10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005 Commission File Number 0-22962

HUMAN GENOME SCIENCES, INC.

(Exact name of registrant)

Delaware	22-3178468
(State of organization)	(I.R.S. employer identification number)

14200 Shady Grove Road, Rockville, Md. 20850-7464

(address of principal executive offices and zip code)

(301) 309-8504

(Registrant’s telephone number)

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

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

Common stock, par value $0.01 per share

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

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ         Accelerated filer o         Non-accelerated filer o

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

The number of shares of the registrant’s common stock outstanding on January 31, 2006 was 131,272,133. As of June 30, 2005, the aggregate market value of the common stock held by non-affiliates of the registrant based on the closing price reported on the National Association of Securities Dealers Automated Quotations System was approximately $821,901,686.*

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Human Genome Sciences, Inc.’s Notice of Annual Stockholder’s Meeting and Proxy Statement, to be filed within 120 days after the end of the registrant’s fiscal year, are incorporated by reference into Part III of this Annual Report.

*  Excludes 59,748,441 shares of common stock deemed to be held by officers and directors and stockholders whose ownership exceeds five percent of the shares outstanding at June 30, 2005. Exclusion of shares held by any person should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the registrant, or that such person is controlled by or under common control with the registrant.

PART I

ITEM 1.  BUSINESS

      This annual report on Form 10-K contains forward-looking statements, within the meaning of the Securities Exchange Act of 1934 and the Securities Act of 1933, that involve risks and uncertainties. In some cases, forward-looking statements are identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may” and similar expressions. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. All of these forward-looking statements are based on information available to us at this time, and we assume no obligation to update any of these statements. Actual results could differ from those projected in these forward-looking statements as a result of many factors, including those identified in the section titled “Factors That May Affect Our Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere. We urge you to review and consider the various disclosures made by us in this report, and those detailed from time to time in our filings with the Securities and Exchange Commission, that attempt to advise you of the risks and factors that may affect our future results.

Overview

      Human Genome Sciences is a biopharmaceutical company with a pipeline of novel compounds in clinical development, including drugs to treat such diseases as hepatitis C, lupus, anthrax disease, cancer, rheumatoid arthritis and HIV/AIDS. Additional products are in clinical development by companies with which we are collaborating.

      Our mission is to discover, develop, manufacture and market innovative drugs that serve patients with unmet medical needs, with a primary focus on protein and antibody products.

      We have developed and continue to enhance the resources necessary to achieve our goal of becoming a fully integrated global biopharmaceutical company, including:

•  A drug development organization with the expertise necessary to design and implement well-focused, high-quality clinical trials of multiple compounds;

•  Manufacturing capability for the production of protein and antibody drugs for preclinical studies, clinical trials and the initial commercialization of our products;

•  A scientific and discovery base, including expertise in the discovery of novel protein and antibody drugs, as well as genomics, proteomics and informatics capabilities;

•  Protein formulation technology, including the albumin fusion technology we use to create long-acting protein drugs;

•  A significant patent estate;

•  A skilled and experienced management team and board of directors;

•  Employees who are creative, well-trained, hard-working and capable; and

•  A strong balance sheet.

      We have expanded our manufacturing facilities to allow us to produce larger quantities of protein and antibody drugs for clinical development. We have also completed the construction of a large-scale manufacturing facility to increase our capacity for protein and antibody drug production. We are strengthening our commercial operations staff, and our intent is to add marketing and sales staff as needed as our products approach commercialization.

      We have strategic partnerships with a number of leading pharmaceutical and biotechnology companies to leverage our strengths and to gain access to complementary technologies and sales and marketing infrastructure. Some of these partnerships provide us, and have provided us, with research funding, licensing fees,

1

milestone payments and royalty payments as products are developed and commercialized. In some cases, we also are entitled to certain commercialization, co-development, revenue sharing and other product rights.

      We are a Delaware corporation headquartered at 14200 Shady Grove Road, Rockville, Maryland 20850-7464. Our telephone number is (301) 309-8504. Our website is www.hgsi.com. Information contained on our website is not a part of, and is not incorporated into, this annual report on Form 10-K. Our filings with the SEC are available without charge on our website as soon as reasonably practicable after filing.

Strategy

      Our goal is to build a global biopharmaceutical company that discovers, develops, manufactures and markets innovative drugs directed to large markets that have significant unmet medical needs. Our strategy consists of the following key elements:

•  Concentrate on novel human antibody drugs and long-acting versions of existing protein drugs. We concentrate our internal product development efforts on new antibody drugs discovered through genomics-based research, and on new long-acting versions of existing protein drugs created using our albumin fusion technology. Human monoclonal antibody drugs derived from our gene discoveries account for the majority of our current product pipeline. We rely on collaborations for the development of other products discovered using our genomics-based technology, including additional protein and antibody drugs, gene therapy products, small molecule drugs, and diagnostic products.

•  Develop, manufacture and commercialize our gene-based products on our own and with our strategic partners. The drugs we develop are designed to meet unmet medical needs representing significant markets. We select a limited number of products to develop, manufacture and market either by ourselves or with partners. We also license certain products to strategic partners in exchange for upfront payments, product milestone payments, royalties on sales, and other rights.

•  Pursue strategic acquisitions. We may pursue strategic acquisitions to augment our capabilities, to provide access to complementary technologies, and to expand our portfolio of new drug candidates in therapeutic categories we have identified as strategic areas of concentration.

•  Expand our technology platform to accelerate our product development activities. We may continue to invest resources to expand and enhance our technology platform. We also may establish additional collaborations with leading biotechnology companies to gain access to complementary technologies for our product development efforts.

•  Capitalize on our intellectual property portfolio. We pursue patents to protect our intellectual property and have developed a significant intellectual property portfolio. We intend to capitalize on our portfolio. As of March 1, 2006, we had 492 issued U.S. patents covering genes, proteins and antibodies, and had filed U.S. patent applications covering many more human genes, the proteins they encode, antibodies and proprietary technologies.

Products

      We have discovered a large number of medically useful genes. All but one of our drugs that are currently in clinical trials are derived from genomics-based research. The other drug in clinical trials is an albumin fusion protein — a novel long-acting form of an existing therapeutic protein that we have modified to improve its pharmacological properties by using our proprietary albumin fusion technology.

      Our drugs in clinical development are: Albuferon^tm(albumin-interferon alpha 2b) for the treatment of chronic hepatitis C; LymphoStat-B^tm (human monoclonal antibody to B-lymphocyte stimulator, BLyS^tm) for the treatment of lupus and other B-cell mediated diseases; ABthrax^tm (human monoclonal antibody to Bacillus anthracis protective antigen) for the treatment of anthrax disease; HGS-ETR1 (agonistic human monoclonal antibody to TRAIL receptor 1) for the treatment of cancer; HGS-ETR2 and HGS-TR2J (agonistic human monoclonal antibodies to TRAIL receptor 2) for the treatment of cancer; and CCR5 mAb (human monoclonal antibody to the CCR5 receptor) for the treatment of HIV/AIDS.

2

      Our partners have advanced a number of products derived from our technology to clinical development. GlaxoSmithKline (GSK) has entered several small-molecule drugs into clinical development that were discovered by GSK using our technology, including darapladib (GSK480848), an inhibitor of Lp-PLA2 (lipoprotein-associated phospholipase A2) for the treatment of atherosclerosis, and relacatib (GSK462795), an inhibitor of cathepsin K for the prevention of bone metastases and treatment of osteoporosis and osteoarthritis. Corautus Genetics has entered VEGF-2 gene therapy into clinical trials for the treatment of severe vascular disease. In addition, GSK has advanced Albugon^tm, a novel long-acting form of glucagon-like peptide-1 (GLP-1) to Phase 1 clinical development for potential use in treating diabetes. We licensed Albugon to GSK in late 2004, under an agreement whereby GSK acquired exclusive worldwide rights to develop and commercialize Albugon for all human and therapeutic applications (described below under “Collaborative Arrangements”).

Clinical Programs

      The Human Genome Sciences clinical development pipeline includes drugs to treat such diseases as hepatitis C, lupus, anthrax disease, cancer, rheumatoid arthritis and HIV/AIDS. Our partners are conducting clinical trials of additional drugs to treat vascular and metabolic diseases.

Albumin Fusion Protein Drugs

Albuferon^tm (albumin-interferon alpha 2b)

      Albuferon is a novel long-acting form of interferon alpha. Recombinant interferon-alpha is approved for the treatment of hepatitis C, hepatitis B and a broad range of cancers. Human Genome Sciences modified interferon alpha to improve its pharmacological properties by using our albumin fusion technology. We are developing Albuferon as a potential treatment for chronic hepatitis C (HCV).

      In April 2005, we reported that the results of a Phase 2 trial of Albuferon as monotherapy demonstrated that Albuferon was well tolerated, showed robust antiviral activity, and was capable of producing durable dose-dependent reductions in hepatitis C viral load in patients with HCV who were naïve to interferon-alpha treatments. The majority of patients in the 900 mcg and 1200 mcg dose groups exhibited a second-phase decline in viral load at a level that has previously been shown to be predictive of sustained virologic response (SVR) in treatment with the pegylated interferons. Albuferon exhibited a median half-life of 148 hours, supporting dosing at intervals of 2-4 weeks. This compares to a reported mean elimination half-life of 80 hours (50-140 hours) for Pegasys and 40 hours (22-60 hours) for PEG-Intron. These data are strongly supportive of further evaluation in a larger study over a longer period of time in treatment-naïve patients.

      In November 2005, we reported the interim results of a Phase 2 trial of Albuferon in combination with ribavirin in patients with chronic hepatitis C who failed to respond to previous interferon alpha-based treatment regimens. The results to date demonstrate that Albuferon in combination with ribavirin was safe, well tolerated and showed antiviral activity in all treatment groups for which data were available. The primary efficacy endpoint of the study is sustained virologic response, defined as undetectable virus at 24 weeks after the end of 48 weeks of therapy. At Week 24, 30% of the patients had no detectable hepatitis C RNA viral load. Antiviral activity was similar for the 14-day and 28-day Albuferon treatment groups. We expect to have additional interim results, including data from higher dose cohorts, presented at an appropriate scientific meeting in the first half of 2006.

      Phase 2 results to date are strongly supportive of a Phase 2b trial of Albuferon in combination with ribavirin, versus Pegasys, in interferon-naïve patients. We completed enrollment and initial dosing of 458 patients in the Phase 2b study in October 2005. The Phase 2b trial is a randomized, open-label, multi-center, active-controlled, dose-ranging study conducted outside the U.S. Patients have been randomized into four treatment groups, three of which receive subcutaneously administered Albuferon (900 mcg at 14-day intervals, 1200 mcg at 14-day intervals, and 1200 mcg at 28-day intervals). The fourth treatment group serves as the active control group and receives weekly 180-mcg doses of subcutaneously administered peginterferon alfa-2a (Pegasys). All patients receive weight-based oral daily ribavirin at 1000 or 1200 mg in two divided doses. The primary objectives of the Phase 2b study are to evaluate the efficacy and safety of Albuferon in

3

combination with ribavirin, versus Pegasys, in interferon alpha-naïve patients with chronic hepatitis C genotype 1. The primary efficacy endpoint is sustained virologic response, defined as undetectable virus at 24 weeks after completion of 48 weeks of treatment.

