2010 were $11.1 million and $13.2 million, respectively. In addition to our ongoing research and development efforts, we have incurred start-up manufacturing costs related to the assembly, testing and performance validation of the Helicos System. These costs were accounted for as research and development expenses in our pre-commercialization phase as we prepared to ship the first Helicos System, which occurred on March 5, 2008. We reached technological feasibility of the Helicos System in December 2007 and, as a result, we began to record the cost of the Helicos System in inventory. During the quarter ended September 30, 2010, we recorded a $2.6 million charge to research and development expenses to write-off excess inventory.

Selling, general and administrative expenses

        Selling, general and administrative expenses consist principally of salaries, benefits and stock-based compensation, consulting and professional fees, including patent related costs, general corporate costs and facility costs not otherwise included in research and development expenses or cost of product revenue.

        Selling, general and administrative expenses for the nine months ended September 30, 2009 and 2010 were $8.7 million and $9.1 million, respectively.

Restructuring

        On May 11, 2010, our Board of Directors approved a reduction in headcount and restructuring plan (the "Restructuring Plan") which involved the consolidation and reorganization of our operations in order to reduce operating costs. The Restructuring Plan resulted in the elimination of approximately 40 positions during the second fiscal quarter of 2010. Employees directly affected by the Restructuring Plan were notified on May 13, 2010, and have been provided with severance arrangements including outplacement assistance. These actions were approved as part of our previously announced efforts to consider alternatives to our existing long-term strategic focus, including a repositioning of our company in the genetic analysis markets.

        We incurred restructuring charges relating to one-time termination benefits of approximately $667,000 in the second quarter of 2010, of which $543,000 was recorded in research and development expense and $124,000 was recorded in selling, general and administrative expense. These charges represent employee severance and termination costs as well as facility consolidation costs, which were partially paid out during the second and third quarter of 2010.

        In the third quarter of 2010, we reversed $118,000 of severance expenses in connection with an agreement by us to waive certain provisions of a former employee's non-compete agreement in exchange of certain previously committed severance payments. We expect that payments associated with the restructuring provision will end in the fourth quarter of 2010. We estimate that this restructuring will result in an annual cost savings of approximately $6.8 million, including salaries and benefits.

30

Table of Contents

        A summary of restructuring activity at September 30, 2010 is as follows:

        On September 15, 2010, our Board of Directors approved a reduction in headcount and restructuring plan (the "September Restructuring Plan") which involved the consolidation and reorganization of our operations in order to reduce operating costs. The September Restructuring Plan resulted in the elimination of approximately 14 positions during the second fiscal quarter of 2010. Employees directly affected by the September Restructuring Plan were notified on September 16, 2010, and have been provided with severance arrangements including outplacement assistance. These actions were approved as part of our previously announced efforts to consider alternatives to our existing long-term strategic focus, including a repositioning of our business in the genetic analysis markets.

        We incurred restructuring charges relating to one-time termination benefits of approximately $172,000 in the third quarter of 2010, $164,000 was recorded in research and development expense and $8,000 in selling, general and administrative expenses. These charges represent employee severance and termination costs. We expect that payments associated with the restructuring provision will continue into the first quarter of 2011. We estimate that this restructuring will result in an annual cost savings of approximately $1.4 million, including salaries and benefits.

        A summary of restructuring activity at September 30, 2010 is as follows:

Impairment of Long Lived Assets

        During the third quarter of 2010, we altered our business direction as a result of our inability to raise funding to support the repositioning of our business in the genetic analysis markets. As a result, we redirected our efforts to focus on a technology licensing and enforcement program to monetize the value of our intellectual property portfolio and to deploy our limited resources by concentrating our research and development efforts in targeted areas designed to achieve tangible proof-of-concept goals, which may enable us to seek partnership opportunities with companies interested in next-generation sequencing, or to pursue other funding and strategic alternatives.

        As a result of this altered business direction, we undertook an analysis of the ongoing carrying value of our long lived assets. We determined that the ongoing value of certain laboratory equipment was equivalent to our liquidation value, which we estimated was approximately ten percent of the

31

Table of Contents

original purchase price based on the value realized by other similarly situated life science companies that have been forced to realize value through a liquidation process.

        Based on this analysis, during the three months ended September 30, 2010, we recorded an impairment charge related to long lived assets of approximately $1.9 million, of which approximately $1.8 million was related to assets used in research and development and approximately $0.1 million was related to assets used for selling, general and administrative purposes. These charges were derived from the net book value of the assets. The remaining book values of our long lived assets are equivalent to ten percent of the purchase price for certain laboratory equipment and the remaining unamortized value of certain intangible assets related to acquired intellectual property.

Overview of Results of Operations

Three and nine months ended September 30, 2009 compared to three and nine months ended September 30, 2010

        Product revenue.    We recognized $1.1 million and $2.2 million of product revenue during the three and nine months ended September 30, 2009, respectively, and $214,000 and $341,000 of product revenue during the three and nine months ended September 30, 2010, respectively. Product revenue recognized during the three months ended September 30, 2009 primarily consists of $1.0 million from the sale of an instrument and the sale of proprietary reagents to customers. Product revenue recognized during the nine months ended September 30, 2009 primarily consists of $1.8 million of revenue from the sale of two instruments, while the remaining amount consists of revenue from the sale of proprietary reagents to customers. Product revenue recognized during the three and nine months ended September 30, 2010 consists primarily of revenue from the sale of proprietary reagents to customers.

        Grant revenue.    We recognized $13,000 and $465,000 of grant revenue during the three and nine months ended September 30, 2009 and $422,000 and $1.5 million of grant revenue during the three and nine months ended September 30, 2010, respectively. Grant revenue recognized during the three and nine months ended September 30, 2009 related to the reimbursement of expenses in connection with our government research grants. Grant revenue recognized during the three months ended September 30, 2010 related to the reimbursement of expenses in connection with our government research grants. Grant revenue recognized during the nine months ended September 30, 2010 related to the reimbursement of expenses in connection with our government research grants of $1.3 million and $200,000 from a contract with The Children's Oncology Group.

        Cost of product revenue.    We recorded $451,000 and $1.1 million as cost of product revenue during the three and nine months ended September 30, 2009, respectively and we recorded $94,000 and $270,000 as cost of product revenue during the three and nine months ended September 30, 2010, respectively. Cost of product revenue consists of costs associated with the sale of instruments and sale of proprietary reagents. The decrease in cost of product revenue from the nine months ended September 30, 2009 to the nine months ended September 30, 2010 is primarily due to no ongoing system sales in 2010.

        Research and development expenses.    Research and development expenses during the three and nine months ended September 30, 2009 and 2010 were as follows:

32

Table of Contents