      We expect to have 12-week data from the Phase 2b comparative combination trial of Albuferon available in Spring 2006, and we plan to initiate Phase 3 development of Albuferon in patients with chronic hepatitis C before year-end 2006, assuming that data emerging from the Phase 2b study in the first half of the year are positive. We are also considering collaboration opportunities for Albuferon.

GSK716155 (albumin-glucagon-like peptide 1)

      GSK716155 (formerly known as Albugon) is a novel long-acting form of glucagon-like peptide-1 (GLP-1). It was created using our proprietary albumin fusion technology, and was brought to late-stage preclinical development by our scientists for potential use in the treatment of diabetes. GLP-1 is a peptide hormone that acts to help maintain healthy blood sugar levels and to control appetite. The primary obstacle to the use of GLP-1 as a therapeutic for diabetes is its extremely short half-life of about five minutes in the body. Preclinical studies show that GSK716155 retains the anti-diabetic and other beneficial activities of GLP-1, but with a substantially prolonged half-life.

      GSK acquired exclusive worldwide rights from Human Genome Sciences to develop and commercialize GSK716155 in October 2004 (described below under “Collaborative Arrangements”). In January 2006, we announced that we had received a $5.0 million milestone payment related to GSK’s filing of an Investigational New Drug (IND) application to begin Phase 1 clinical trials of GSK716155 for use in the treatment of diabetes. This milestone payment, which HGS recognized as revenue in the fourth quarter of 2005, brings the total amount of payments received from GSK related to the progress of GSK716155 to $12.0 million in 2005.

Human Monoclonal Antibody Drugs

LymphoStat-B^TM (belimumab)

      LymphoStat-B is designed to inhibit the biological activity of B-lymphocyte stimulator, or BLyS. Preclinical studies indicate that higher than normal levels of BLyS may trigger autoimmune diseases by stimulating production of autoantibodies — antibodies that attack and destroy the body’s own healthy tissues. Over-production of autoantibodies may be counteracted by reducing BLyS levels with LymphoStat-B. We are developing LymphoStat-B as a potential treatment for autoimmune diseases, such as systemic lupus erythematosus (SLE) and rheumatoid arthritis. LymphoStat-B has received a Fast Track Product designation from the U.S. Food and Drug Administration (FDA) for the treatment of SLE, and has been selected for inclusion in the FDA’s Continuous Marketing Application Pilot 2 Program, which provides for frequent scientific feedback and interactions based on a prospectively defined agreement between the FDA and participating companies. In July 2005, GSK exercised its option under a June 1996 agreement to develop and commercialize LymphoStat-B jointly with Human Genome Sciences. Under the terms of the agreement, GSK and HGS will share equally in Phase 3/4 development costs, and will share equally in sales and marketing expenses and profits of any product that is commercialized under the agreement, under a co-development and commercialization agreement, the remaining terms of which are being negotiated by the parties.

      The lead indication for LymphoStat-B is SLE. The results of a Phase 2 trial of LymphoStat-B in SLE were announced in October 2005. The results demonstrated that LymphoStat-B significantly reduced SLE disease activity at Week 52 in seropositive patients. These patients, who represented greater than 70% of the total study population, are patients whose blood samples showed biomarkers for SLE disease at levels consistent with a classically defined SLE diagnosis. The Phase 2 results also added significantly to existing preclinical and clinical evidence of LymphoStat-B’s biological activity in SLE. Signs of drug activity were observed across the range of doses studied, including the lowest dose. Although LymphoStat-B significantly reduced disease activity in a majority of patients at Week 52, it did not meet the overall pre-specified primary efficacy study endpoints of reducing disease activity at Week 24 or reducing the time to the first disease flare over 52 weeks. Results further showed that LymphoStat-B was well tolerated with no clinically significant

4

differences from placebo in adverse events, serious adverse events, laboratory abnormalities or infection rates. We expect that a full presentation of data from the Phase 2 trial of LymphoStat-B in SLE will take place at an appropriate scientific conference in the first half of 2006.

      In November 2005, we presented the results of our Phase 2 clinical trial of LymphoStat-B in rheumatoid arthritis (RA). The results demonstrated that LymphoStat-B met the study’s primary safety and efficacy endpoints, and significantly reduced RA disease activity at Week 24. All participants in the study received standard-of-care therapy. As measured by a commonly used standard known as ACR 20, the rate of improvement at Week 24 for patients treated with LymphoStat-B plus standard of care was approximately double the rate of improvement observed for the group treated with placebo plus standard of care. Results showed that LymphoStat-B was safe and well tolerated with no clinically significant differences from placebo in adverse events, serious adverse events or laboratory abnormalities. Biological activity data from the study suggest a potential role for LymphoStat-B in the treatment of RA, SLE and other autoimmune diseases. The results support additional Phase 2 study of LymphoStat-B in RA.

      In 2006, based on the Phase 2 results, we plan to initiate Phase 3 development of LymphoStat-B in systemic lupus erythematosus. We also plan to determine the best route forward for other potential indications for LymphoStat-B, including rheumatoid arthritis.

ABthrax^TM (raxibacumab)

      ABthrax blocks the binding to cell surfaces of Bacillus anthracis protective antigen, the key facilitator of anthrax toxicity. ABthrax has received a Fast Track Product designation from the FDA for the treatment of anthrax disease. In 2004, we reported that the results of a Phase 1 clinical trial of ABthrax in healthy adult volunteers demonstrated that ABthrax was safe and well tolerated, and achieved the blood levels predicted by relevant animal models as necessary to afford significant protection from the lethal effects of the anthrax toxin. In addition, in accordance with the FDA guidance that emerged following the Bioterrorism Act of 2002, we have conducted preclinical studies in multiple relevant animal models of inhalational anthrax, which demonstrate that ABthrax administered either prior to or following anthrax spore challenge increases survival significantly.

      In October 2005, we announced that Human Genome Sciences has been awarded a two-phase contract to supply ABthrax to the U.S. Government. Under the first phase of the contract, we have supplied ABthrax to the U.S. Department of Health and Human Services (HHS) for comparative laboratory testing. Under the second phase, the U.S. Government has the option to place an order within one year to purchase ABthrax for the Strategic National Stockpile for use in the treatment of anthrax disease. The HHS comparative testing results, along with Human Genome Sciences’ own preclinical and clinical study results, will form the basis of the U.S. Government’s decision process for exercising its option to purchase additional product.

      In 2006, we will work toward achieving an order from the U.S. Government under the second phase of the contract to supply ABthrax for the Strategic National Stockpile. We will also pursue additional opportunities to supply ABthrax.

HGS-ETR1 (mapatumumab)

      HGS-ETR1 specifically recognizes, binds to and activates the TRAIL (tumor necrosis factor-related apoptosis-inducing ligand) receptor-1 protein to trigger programmed cell death in cancer cells. TRAIL receptor 1 was discovered by Human Genome Sciences and is found on the surface of a number of solid tumor and hematopoietic cancer cells. In August 2005, GSK exercised its option under a June 1996 agreement to develop and commercialize HGS-ETR1 jointly with Human Genome Sciences. Under the terms of the agreement, GSK and HGS will share equally in Phase 3/4 development costs, and will share equally in sales and marketing expenses and profits of any product that is commercialized under the agreement, under a co-development and commercialization agreement, the remaining terms of which will be negotiated by the parties.

5

      During 2005, we completed our Phase 2 trials of HGS-ETR1 as monotherapy in advanced non-small cell lung cancer, advanced colorectal cancer, and advanced non-Hodgkin’s lymphoma. The results of these Phase 2 trials support additional Phase 2 study of HGS-ETR1 in combination with chemotherapeutic agents. We reported in December 2005 that results of the Phase 2 study of HGS-ETR1 in patients with advanced non-Hodgkin’s lymphoma demonstrated that HGS-ETR1 was capable of producing clinical responses when administered as monotherapy in these patients. The results also showed that HGS-ETR1 was well tolerated, with minimal toxicity, and could be administered safely and repetitively. The data from the Phase 2 trial in non-Hodgkin’s lymphoma support further evaluation of HGS-ETR1 in combination with chemotherapeutic agents in hematopoietic malignancies.

      In November 2005, we reported the interim results of two Phase 1b trials of HGS-ETR1 in combination with chemotherapy (with gemcitabine and cisplatin, and with paclitaxel and carboplatin). The data presented showed that HGS-ETR1 in combination with chemotherapy was well tolerated and could be administered safely and repetitively at the doses and schedules evaluated in patients with advanced solid tumors. Partial response was observed in a number of patients in each of the studies. These results support further evaluation of HGS-ETR1 in combination with chemotherapy in Phase 2 trials.

      We plan to initiate Phase 2 development of HGS-ETR1 in combination with chemotherapy in hematopoietic cancers in 2006.

TRAIL-R2 mAbs (HGS-ETR2 and HGS-TR2J)

      HGS-ETR2 (lexatumumab) and HGS-TR2J specifically recognize, bind and activate the TRAIL receptor-2 protein to cause programmed cell death in cancer cells. The TRAIL receptor-2 protein was originally identified by Human Genome Sciences, and is found on the surface of a number of solid tumor and hematopoietic cancer cells.

      We completed two Phase 1 trials of HGS-ETR2 in advanced solid tumors and reported the results in November 2005. The results of the two studies demonstrated that HGS-ETR2 is well tolerated at doses as high as 10-mg/kg in patients with advanced solid tumors. In each study for which data were presented, stable disease was observed in a number of patients. The results warrant additional study of HGS-ETR2 in combination with chemotherapy to evaluate its potential for use in the treatment of specific cancers. We plan to initiate Phase 1b studies of HGS-ETR2 in combination with chemotherapy in 2006.

      We are continuing to enroll patients in a Phase 1 trial of HGS-TR2J in Canada.

CCR5 mAb

      CCR5 mAb binds specifically and with high affinity to the human CCR5 receptor and prevents entry of the HIV-1 retrovirus into the cell. The CCR5 receptor is a co-receptor on the cell surface that, together with CD4, mediates the binding of HIV-1 and its entry into the cell. Research has shown that the CCR5 receptor is the primary co-receptor for enabling HIV-1 transmission and replication from the early stages of disease through progression to AIDS.

      In March 2005, we announced the initiation of dosing of patients in a Phase 1 trial of CCR5 mAb in patients infected with the HIV-1 virus who are not receiving concurrent antiretroviral therapy. We expect to complete the Phase 1 trial in the first half of 2006, and will then determine the development pathway for CCR5 mAb based on Phase 1 results.

Genomics-Derived Small Molecule Drugs

Darapladib (GSK480848)

      The first genomics-derived small molecule drug to enter clinical trials was discovered by our collaborator, GSK, using HGS technology. Darapladib (GSK480848) is an inhibitor of lipoprotein-associated phospholipase A2 (Lp-PLA2). Lp-PLA2 is an enzyme associated with the formation of atherosclerotic plaques. In 2003, GSK announced the completion of a Phase 2 clinical trial of darapladib. GSK has indicated

6

that it plans to advance darapladib to Phase 3 clinical trials for the treatment of cardiovascular disease. Using our technology, GSK also has discovered two additional small-molecule inhibitors of Lp-PLA2, GSK659032 and GSK677116, which are in clinical development as backup compounds to darapladib for the treatment of cardiovascular disease.

      Under the terms of an agreement signed in 1993, as amended in 1996, HGS is entitled to receive clinical development milestone payments and royalties for compounds discovered by GSK through the use of our technology and intellectual property. In September 2001, we received a $1.0 million milestone payment from GSK in connection with the initiation of Phase 1 clinical trials of 480848 to investigate its potential use in the treatment of cardiovascular disease. In February 2003 and March 2004, we received $1.0 million milestone payments from GSK in connection with the initiation of clinical trials of GSK659032 and GSK677116, respectively. We are entitled to receive an additional milestone payment if GSK480848, GSK659032 or GSK677116 moves through clinical development into registration, and we will receive royalties of up to 10% if a compound is commercialized. In addition, we have an option to co-promote up to 20% in North America and Europe.

Relacatib (GSK462795)

      Relacatib (GSK462795) is a genomics-derived small-molecule compound that inhibits the activity of cathepsin K, an enzyme that appears to be implicated in osteoporosis, bone metastases and certain other disorders causing bone degradation. Relacatib was discovered by GSK using HGS technology. GSK has advanced relacatib to Phase 2 clinical trials for the treatment of bone metastases. Relacatib is also in development for the treatment of osteoporosis and osteoarthritis.

      Under the terms of the 1993 agreement, HGS received a $1.0 million milestone payment from GSK in 2002, in connection with the initiation of clinical trials of GSK462795. We are entitled to receive an additional milestone payment if GSK462795 moves through clinical development into registration and will receive royalties of up to 10% if the compound is commercialized. In addition, we have an option to co-promote up to 20% in North America and Europe.

Gene Therapy

VEGF-2 (vascular endothelial growth factor-2)

      VEGF-2 is a novel gene that was discovered and characterized by HGS. The VEGF-2 gene encodes the VEGF-2 protein, which scientists believe signals the body to grow new blood vessels. We licensed VEGF-2 to Corautus Genetics for use in the field of gene therapy. VEGF-2 gene therapy is being developed for the treatment of vascular disease. The FDA has granted Fast Track Product designation to Corautus for VEGF-2 for the treatment of severe angina associated with vascular disease.

      Corautus was formed in February 2003 from the merger of Vascular Genetics and GenStar Therapeutics. Corautus has completed Phase 1/2 clinical trials of VEGF-2, and is currently conducting Phase 2b clinical trials of VEGF-2 in patients with severe angina associated with vascular disease. Human Genome Sciences is entitled to receive up to a 10% royalty on net sales of any product brought to market by Corautus that is based on the VEGF-2 gene.

Preclinical Programs

      Human Genome Sciences has an active preclinical development program, including novel human protein and antibody drugs discovered through genomics-based research, and new long-acting versions of existing proteins created using our albumin fusion technology. In December 2005, we announced that we have decided to spin off our CoGenesys division as an independent company that will focus on the early development of selected gene-based product opportunities and the monetization of certain intellectual property and technology assets that we are unlikely to develop internally because of our priority focus on commercialization (described below under “Collaborative Arrangements”). Under the agreement, which will be treated as a sale for accounting purposes, we retain the right of first refusal to several specific products that may be developed by

7

CoGenesys, and we have the option to have CoGenesys continue to perform preclinical development work for up to two HGS products per year. We will continue to have a strong internal research group as well, including approximately 65 scientists and support personnel responsible for late-stage preclinical development of drug leads, research on new indications for our products in clinical development, clinical assay and pharmacology support for clinical programs, and safety assessment, including toxicology, pharmacokinetics and pathology.

Research and Development

      Human Genome Sciences has developed core competencies in the discovery and understanding of human genes and their biological functions, and in the discovery and development of human protein and antibody drugs.

Gene, Protein and Human Antibody Technology

      We have isolated a large collection of human genes in their useful messenger RNA form. A gene in the form of messenger RNA can be used to make one protein that carries out a specific function in the human body. We have developed methods to make small quantities of proteins. We have developed automated systems to analyze the effects of these proteins on human cells and tissues. We have developed an informatics system to store and integrate the biological data points that result from our experiments.

      We have acquired rights to a variety of human antibody technologies, and have integrated these technologies into our research and development program. We also continue to collaborate with a number of leading antibody companies. Many medical conditions are the result of an excess of a specific protein in the body. Some antibody drugs can inactivate such proteins and bring therapeutic benefits to patients. Such drugs are known as antagonistic antibodies. For example, LymphoStat-B, which is currently in clinical trials for the treatment of systemic lupus erythematosus and rheumatoid arthritis, is an antagonistic human monoclonal antibody. All currently marketed antibody drugs are antagonistic antibodies. In certain medical conditions, it may be desirable to stimulate artificially a specific biological activity. Antibodies that stimulate biological activity are known as agonistic antibodies. Human Genome Sciences has three such drugs in clinical trials — HGS-ETR1 (TRAIL-R1 mAb), HGS-ETR2 (TRAIL-R2 mAb) and HGS-TR2J (TRAIL-R2 mAb). Binding of these antibodies to their respective TRAIL receptors triggers programmed cell death in cancer cells. HGS-ETR1, HGS-ETR2 and HGS-TR2J are agonistic human monoclonal antibodies that mimic the cancer-killing activity of the natural TRAIL ligand. We believe that they are the first human agonistic antibodies to enter clinical trials.

Albumin Fusion Technology

      Our albumin fusion technology allows us to create long-acting forms of protein drugs by fusing the gene that expresses human albumin to the gene that expresses a therapeutically active protein. We are actively pursuing the development of albumin-fusion drugs based on therapeutic proteins already on the market, as well as albumin-fusion versions of therapeutic proteins that we are developing ourselves. For example: Albuferon results from the genetic fusion of human albumin and human interferon-alpha, and Albugon results from the genetic fusion of human albumin and glucagon-like peptide-1 (GLP-1). Based on preclinical and clinical results to date, we believe that albumin fusion proteins may provide long-acting treatment options that have efficacy and safety similar to or better than that of the existing protein drugs, with the potential additional benefit of considerably more convenient dosage schedules. Albumin fusion technology also provides for efficient manufacture and purification of the product in our existing facilities.

Drug Development

      We have built a drug development organization with the expertise necessary to design and implement well-focused, high-quality clinical trials of multiple compounds. We seek to gather, document and analyze clinical trial data in such a way that they can be submitted to regulatory authorities and used to support

8

Biologics License Applications at the appropriate time. We have assembled experienced teams in key strategic areas of development, including:

•  Clinical Research. The clinical research group is responsible for the design, planning and analysis of clinical trials, and matches novel biological molecules emerging from our protein and antibody discovery programs to unmet medical needs. The group includes our biostatistics team.

•  Clinical Operations. The clinical operations group executes clinical trials and is responsible for managing clinical trial sites and ensuring that all proper procedures are followed during the collection of clinical data. The group includes our data management team.

•  Project Management. Our project management team oversees the process of development of a drug from the earliest stages of research through the conduct of clinical development and regulatory filings.

•  Regulatory Affairs. The regulatory affairs group manages communications with and submissions to regulatory authorities.

•  Drug Safety. As our products advance in clinical testing, our medical affairs group collects and analyzes information on drug experience and safety, and ensures that accurate medical information is distributed.

•  Quality Assurance. The quality assurance group ensures compliance with all regulatory requirements for the clinical development and manufacture of new products.

•  Bioanalytical Sciences. The bioanalytical sciences group develops highly specialized assays that are used during monitoring of preclinical tests and clinical trials. Other assays help to ensure the quality and consistency of our products.

•  Manufacturing. We have manufacturing capability for the production of protein and antibody drugs for our clinical trials, as well as for preclinical studies. We have expanded our manufacturing facilities as our development pipeline has progressed to allow us to produce larger quantities of protein and antibody drugs for clinical development. We have completed the construction of a large-scale manufacturing facility to support our increasing needs for protein and antibody drug production capacity related to the continuing progress of our product candidates and, eventually, the commercialization of our products.

Collaborative Arrangements

      Forming strategic alliances with leading pharmaceutical and biotechnology companies is an element of our strategy. We currently have three major types of collaborations: Human Gene Therapeutic Consortium, Product Collaborations and Technology Collaborations.

Human Gene Therapeutic Consortium

      Between 1993 and 1997, we entered into major collaborations with GlaxoSmithKline, Takeda, Schering-Plough, Sanofi-Synthelabo and Merck KGaA. We refer to these collaborations collectively as the Human Gene Therapeutic Consortium. Under these collaborations, we provided our drug discovery capabilities in exchange for access to our partners’ drug development and commercialization expertise as well as research funding and long-term value creation through potential milestone and royalty payments. We also are entitled to certain commercialization, co-development, revenue sharing and other product rights. The initial research term of these collaborations ended in June 2001, although certain aspects of these arrangements continue. Our partners have informed us that they have been pursuing research programs involving many different genes for the creation of small molecule, protein and antibody drugs. We cannot assure you that any of these programs will be continued or will result in any approved drugs.

      GlaxoSmithKline. We are entitled to receive royalty payments, based on net sales of certain products developed by GSK from any of our patents or technologies that fall within GSK’s field, for any sales made by GSK or its licensees. We also are entitled to milestone payments in connection with the development of these

9

products. We hold an option to co-promote any products sold by GSK in the U.S., Canada, Mexico and Europe, subject to the rights granted to Takeda and other collaborators. Our collaboration agreements with GSK include an option for GSK to co-develop and co-commercialize certain Human Genome Sciences products, including LymphoStat-B, HGS-ETR1 and HGS-ETR2 if we develop these products through Phase 2. In July and August 2005, respectively, GSK exercised its options under a June 1996 agreement to develop and commercialize LymphoStat-B and HGS-ETR1 jointly with Human Genome Sciences. Under the terms of the agreement, GSK and HGS will share equally in Phase 3/4 development costs, and will share equally in sales and marketing expenses and profits of any product that is commercialized under the agreement, under a co-development and commercialization agreement, the remaining terms of which will be negotiated by the parties. GSK also would be entitled to share in license fees, milestone payments and royalty payments for certain products if we license the products to a third party.

      Takeda. We entered into an option and license agreement with Takeda, pursuant to which Takeda has exercised its option to develop and commercialize HGS-ETR1 in Japan.

Product Collaborations

      GlaxoSmithKline. In October 2004, we announced an agreement with GlaxoSmithKline under which GSK acquired exclusive worldwide rights to develop and commercialize Albugon^tm (albumin-GLP-1) for all human therapeutic and prophylactic applications. Albugon, a novel long-acting form of glucagon-like peptide-1 (GLP-1), was created using Human Genome Sciences’ proprietary albumin fusion technology, and was brought to late-stage preclinical development by our scientists for potential use in the treatment of diabetes. Under the agreement, Human Genome Sciences has received or is entitled to an upfront payment fee and clinical development and commercial milestone payments that could amount to as much as $183.0 million, as well as additional milestones for other indications developed. We also will receive royalties on the annual net sales of any products developed and commercialized under the agreement. In 2004, we received an up-front fee, which we are recognizing as revenue ratably over the planned clinical development period, which is approximately seven years. In August 2005, we announced the receipt of $7.0 million in payments related to the achievement of manufacturing and preclinical development milestones. In January 2006, we announced receipt of a $5.0 million milestone payment related to GSK’s filing of an Investigational New Drug (IND) application to begin Phase 1 clinical trials of GSK716155 for use in the treatment of diabetes. Of the $12.0 million in total payments received in 2005, HGS recognized $2.0 million as revenue in the second quarter, recognized $5.0 million as revenue in the third quarter and recognized $5.0 million as revenue in the fourth quarter.

      Kirin. In October 2002, we entered into a license agreement with the Pharmaceutical Division of Kirin Brewery Company, Ltd. relating to the development and commercialization of agonistic human antibodies to TRAIL receptor 2. Under the agreement, we will work together to identify and optimize the best candidate for clinical development. Kirin will develop and commercialize any resulting drug in Japan and Asia/Australasia. We will develop and commercialize any resulting drug in North America, Europe and the rest of the world.

      CoGenesys. CoGenesys has made important progress since we created it as an HGS division in the first quarter of 2005, and has demonstrated its ability to generate value through the early development of promising HGS assets. In December 2005, we announced that we have decided to spin off our CoGenesys division as an independent company that will focus on the early development of selected gene-based product opportunities and the monetization of certain HGS intellectual property and technology assets that are unlikely to be developed by HGS due to our priority focus on commercialization of the compounds in our clinical development pipeline. Under the agreement, which will be treated as a sale for accounting purposes, HGS will provide CoGenesys with funding up to $10.0 million to be repaid either in cash or equity at the option of HGS, following completion of CoGenesys funding. HGS will grant CoGenesys exclusive rights to develop and commercialize biological products based on certain human genes discovered by HGS, and will grant CoGenesys a license to use its proprietary albumin-fusion technology to develop and commercialize certain albumin-fusion proteins for therapeutic use. HGS will have the right to retain an equity investment in CoGenesys, and will receive an upfront payment, either in cash or equity at the option of HGS, for the assets, intellectual property and technology licensed to CoGenesys. HGS also is entitled to a portion of the revenue

10

CoGenesys receives from outlicensing or sales of therapeutic and diagnostic products successfully developed and commercialized. HGS retains the right of first refusal prior to outlicensing by CoGenesys of several specific products that may be developed under the agreement. In addition, HGS has the option to have CoGenesys continue to perform pre-IND development work for up to two Human Genome Sciences products per year, with reimbursement for expenses on a cost-plus basis; CoGenesys will be entitled to milestone payments as any resulting products advance through development. As an independent company, CoGenesys will assume salary and benefits obligations for its approximately 60 employees, and will also assume responsibility for its 48,000-square-foot facility, along with relevant equipment leases. We plan to complete the CoGenesys transaction in the first half of 2006. CoGenesys will remain a division of HGS pending successful completion of funding from sources outside HGS.

      Corautus. In February 2003, we obtained approximately an 18% equity interest in Corautus Genetics Inc., a publicly traded company that resulted from the merger of Vascular Genetics, Inc. (VGI) and GenStar Therapeutics Corporation. Corautus assumed the exclusive license in the field of gene therapy for our VEGF-2 gene, previously granted to VGI. As of December 31, 2005, we owned approximately 8% of Corautus.

      diaDexus. During 2003, diaDexus announced that the FDA cleared its PLAC^tm test for marketing as a diagnostic aid for use in helping predict an individual’s risk for coronary heart disease. The PLAC test measures the level of lipoprotein-associated phospholipase A2 (Lp-PLA2) in human blood. The PLAC test was discovered through the use of our technology, and Human Genome Sciences is entitled to receive royalties on sales of the PLAC test. diaDexus also received from GSK the right to develop products based on a large number of diagnostic targets identified by Human Genome Sciences. We will be entitled to royalties on the sale of any products developed from these targets. In 2003, we acquired exclusive, worldwide rights from diaDexus to develop and commercialize diagnostic immunohistochemical tests based on the TRAIL receptor-1 and TRAIL receptor-2 proteins.

      Amgen. In January 2006, we announced a license agreement under which Amgen has acquired exclusive worldwide rights to develop and commercialize therapeutic biological products for human use based on a human gene discovered by HGS that may have potential applications in autoimmune diseases, immune deficiencies or suppression, and cancer. Amgen also has acquired non-exclusive worldwide rights for the development and commercialization of diagnostic products for human use based on the same gene. According to the terms of the agreement, HGS received an upfront payment and will receive certain annual fees, as well as development milestone payments and royalties on annual net sales for therapeutic and diagnostic products successfully developed and commercialized using such rights.

      Genentech. In August 2003, we entered into an agreement with Genentech in which we granted to Genentech exclusive worldwide patent rights to develop and commercialize therapeutic biologic products for human use based on a human gene discovered by Human Genome Sciences that may have potential applications in immunology, oncology and neurology. Non-exclusive, worldwide rights for the development and commercialization of diagnostic and small molecule products for human use based on the same gene also were granted.

      MedImmune. We entered into a collaboration and license agreement with MedImmune in July 1995, which we amended in March and December 1997. This agreement is related to the development of drugs based upon certain infectious agents sequenced by us or The Institute for Genomic Research (TIGR), or to which we hold licenses, including the creation of vaccines and immunotherapeutics for non-encapsulated Streptococcus pneumoniae. MedImmune sub-licensed the Streptococcus pneumoniae vaccine technology to GSK. We are entitled to a portion of the payments received by MedImmune under its sub-license. In 2003, we received a clinical development milestone payment from MedImmune relating to the initiation by GSK of clinical trials of a vaccine against Streptococcus pneumoniae. Through 2003, we have received $1.1 million from MedImmune.

      Biosite. We entered into a license agreement with Biosite granting exclusive rights to specific intellectual property in March 2005. Biosite intends to develop a diagnostic hospital-based point of care testing unit. According to the terms of the agreement, we received an upfront payment and will receive development

11

milestone payments and royalties on annual net sales for hospital-based point of care testing unit successfully developed and commercialized using such rights.

      PDL BioPharma. In January 2006, we announced a worldwide license agreement with PDL BioPharma under which we granted PDL certain exclusive rights to intellectual property for an undisclosed target antigen discovered by HGS. Under terms of the agreement, our CoGenesys division received an upfront licensing fee, and is entitled to development milestone payments and royalties on future sales of antibody therapeutics developed by PDL against the target. PDL also will provide CoGenesys with access to its antibody humanization technology platform, which will help enable CoGenesys’ own internal discovery and development programs. In December 2005, we announced the decision to spin off CoGenesys (which will include the license agreement with PDL) as an independent company, contingent on a successful completion of CoGenesys funding (see “CoGenesys” above).

Technology Collaborations

Antibodies and Peptides

      Abgenix. In November 1999, we entered into a collaboration and license agreement with Abgenix relating to the field of fully human antibody drug candidates, which was amended in 2001; the research term of this agreement expired in November 2005. In May 2003, Human Genome Sciences announced that we had acquired an exclusive worldwide license from Abgenix to develop and commercialize a fully human monoclonal antibody to the CCR5 receptor. We received clearance from the FDA to initiate clinical development of CCR5 mAb in December 2004, and we announced in March 2005, that we had initiated dosing in a Phase 1 trial of CCR5 mAb in patients infected with the HIV-1 virus. We expect to complete the Phase 1 trial in the first half of 2006, and will then determine the development pathway for CCR5 mAb based on Phase 1 results. We will pay milestone and royalty payments for this product as it is developed and if it is commercialized.

      Cambridge Antibody Technology (CAT). In August 1999, we entered into an antibody license agreement with CAT for the development of fully human antibody therapeutics for up to three of our target human proteins. Pursuant to this agreement, we have entered into an exclusive license agreement for LymphoStat-B, which was discovered in collaboration with CAT. Under this 1999 agreement, we have paid CAT $2.3 million for one milestone and fees through the end of 2005. In February 2000, we entered into a broader agreement with CAT that provides us with the right to use their technology to develop and sell an unlimited number of fully human antibodies for therapeutic and diagnostic purposes. Pursuant to this agreement, we have obtained an exclusive license with respect to TRAIL receptor 1, TRAIL receptor 2 and ABthrax. Under this same agreement, we made an equity investment in CAT. We have sold a portion of this equity investment and as of December 31, 2005, we owned approximately 2% of CAT. CAT has the right to select up to twenty-four of our proprietary antigens for preclinical development. We have the option to share clinical development costs and to share the profits equally with them on up to eighteen such products. CAT has rights to develop six such products on their own. We are entitled to clinical development milestone and royalty payments on those six products. Under the 2000 agreement, we have paid to CAT $4.5 million in milestone payments through the end of 2005.

      Dyax. In March 2000, we entered into a license agreement with Dyax relating to Dyax’s phage display and peptide technology, which was amended in 2001. Under the agreement, as amended, we have the right to use Dyax’s phage display technology to develop an unlimited number of therapeutic and diagnostic products that we may sell or outlicense. We will provide milestone and royalty payments to Dyax on products we develop and sell or will share revenue we receive from outlicensees. The licensed technologies include Dyax’s phage display technology to create peptide drugs, human monoclonal antibody drugs and in vitro diagnostic products.

      Medarex. In July 2001, we entered into a collaboration agreement with Medarex relating to the creation of fully human monoclonal antibodies. Under the agreement, Medarex plans to use its technology to create antibody leads that are specific for target proteins that we discovered. We have the option to license

12

exclusively therapeutic and diagnostic antibody products and Medarex is entitled to receive license fees, milestone payments and royalties on any commercial sales of products resulting from the collaboration.

Other

      Transgene. In February 1998, we entered into an agreement with Transgene relating to the field of human gene therapy, including gene therapy vaccines, to the extent that it will not conflict with our other collaboration agreements. Under this agreement, we granted Transgene the right to license exclusively up to 10 genes. We obtained a 10% equity interest in Transgene, which has been sold, and certain co-development and co-marketing rights. Transgene selected two genes from our database, CTGF-2 and TIMP-4, as its first two exclusive gene therapy products. CTGF-2 stimulates the formation of blood vessels and could be an effective tool in the control of coronary artery disease. TIMP-4 prevents restenosis, which is the growth of blood-vessel obstruction following an angioplasty. Our collaboration with Transgene will end in 2008.

Patents and Proprietary Rights

      We seek U.S. and foreign patent protection for the genes, proteins and antibodies that we discover, as well as patents on therapeutic and diagnostic products and processes, screening and manufacturing technologies, and other inventions based on genes, proteins and antibodies. We also seek patent protection or rely upon trade secret rights to protect certain technologies which may be used to discover and characterize genes, proteins and antibodies and which may be used to develop novel therapeutic and diagnostic products and processes. We believe that, in the aggregate, our patent applications, patents and licenses under patents owned by third parties are of material importance to our operations.

      Important legal issues remain to be resolved as to the extent and scope of available patent protection for biotechnology products and processes in the U.S. and other important markets outside the U.S. We expect that litigation or administrative proceedings will likely be necessary to determine the validity and scope of certain of our and others’ proprietary rights. We are currently involved in a number of administrative proceedings relating to the scope of protection of our patents and those of others, and are likely to be involved in additional proceedings that may affect directly or indirectly patents and patent applications related to our products or the products of our partners. For example, we are involved in interference proceedings related to products based on TRAIL receptor 2 (such as HGS-ETR2 and HGS-TR2J) and opposition proceedings related to products based on BLyS (such as LymphoStat-B). Any such lawsuit or proceeding may result in a significant commitment of resources in the future. In addition, changes in, or different interpretations of, patent laws in the U.S. and other countries may result in patent laws that allow others to use our discoveries or develop and commercialize our products. We cannot assure you that the patents we obtain or the unpatented technology we hold will afford us significant commercial protection.

      We have filed U.S. patent applications with respect to many human genes and their corresponding proteins. We have also filed U.S. patent applications with respect to all or portions of the genomes of several infectious and non-infectious microorganisms. As of March 1, 2006, we had 492 U.S. patents covering genes and proteins. Our remaining applications may not result in the issuance of any patents. Our applications may not be sufficient to meet the statutory requirements for patentability in all cases. In certain instances, we will be dependent upon our collaborators to file and prosecute patent applications.

      Other companies or institutions have filed, and may in the future file, patent applications that attempt to patent genes similar to those covered in our patent applications, including applications based on our potential products. Any patent application filed by a third party may prevail over our patent applications, in which event the third party may require us to stop pursuing a potential product or to negotiate a royalty arrangement to pursue the potential product.

      We also are aware that others, including universities and companies working in the biotechnology and pharmaceutical fields, have filed patent applications and have been granted patents in the U.S. and in other countries that cover subject matter potentially useful or necessary to our business. Some of these patents and patent applications claim only specific products or methods of making products, while others claim more general processes or techniques useful in the discovery and manufacture of a variety of products. The risk of

13

additional patents and patent applications will continue to increase as the biotechnology industry expands. We cannot predict the ultimate scope and validity of existing patents and patents that have been or may be granted to third parties, nor can we predict the extent to which we may wish or be required to obtain licenses to such patents, or the availability and cost of acquiring such licenses. To the extent that licenses are required, the owners of the patents could bring legal actions against us to claim damages or to stop our manufacturing and marketing of the affected products.

      Issued patents may not provide commercially meaningful protection against competitors and may not provide us with competitive advantages. Other parties may challenge our patents or design around our issued patents or develop products providing effects similar to our products. In addition, others may discover uses for genes, proteins or antibodies other than those uses covered in our patents, and these other uses may be separately patentable. The holder of a patent covering the use of a gene, protein or antibody for which we have a patent claim could exclude us from selling a product for a use covered by its patent.

      We rely on trade secret protection to protect our confidential and proprietary information. We believe we have developed proprietary procedures for making libraries of DNA sequences and genes. We have not sought patent protection for these procedures. We have developed a substantial database concerning genes we have identified. We have taken security measures to protect our data and continue to explore ways to further enhance the security for our data. However, we may not be able to meaningfully protect our trade secrets. While we have entered into confidentiality agreements with employees and academic collaborators, we may not be able to prevent their disclosure of these data or materials. Others may independently develop substantially equivalent information and techniques.

Competition

      General. We face intense competition from a wide range of pharmaceutical, biotechnology and diagnostic companies, as well as academic and research institutions and government agencies. Some of these competitors have substantially greater financial, marketing, research and development and human resources. Most large pharmaceutical companies have considerably more experience in undertaking clinical trials and in obtaining regulatory approval to market pharmaceutical products.

      Basis of Competition. Principal competitive factors in our industry include:

•  the quality and breadth of an organization’s technology;

•  the skill of an organization’s employees and its ability to recruit and retain skilled employees;

•  an organization’s intellectual property estate;

•  the range of capabilities, from target identification and validation to drug discovery and development to manufacturing and marketing; and

•  the availability of substantial capital resources to fund discovery, development and commercialization activities.

      We believe that the quality and breadth of our technology platform, the skill of our employees and our ability to recruit and retain skilled employees, our patent portfolio, our capabilities for research and drug development, and our capital resources are competitive strengths. However, many large pharmaceutical and biotechnology companies have significantly larger intellectual property estates than we do, more substantial capital resources than we have, and greater capabilities and experience than we do in preclinical and clinical development, sales, marketing, manufacturing and regulatory affairs.

      Products. We are aware of products in research or development by our competitors that address all of the diseases we are targeting. Any of these products may compete with our product candidates. Our competitors may succeed in developing their products before we do, obtaining approvals from the FDA or other regulatory agencies for their products more rapidly than we do, or developing products that are more effective than our products. These products or technologies might render our technology obsolete or noncompetitive. In addition, our albumin fusion protein products are designed to be long-acting versions of

14

existing products. While we believe our albumin fusion protein products will be a more attractive alternative to the existing products, the existing product in many cases has an established market that may make the introduction of our product more difficult. Competition is based primarily on product efficacy, safety, timing and scope of regulatory approvals, availability of supply, marketing and sales capability, reimbursement coverage, price and patent position.

Government Regulation

      Regulations in the U.S. and other countries have a significant impact on our research, product development and manufacturing activities and will be a significant factor in the marketing of our products. All of our products will require regulatory approval prior to commercialization. In particular, our products are subject to rigorous preclinical and clinical testing and other premarket approval requirements by the FDA and similar regulatory authorities in other countries. Various statutes and regulations also govern or influence the manufacturing, safety, labeling, storage, record keeping and marketing of our products. The lengthy process of seeking these approvals, and the subsequent compliance with applicable statutes and regulations, require the expenditure of substantial resources. Any failure by us to obtain, or any delay in obtaining, regulatory approvals could materially adversely affect our ability to commercialize our products in a timely manner, or at all.

      Preclinical Testing. Before a drug may be clinically tested in the U.S., it must be the subject of rigorous preclinical testing. Preclinical tests include laboratory evaluation of product chemistry and animal studies to assess the potential safety and efficacy of the product and its formulations. The results of these studies must be submitted to the FDA as part of an investigational new drug application, which is reviewed by the FDA before clinical testing in humans can begin.

      Clinical Testing. Typically, clinical testing involves a three-phase process, which generally lasts four to seven years, and sometimes longer:

•  Phase 1 clinical trials are conducted with a small number of subjects to determine the early safety profile and the pattern of drug distribution and metabolism.

•  Phase 2 clinical trials are conducted with groups of patients afflicted with a specified disease in order to provide enough data to evaluate preliminary efficacy and optimal dosages statistically and to expand evidence of safety.

•  Phase 3 clinical trials are large-scale, multi-center, comparative trials, which are designed to gather additional information for proper dosage and labeling of the drug and to demonstrate its overall safety and efficacy.

      The FDA monitors the progress of each phase of testing, and may require the modification, suspension or termination of a trial if it is determined to present excessive risks to patients. The clinical trial process may be accompanied by substantial delay and expense and there can be no assurance that the data generated in these studies will ultimately be sufficient for marketing approval by the FDA.

      Marketing Approvals. Before a product can be marketed and sold, the results of the preclinical and clinical testing must be submitted to the FDA for approval. This submission will be either a new drug application or a biologic license application, depending on the type of drug. In responding to a new drug application or a biologic license application, the FDA may grant marketing approval, request additional information or deny the application if it determines that the application does not provide an adequate basis for approval. We cannot assure you that any approval required by the FDA will be obtained on a timely basis, or at all.

      In addition, the FDA may condition marketing approval on the conduct of specific post-marketing studies to further evaluate safety and efficacy. Rigorous and extensive FDA regulation of pharmaceutical products continues after approval, particularly with respect to compliance with current good manufacturing practices, or cGMPs, reporting of adverse effects, advertising, promotion and marketing. Discovery of previously unknown problems or failure to comply with the applicable regulatory requirements may result in restrictions on the

15

marketing of a product or withdrawal of the product from the market as well as possible civil or criminal sanctions, any of which could materially adversely affect our business.

      Other Regulation. We are also subject to various laws and regulations relating to safe working conditions, laboratory and manufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances used in connection with our research, including radioactive compounds and infectious disease agents. We also cannot accurately predict the extent of regulations that might result from any future legislative or administrative action.

      In addition, ethical, social and legal concerns about gene therapy, genetic testing and genetic research could result in additional regulations restricting or prohibiting the processes we or our suppliers may use. Federal and state agencies, congressional committees and foreign governments have expressed interest in further regulating biotechnology. More restrictive regulations or claims that our products are unsafe or pose a hazard could prevent us from commercializing our products.

      Foreign Regulation. We must obtain regulatory approval by governmental agencies in other countries prior to commercialization of our products in those countries. Foreign regulatory systems may be just as rigorous, costly and uncertain as in the U.S.

      Possible Pricing Restrictions. The levels of revenues and profitability of biopharmaceutical companies like ours may be affected by the continuing efforts of government and third party payers to contain or reduce the costs of health care through various means. For example, in certain foreign markets, pricing or profitability of therapeutic and other pharmaceutical products is subject to governmental control. In the U.S. there have been, and we expect that there will continue to be, a number of federal and state proposals to implement similar governmental control. While we cannot predict whether any legislative or regulatory proposals will be adopted, the adoption of such proposals could have a material adverse effect on our business, financial condition and profitability. In addition, in the U.S. and elsewhere, sales of therapeutic and other pharmaceutical products depend in part on the availability of reimbursement to the consumer from third party payers, such as government and private insurance plans. Third party payers are increasingly challenging the prices charged for medical products and services. We cannot assure you that any of our products will be considered cost effective or that reimbursement to the consumer will be available or will be sufficient to allow us to sell our products on a competitive and profitable basis.

Sources of Supply

      Raw materials and other supplies required in our business are generally available from various suppliers in quantities adequate to meet our needs.

Manufacturing

      We are able to manufacture multiple protein and antibody drugs for use in research and clinical activities. We produce and purify these protein and antibody drugs within process development and manufacturing facilities that now total approximately 595,000 square feet. We do not manufacture any products for commercial use and do not have any experience in manufacturing materials suitable for commercial use.

      We are building our manufacturing organization and facilities with the intent of manufacturing our own commercial materials. Our long-range plan is to establish additional manufacturing capabilities to allow us to meet our commercial manufacturing requirements. We have manufacturing capability for the production of protein and antibody drugs for our clinical trials, as well as for preclinical studies. We have expanded our manufacturing facilities as our development pipeline has progressed to allow us to produce larger quantities of protein and antibody drugs for clinical development. In 2004, we completed construction and commissioning of approximately 28,200 square feet of manufacturing space at our Traville site. In 2005, we completed the construction of a 291,000-square-foot large-scale manufacturing facility to allow for the production of protein and antibody drugs for both clinical and commercial use. We plan to complete the commissioning and validation of this facility in the second half of 2006. The FDA must inspect and license these facilities to determine compliance with cGMP requirements for commercial production. We may not be able successfully

16

to establish manufacturing capabilities or manufacture our products economically or in compliance with cGMPs and other regulatory requirements. For a description of the financing arrangements for these facilities, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

      While we are expanding our manufacturing capabilities, we may contract with additional third party manufacturers or develop products with partners and use the partners’ manufacturing capabilities. If we use others to manufacture our products, we will depend on those parties to comply with cGMPs and other regulatory requirements, and to deliver materials on a timely basis. These parties may not perform adequately. Any failures by these third parties may delay our development of products or the submission of these products for regulatory approval.

Marketing

      We do not have any marketed products. We have a strategic marketing group to analyze the commercial value of our product portfolio and the competitive environment. The strategic marketing group also analyzes patient needs and customer preferences with respect to our product development and planning. If we develop products that can be marketed, we intend to market the products either independently or together with collaborators or strategic partners. GlaxoSmithKline and others have co-marketing rights with respect to certain of our products. If we decide to market any products, either independently or together with partners, we will incur significant additional expenditures and commit significant additional management resources to establish a sales force. For any products that we market together with partners, we will rely, in whole or in part, on the marketing capabilities of those parties. We may also contract with third parties to market certain of our products. Ultimately, we and our partners may not be successful in marketing our products.

Employees

      As of March 1, 2006, we had approximately 880 full-time employees. None of our employees is covered by a collective bargaining agreement and we consider relations with our employees to be good.

ITEM 1A.     RISK FACTORS

      There are a number of risk factors that could cause our actual results to differ materially from those that are indicated by forward-looking statements. Those factors include, without limitation, those listed below and elsewhere herein.

      If we are unable to commercialize products, we may not be able to recover our investment in our product development and manufacturing efforts.

      We have invested significant time and resources to isolate and study genes and determine their functions. We now devote most of our resources to developing proteins and antibodies for the treatment of human disease. We are also devoting substantial resources to the establishment of our own manufacturing capabilities, both to support clinical testing and eventual commercialization. We have made and are continuing to make substantial expenditures. Before we can commercialize a product, we must rigorously test the product in the laboratory and complete extensive human studies. We cannot assure you that the costs of testing and study will yield products approved for marketing by the FDA or that any such products will be profitable. We will incur substantial additional costs to continue these activities. If we are not successful in commercializing products, we may be unable to recover the large investment we have made in research, development and manufacturing facilities.

      Because our product development efforts depend on new and rapidly evolving technologies, we cannot be certain that our efforts will be successful.

      Our work depends on new, rapidly evolving technologies and on the marketability and profitability of innovative products. Commercialization involves risks of failure inherent in the development of products based

17

on innovative technologies and the risks associated with drug development generally. These risks include the possibility that:

•  these technologies or any or all of the products based on these technologies will be ineffective or toxic, or otherwise fail to receive necessary regulatory clearances;

•  the products, if safe and effective, will be difficult to manufacture on a large scale or uneconomical to market;

•  proprietary rights of third parties will prevent us or our collaborators from exploiting technologies or marketing products; and

•  third parties will market superior or equivalent products.

      Because we are currently a mid-stage development company, we cannot be certain that we can develop our business or achieve profitability.

      We expect to continue to incur losses and we cannot assure you that we will ever become profitable. We are in the mid-stage of development, and it will be a number of years, if ever, before we are likely to receive revenue from product sales or royalty payments. We will continue to incur substantial expenses relating to research and development efforts and human studies. The development of our products requires significant further research, development, testing and regulatory approvals. We may not be able to develop products that will be commercially successful or that will generate revenue in excess of the cost of development.

      We are continually evaluating our business strategy, and may modify this strategy in light of developments in our business and other factors.

      In the past, we have redirected the focus of our business from the discovery of genes to the development of medically useful products based on those genes. We continue to evaluate our business strategy and, as a result, may modify this strategy in the future. In this regard, we may, from time to time, focus our product development efforts on different products or may delay or halt the development of various products. In addition, as a result of changes in our strategy, we may also change or refocus our existing drug discovery, development, commercialization and manufacturing activities. This could require changes in our facilities and personnel and the restructuring of various financial arrangements. We cannot assure you that changes will occur or that any changes that we implement will be successful.

      During the past two years, we have sharpened our focus on our most promising drug candidates. We have reduced the number of drugs in early development and are focusing our resources on the drugs that address the greatest unmet medical needs with substantial growth potential. In order to reduce significantly our expenses, and thus enable us to dedicate more resources to the most promising drugs, we have reduced staff, streamlined operations and consolidated facilities. In December 2005, we entered into an agreement to spin off our CoGenesys division as an independent company, in a transaction that will be treated as a sale for accounting purposes. CoGenesys will focus on the development of assets that were unlikely to be developed by us.

      Our ability to discover and develop new early stage preclinical products will depend on our internal research capability. We substantially reduced our internal research capability as part of our restructuring in the first quarter of 2004. Our internal research capability will be further reduced following the spin-off of CoGenesys. Although we continue to conduct discovery and development efforts on early stage products, our limited resources for discovering and developing early stage preclinical products may not be sufficient to discover new preclinical drug candidates.

18

PRODUCT DEVELOPMENT RISKS

      Because we have limited experience in developing and commercializing products, we may be unsuccessful in our efforts to do so.

      Our ability to develop and commercialize products based on proteins, antibodies and other compounds will depend on our ability to:

•  develop products internally;

•  complete laboratory testing and human studies;

•  obtain and maintain necessary intellectual property rights to our products;

•  obtain and maintain necessary regulatory approvals related to the efficacy and safety of our products;

•  develop and expand production facilities meeting all regulatory requirements or enter into arrangements with third parties to manufacture our products on our behalf; and

•  deploy sales and marketing resources effectively or enter into arrangements with third parties to provide these functions.

      Although we are conducting human studies with respect to a number of products, we have limited experience with these activities and may not be successful in developing or commercializing these or other products.

      Because clinical trials for our products are expensive and protracted and their outcome is uncertain, we must invest substantial amounts of time and money that may not yield viable products.

      Conducting clinical trials is a lengthy, time-consuming and expensive process. Before obtaining regulatory approvals for the commercial sale of any product, we must demonstrate through laboratory, animal and human studies that such product is both effective and safe for use in humans. We will incur substantial additional expense for and devote a significant amount of time to these studies.

      Before a drug may be marketed in the U.S., it must be the subject of rigorous preclinical testing. The results of these studies must be submitted to the FDA as part of an investigational new drug application, which is reviewed by the FDA before clinical testing in humans can begin. The results of preliminary studies do not predict clinical success. A number of potential drugs have shown promising results in early testing but subsequently failed to obtain necessary regulatory approvals. Data obtained from tests are susceptible to varying interpretations, which may delay, limit or prevent regulatory approval. Regulatory authorities may refuse or delay approval as a result of many other factors, including changes in regulatory policy during the period of product development.

      Completion of clinical trials may take many years. The length of time required varies substantially according to the type, complexity, novelty and intended use of the product candidate. The FDA monitors the progress of each phase of testing, and may require the modification, suspension or termination of a trial if it is determined to present excessive risks to patients. Our rate of commencement and completion of clinical trials may be delayed by many factors, including:

•  our inability to manufacture sufficient quantities of materials for use in clinical trials;

•  variability in the number and types of patients available for each study;

•  difficulty in maintaining contact with patients after treatment, resulting in incomplete data;

•  unforeseen safety issues or side effects;

•  poor or unanticipated effectiveness of products during the clinical trials; or

•  government or regulatory delays.

      To date, data obtained from our clinical trials are not sufficient to support an application for regulatory approval without further studies. Studies conducted by us or by third parties on our behalf may not

19

demonstrate sufficient effectiveness and safety to obtain the requisite regulatory approvals for these or any other potential products. Based on the results of a human study for a particular product candidate, regulatory authorities may not permit us to undertake any additional clinical trials for that product candidate. The clinical trial process may also be accompanied by substantial delay and expense and there can be no assurance that the data generated in these studies will ultimately be sufficient for marketing approval by the FDA. For example, in 2005, we discontinued our clinical development of LymphoRad¹³¹, a product candidate to treat cancer.

      We face risks in connection with our ABthrax product in addition to risks generally associated with drug development.

      Our entry into the biodefense field with the development of ABthrax presents risks beyond those associated with the development of our other products. Numerous other companies and governmental agencies, including the U.S. Army, are known to be developing biodefense pharmaceuticals and related products to combat anthrax. These competitors may have financial or other resources greater than ours, and may have easier or preferred access to the likely distribution channels for biodefense products. In addition, since the primary purchaser of biodefense products is the U.S. Government and its agencies, the success of ABthrax will depend on government spending policies and pricing restrictions. The funding of government biodefense programs is dependent, in part, on budgetary constraints, political considerations and military developments. In the case of the U.S. Government, executive or legislative action could attempt to impose production and pricing requirements on us. We have entered into a two-phase contract to supply ABthrax^tm, a human monoclonal antibody developed for use in the treatment of anthrax disease, to the U.S. Government. Under the first phase of the contract, we will supply ten grams of ABthrax to the U.S. Department of Health and Human Services (HHS) for comparative in vitro and in vivo testing. Under the second phase of the contract, the U.S. Government has the option to place an order within one year for up to 100,000 doses of ABthrax for the Strategic National Stockpile, for use in the treatment of anthrax disease. We believe that the HHS comparative testing results, along with Human Genome Sciences’ own preclinical and clinical study results, will form the basis of the U.S. Government’s decision process for exercising its option for additional product for the Strategic National Stockpile. We do not know whether the U.S. Government will purchase ABthrax, and if it does, the timing, extent and amount of such purchases. If the U.S. Government decides to place an order for ABthrax, we will continue to face risks related to animal and human testing, to the manufacture of ABthrax and to FDA concurrence that ABthrax meets the requirements of the contract. If we are unable to meet the product requirements associated with this contract, the U.S. Government will not be required to reimburse us for the costs incurred or to purchase any product pursuant to that order.

      Because neither we nor any of our collaboration partners have received marketing approval for any product candidate resulting from our research and development efforts, and because we may never be able to obtain any such approval, it is possible that we may not be able to generate any product revenue.

      Neither we nor any of our collaboration partners have completed development of any product based on our genomics research. It is possible that we will not receive FDA marketing approval for any of our product candidates. Although a number of our potential products have entered clinical trials, we cannot assure you that any of these products will receive marketing approval. All the products being developed by our collaboration partners will also require additional research and development, extensive preclinical studies and clinical trials and regulatory approval prior to any commercial sales. In some cases, the length of time that it takes for our collaboration partners to achieve various regulatory approval milestones may affect the payments that we are eligible to receive under our collaboration agreements. We and our collaboration partners may need to successfully address a number of technical challenges in order to complete development of our products. Moreover, these products may not be effective in treating any disease or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining regulatory approval or prevent or limit commercial use.

20

RISK FROM COLLABORATION RELATIONSHIPS AND STRATEGIC ACQUISITIONS

      Our plan to use collaborations to leverage our capabilities and to grow in part through the strategic acquisition of other companies and technologies may not be successful if we are unable to integrate our partners’ capabilities or the acquired companies with our operations or if our partners’ capabilities do not meet our expectations.

      As part of our strategy, we intend to continue to evaluate strategic partnership opportunities and consider acquiring complementary technologies and businesses. In order for our future collaboration efforts to be successful, we must first identify partners whose capabilities complement and integrate well with ours. Technologies to which we gain access may prove ineffective or unsafe. Our current agreements that grant us access to such technology may expire and may not be renewable. Our partners may prove difficult to work with or less skilled than we originally expected. In addition, any past collaborative successes are no indication of potential future success. In order to achieve the anticipated benefits of an acquisition, we must integrate the acquired company’s business, technology and employees in an efficient and effective manner. The successful combination of companies in a rapidly changing biotechnology and genomics industry may be more difficult to accomplish than in other industries. The combination of two companies requires, among other things, integration of the companies’ respective technologies and research and development efforts. We cannot assure you that this integration will be accomplished smoothly or successfully. The difficulties of integration are increased by the necessity of coordinating geographically separated organizations and addressing possible differences in corporate cultures and management philosophies. The integration of certain operations will require the dedication of management resources that may temporarily distract attention from the day-to-day operations of the combined companies. The business of the combined companies may also be disrupted by employee retention uncertainty and lack of focus during integration. The inability of management to integrate successfully the operations of the two companies, in particular, to integrate and retain key scientific personnel, or the inability to integrate successfully two technology platforms, could have a material adverse effect on our business, results of operations and financial condition.

      Although GSK has agreed to be our partner in the development and commercialization of LymphoStat-B and HGS-ETR1, we may be unable to negotiate an appropriate co-development and co-marketing agreement.

      As part of our June 1996 agreement with GSK, we granted a 50/50 co-development and commercialization option to GSK for certain human therapeutic products that successfully complete Phase 2a clinical trials. On July 7, 2005, we announced that GSK had exercised its option to develop and commercialize LymphoStat-B (belimumab) jointly with us and on August 18, 2005, we announced that GSK had exercised its option to develop and commercialize HGS-ETR1 (mapatumumab) jointly with us. Under the terms of the 1996 agreement, GSK and we will share equally in Phase 34 development costs of these products, and will share equally in sales and marketing expenses and profits of any such product that is commercialized pursuant to co-development and commercialization agreements, the remaining terms of which are subject to negotiation. We do not know if we will be successful in negotiating such agreements, and if we are unsuccessful, we do not know if, and how, GSK and we will collaborate on these products.

      If we complete the spin-off of our CoGenesys division, our ability to receive revenues from the assets transferred with CoGenesys will depend on CoGenesys’ ability to develop and commercialize those assets.

      The spin-off of our CoGenesys division is contingent on the receipt by CoGenesys of third party financing. As a result, we cannot assure you that the transaction, which will be treated as a sale for accounting purposes, will be completed as currently structured. If the transaction is completed, we will depend on CoGenesys to develop and commercialize those assets. If CoGenesys is not successful in its efforts, we may not receive any revenue from the development of CoGenesys assets. CoGenesys will require significant third party financing, which may be unavailable. In addition, our relationship with CoGenesys will be subject to the risks and uncertainties inherent in our other collaborations.

21

      Because we depend on our collaboration partners for revenue, we may not become profitable if we cannot increase the revenue from our collaboration partners or other sources.

      We have received all of our revenue from payments made under our collaboration agreements with GSK and, to a lesser extent, other agreements. The initial research term of the GSK collaboration agreement and many of our other collaboration agreements expired in 2001. None of these collaboration agreements was renewed. We may not be able to enter into additional collaboration agreements. We are entitled to certain milestone and royalty payments from the existing collaborators, but may not receive payments if our collaborators fail to:

•  develop marketable products;

•  obtain regulatory approvals for products; or

•  successfully market products based on our research.

      Further, circumstances could arise under which one or more of our collaboration partners may allege that we breached our agreement with them and, accordingly, seek to terminate our relationship with them. If successful, this could adversely affect our ability to commercialize our products and harm our business.

      If one of our collaborators pursues a product that competes with our products, there could be a conflict of interest and we may not receive the milestone or royalty payments that we expect.

      Each of our collaborators is developing a variety of products, some with other partners. Our collaborators may pursue existing or alternative technologies to develop drugs targeted at the same diseases instead of using our licensed technology to develop products in collaboration with us. Our collaborators may also develop products that are similar to or compete with products they are developing in collaboration with us. If our collaborators pursue these other products instead of our products, we may not receive milestone or royalty payments.

FINANCIAL AND MARKET RISKS

      Because of our substantial indebtedness, we may be unable to adjust our strategy to meet changing conditions in the future.

      As of December 31, 2005, we had long-term obligations of approximately $510.0 million. We also had a future guarantee obligation of $200.0 million under the current terms of one facility lease. Our substantial debt and future guarantee will have several important consequences for our future operations. For instance:

•  payments of interest on, and principal of, our indebtedness will be substantial, and may exceed then current revenues and available cash;

•  a default under the terms of these existing obligations could result in the termination of certain leases and the acceleration of the maturity of our other financial obligations;

•  we may be unable to obtain additional future financing for continued clinical trials, capital expenditures, acquisitions or general corporate purposes;

•  we may be unable to withstand changing competitive pressures, economic conditions and governmental regulations; and

•  we may be unable to make acquisitions or otherwise take advantage of significant business opportunities that may arise.

      We have entered into an off-balance sheet facility lease arrangement that constitutes a significant financial obligation and possible risks to our financial condition.

      In the second quarter of 2003, we entered into a facility lease for our research and development and administrative facility. Under U.S. generally accepted accounting principles, this lease was treated as an operating lease. In the event we default on our obligation under the lease, we may be responsible for up to $200.0 million of the cost of the facility because of a guarantee we made in connection with the lease. This

22

obligation is not required to be reflected as a liability on our balance sheet, but is described in footnotes to our financial statements. We are required to pledge marketable securities as security for our obligation under the lease and the related documents. As of December 31, 2005, we included approximately $220.2 million of restricted investments on our balance sheet, of which approximately $207.2 million was held as restricted investments providing collateral for our obligation with respect to this facility. If the value of our pledged investments declines, because of an increase in interest rates or otherwise, we would need to pledge additional investments, which would further reduce our working capital. The rent under this lease is based on a floating interest rate, but the lessors at our request can lock in a fixed interest rate at an interest rate premium. To the extent the lessors do not lock in a fixed interest rate, if interest rates increase, our rent obligation would also increase. The lease has a term of seven years. If we desire to remain in the facility upon lease expiration, we would need to refinance or buy the facility at the financed project cost. We cannot assure you that refinancing will be available on comparable terms, if at all. Further, in the event the facility is sold, we have a guarantee obligation which makes us responsible to the extent that the value of the facility is less than the financed project cost and which will reach a maximum guarantee obligation of approximately $175.5 million if the value of the facility declined below approximately 12.25% of the financed project cost. While we believe that this lease provides a useful financing mechanism for the facility, adverse public perception of such lease arrangements and the associated risks may cause our stock price to decline. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Off-Balance Sheet Arrangements”.

      To pursue our current business strategy and continue developing our products, we are likely to need substantial additional funding in the future. If we do not obtain this funding on acceptable terms, we may not be able to continue to grow our business and generate enough revenue to recover our investment in our product development effort.

      Since inception, we have expended, and will continue to expend, substantial funds to continue our research and development programs. We are likely to need additional financing to fund our operating expenses and capital requirements. In the third quarter of 2005, we issued $230.0 million in 2¹/4% convertible subordinated notes due 2012 and in the fourth quarter of 2005, we repurchased all of the remaining outstanding subordinated notes due 2007. We may not be able to obtain additional financing on acceptable terms. If we raise additional funds by issuing equity securities, equity-linked securities or debt securities, the new equity securities may dilute the interests of our existing stockholders or the new debt securities may contain restrictive financial covenants.

      Our need for additional funding will depend on many factors, including, without limitation:

•  the amount of revenue, if any, that we are able to obtain from our collaborations, any approved products, and the time and costs required to achieve those revenues;

•  the timing, scope and results of preclinical studies and clinical trials;

•  the size and complexity of our development programs;

•  the time and costs involved in obtaining regulatory approvals;

•  the cost of launching our products;

•  the costs of commercializing our products, including marketing, promotional and sales costs;

•  our ability to establish and maintain collaboration partnerships;

•  competing technological and market developments;

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

•  scientific progress in our research and development programs.

      If we are unable to raise additional funds, we may, among other things:

•  delay, scale back or eliminate some or all of our research and development programs;

•  delay, scale back or eliminate some or all of our commercialization activities;

23

•  lose rights under existing licenses;

•  relinquish more of, or all of, our rights to product candidates on less favorable terms than we would otherwise seek; and

•  be unable to operate as a going concern.

      Our insurance policies are expensive and protect us only from some business risks, which will leave us exposed to significant, uninsured liabilities.

      We do not carry insurance for all categories of risk that our business may encounter. We currently maintain general liability, property, auto, workers’ compensation, products liability and directors’ and officers’ insurance policies. We do not know, however, if we will be able to maintain existing insurance with adequate levels of coverage. For example, the premiums for our directors’ and officers’ insurance policy have increased over time, and this type of insurance may not be available on acceptable terms or at all in the future. Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our cash position and results of operations.

INTELLECTUAL PROPERTY RISKS

      If patent laws or the interpretation of patent laws change, our competitors may be able to develop and commercialize our discoveries.

      Important legal issues remain to be resolved as to the extent and scope of available patent protection for biotechnology products and processes in the U.S. and other important markets outside the U.S., such as Europe and Japan. Foreign markets may not provide the same level of patent protection as provided under the U.S. patent system. We expect that litigation or administrative proceedings will likely be necessary to determine the validity and scope of certain of our and others’ proprietary rights. We are currently involved in a number of administrative proceedings relating to the scope of protection of our patents and those of others. Any such litigation or proceeding may result in a significant commitment of resources in the future and could force us to do one or more of the following: cease selling or using any of our products that incorporate the challenged intellectual property, which would adversely affect our revenue; obtain a license from the holder of the intellectual property right alleged to have been infringed, which license may not be available on reasonable terms, if at all; and redesign our products to avoid infringing the intellectual property rights of third parties, which may be time-consuming or impossible to do. In addition, changes in, or different interpretations of, patent laws in the U.S. and other countries may result in patent laws that allow others to use our discoveries or develop and commercialize our products. We cannot assure you that the patents we obtain or the unpatented technology we hold will afford us significant commercial protection.

      If our patent applications do not result in issued patents, our competitors may obtain rights to and commercialize the discoveries we attempted to patent.

      Our pending patent applications, including those covering full-length genes and their corresponding proteins, may not result in the issuance of any patents. Our applications may not be sufficient to meet the statutory requirements for patentability in all cases or may be the subject of interference proceedings by the Patent and Trademark Office. These proceedings determine the priority of inventions and, thus, the right to a patent for technology in the U.S. We are involved in interference proceedings, including proceedings related to products based on TRAIL Receptor 2 (such as HGS-ETR2 and HGS-TR2J) and may be involved in other interference proceedings in the future. We are also involved in opposition proceedings in connection with foreign patent filings, including oppositions related to products based on BLyS (such as LymphoStat-B), and may be involved in other opposition proceedings in the future. We cannot assure you that we will be successful in any of these proceedings.

      If others file patent applications or obtain patents similar to ours, then the Patent and Trademark Office may deny our patent applications, or others may restrict the use of our discoveries.

      We are aware that others, including universities and companies working in the biotechnology and pharmaceutical fields, have filed patent applications and have been granted patents in the U.S. and in other

24

countries that cover subject matter potentially useful or necessary to our business. Some of these patents and patent applications claim only specific products or methods of making products, while others claim more general processes or techniques useful in the discovery and manufacture of a variety of products. The risk of third parties obtaining additional patents and filing patent applications will continue to increase as the biotechnology industry expands. We cannot predict the ultimate scope and validity of existing patents and patents that may be granted to third parties, nor can we predict the extent to which we may wish or be required to obtain licenses to such patents, or the availability and cost of acquiring such licenses. To the extent that licenses are required, the owners of the patents could bring legal actions against us to claim damages or to stop our manufacturing and marketing of the affected products. We believe that there will continue to be significant litigation in our industry regarding patent and other intellectual property rights. If we become involved in litigation, it could consume a substantial portion of our resources.

      Because issued patents may not fully protect our discoveries, our competitors may be able to commercialize products similar to those covered by our issued patents.

      Issued patents may not provide commercially meaningful protection against competitors and may not provide us with competitive advantages. Other parties may challenge our patents or design around our issued patents or develop products providing effects similar to our products. In addition, others may discover uses for genes, proteins or antibodies other than those uses covered in our patents, and these other uses may be separately patentable. The holder of a patent covering the use of a gene, protein or antibody for which we have a patent claim could exclude us from selling a product for a use covered by its patent.

      We rely on our collaboration partners to seek patent protection for the products they develop based on our research.

      A significant portion of our future revenue may be derived from royalty payments from our collaboration partners. These partners face the same patent protection issues that we and other biotechnology firms face. As a result, we cannot assure you that any product developed by our collaboration partners will be patentable, and therefore, revenue from any such product may be limited, which would reduce the amount of any royalty payments. We also rely on our collaboration partners to effectively prosecute their patent applications. Their failure to obtain or protect necessary patents could also result in a loss of royalty revenue to us.

      If we are unable to protect our trade secrets, others may be able to use our secrets to compete more effectively.

      We may not be able to meaningfully protect our trade secrets. We rely on trade secret protection to protect our confidential and proprietary information. We believe we have acquired or developed proprietary procedures and materials for the production of proteins. We have not sought patent protection for these procedures. While we have entered into confidentiality agreements with employees and academic collaborators, we may not be able to prevent their disclosure of these data or materials. Others may independently develop substantially equivalent information and processes.

REGULATORY RISKS

      Because we are subject to extensive changing government regulatory requirements, we may be unable to obtain government approval of our products in a timely manner.

      Regulations in the U.S. and other countries have a significant impact on our research, product development and manufacturing activities and will be a significant factor in the marketing of our products. All of our products will require regulatory approval prior to commercialization. In particular, our products are subject to rigorous preclinical and clinical testing and other premarket approval requirements by the FDA and similar regulatory authorities in other countries, such as in Europe and Japan. Various statutes and regulations also govern or influence the manufacturing, safety, labeling, storage, record keeping and marketing of our products. The lengthy process of seeking these approvals, and the subsequent compliance with applicable statutes and regulations, require the expenditure of substantial resources. Any failure by us to obtain, or any delay in obtaining, regulatory approvals could materially adversely affect our ability to commercialize our products in a timely manner, or at all.

25

      Marketing Approvals. Before a product can be marketed and sold, the results of the preclinical and clinical testing must be submitted to the FDA for approval. This submission will be either a new drug application or a biologic license application, depending on the type of drug. In responding to a new drug application or a biologic license application, the FDA may grant marketing approval, request additional information or deny the application if it determines that the application does not provide an adequate basis for approval. We cannot assure you that any approval required by the FDA will be obtained on a timely basis, or at all.

      In addition, the FDA may condition marketing approval on the conduct of specific post-marketing studies to further evaluate safety and efficacy. Rigorous and extensive FDA regulation of pharmaceutical products continues after approval, particularly with respect to compliance with current good manufacturing practices, or cGMPs, reporting of adverse effects, advertising, promotion and marketing. Discovery of previously unknown problems or failure to comply with the applicable regulatory requirements may result in restrictions on the marketing of a product or withdrawal of the product from the market as well as possible civil or criminal sanctions, any of which could materially adversely affect our business.

      Foreign Regulation. We must obtain regulatory approval by governmental agencies in other countries prior to commercialization of our products in those countries. Foreign regulatory systems may be just as rigorous, costly and uncertain as in the U.S.

      Because we are subject to environmental, health and safety laws, we may be unable to conduct our business in the most advantageous manner.

      We are subject to various laws and regulations relating to safe working conditions, laboratory and manufacturing practices, the experimental use of animals, emissions and wastewater discharges, and the use and disposal of hazardous or potentially hazardous substances used in connection with our research, including radioactive compounds and infectious disease agents. We also cannot accurately predict the extent of regulations that might result from any future legislative or administrative action. Any of these laws or regulations could cause us to incur additional expense or restrict our operations.

OTHER RISKS RELATED TO OUR BUSINESS

      Many of our competitors have substantially greater capabilities and resources and may be able to develop and commercialize products before we do.

      We face intense competition from a wide range of pharmaceutical and biotechnology companies, as well as academic and research institutions and government agencies. Principal competitive factors in our industry include:

•  the quality and breadth of an organization’s technology;

•  the skill of an organization’s employees and its ability to recruit and retain skilled employees;

•  an organization’s intellectual property portfolio;

•  the range of capabilities, from target identification and validation to drug discovery and development to manufacturing and marketing; and

•  the availability of substantial capital resources to fund discovery, development and commercialization activities.

      Many large pharmaceutical and biotechnology companies have significantly larger intellectual property estates than we do, more substantial capital resources than we have, and greater capabilities and experience than we do in preclinical and clinical development, sales, marketing, manufacturing and regulatory affairs.

      We are aware of products in research or development by our competitors that address all of the diseases we are targeting. Any of these products may compete with our product candidates. Our competitors may succeed in developing their products before we do, obtaining approvals from the FDA or other regulatory agencies for their products more rapidly than we do, or developing products that are more effective than our

26

products. These products or technologies might render our technology or drugs under development obsolete or noncompetitive. In addition, our albumin fusion protein products are designed to be longer-acting versions of existing products. The existing product in many cases has an established market that may make the introduction of our product more difficult.

      If we lose or are unable to attract key management or other personnel, we may experience delays in product development.

      We depend on our senior executive officers as well as key scientific and other personnel. If any key employee decides to terminate his or her employment with us, this termination could delay the commercialization of our products or prevent us from becoming profitable. We have not purchased key-man life insurance on any of our executive officers or key personnel, and therefore may not have adequate funds to find acceptable replacements for them. Competition for qualified employees is intense among pharmaceutical and biotechnology companies, and the loss of qualified employees, or an inability to attract, retain and motivate additional highly skilled employees required for the expansion of our activities, could hinder our ability to complete human studies successfully and develop marketable products.

      If the health care system or reimbursement policies change, the prices of our potential products may be lower than expected and our potential sales may decline.

      The levels of revenues and profitability of biopharmaceutical companies like ours may be affected by the continuing efforts of government and third party payers to contain or reduce the costs of health care through various means. For example, in certain foreign markets, pricing or profitability of therapeutic and other pharmaceutical products is subject to governmental control. In the U.S. there have been, and we expect that there will continue to be, a number of federal and state proposals to implement similar governmental control. While we cannot predict whether any legislative or regulatory proposals will be adopted, the adoption of such proposals could have a material adverse effect on our business, financial condition and profitability. In addition, in the U.S. and elsewhere, sales of therapeutic and other pharmaceutical products depend in part on the availability of reimbursement to the consumer from third party payers, such as government and private insurance plans. Third party payers are increasingly challenging the prices charged for medical products and services. We cannot assure you that any of our products will be considered cost effective or that reimbursement to the consumer will be available or will be sufficient to allow us to sell our products on a competitive and profitable basis.

      We may be unable successfully to establish a manufacturing capability and may be unable to obtain required quantities of our products economically.

      We do not manufacture any products for commercial use and do not have any experience in manufacturing materials suitable for commercial use. We are nearing the completion of construction and are beginning the validation phase of a large-scale manufacturing facility to increase our capacity for protein and antibody drug production. The FDA must inspect and license these facilities to determine compliance with cGMP requirements for commercial production. We may not be able successfully to establish sufficient manufacturing capabilities or manufacture our products economically or in compliance with cGMPs and other regulatory requirements.

      While we are expanding our manufacturing capabilities, we have contracted and may in the future contract with third party manufacturers or develop products with collaboration partners and use the collaboration partners’ manufacturing capabilities. If we use others to manufacture our products, we will depend on those parties to comply with cGMPs, and other regulatory requirements and to deliver materials on a timely basis. These parties may not perform adequately. Any failures by these third parties may delay our development of products or the submission of these products for regulatory approval.

      Because we currently have only a limited marketing capability, we may be unable to sell any of our products effectively.

      We do not have any marketed products. If we develop products that can be marketed, we intend to market the products either independently or together with collaborators or strategic partners. GSK and others

27

have co-marketing rights with respect to certain of our products. If we decide to market any products, either independently or together with partners, we will incur significant additional expenditures and commit significant additional management resources to establish a sales force. For any products that we market together with partners, we will rely, in whole or in part, on the marketing capabilities of those parties. We may also contract with third parties to market certain of our products. Ultimately, we and our partners may not be successful in marketing our products.

      Because we depend on third parties to conduct some of our laboratory testing and human studies, we may encounter delays in or lose some control over our efforts to develop products.

      We are dependent on third-party research organizations to design and conduct some of our laboratory testing and human studies. If we are unable to obtain any necessary testing services on acceptable terms, we may not complete our product development efforts in a timely manner. If we rely on third parties for laboratory testing and human studies, we may lose some control over these activities and become too dependent upon these parties. These third parties may not complete testing activities on schedule or when we request.

      Our certificate of incorporation, bylaws and stockholder rights plan could discourage acquisition proposals, delay a change in control or prevent transactions that are in your best interests.

      Provisions of our certificate of incorporation and bylaws, as well as Section 203 of the Delaware General Corporation Law, may discourage, delay or prevent a change in control of our company that you as a stockholder may consider favorable and may be in your best interest. We have also adopted a stockholder rights plan, or “poison pill,” that may discourage, delay or prevent a change in control. Our certificate of incorporation and bylaws contain provisions that:

•  authorize the issuance of up to 20,000,000 shares of “blank check” preferred stock that could be issued by our board of directors to increase the number of outstanding shares and discourage a takeover attempt;

•  classify the directors of our board with staggered, three-year terms, which may lengthen the time required to gain control of our board of directors;

•  limit who may call special meetings of stockholders; and

•  establish advance notice requirements for nomination of candidates for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.

      Because our stock price has been and will likely continue to be volatile, the market price of our common stock may be lower or more volatile than you expected.

      Our stock price, like the stock prices of many other biotechnology companies, has been highly volatile. From January 1, 2005 through December 31, 2005, the closing price of our common stock has been as low as $7.75 per share and as high as $15.08 per share. The market price of our common stock could fluctuate widely because of:

•  future announcements about our company or our competitors, including the results of testing, technological innovations or new commercial products;

•  negative regulatory actions with respect to our potential products or regulatory approvals with respect to our competitors’ products;

•  changes in government regulations;

•  developments in our relationships with our collaboration partners;

•  developments affecting our collaboration partners;

•  announcements relating to health care reform and reimbursement levels for new drugs, particularly oncology drugs;

28

•  our failure to acquire or maintain proprietary rights to the gene sequences we discover or the products we develop;

•  litigation; and

•  public concern as to the safety of our products.

      The stock market has experienced extreme price and volume fluctuations that have particularly affected the market price for many emerging and biotechnology companies. These fluctuations have often been unrelated to the operating performance of these companies. These broad market fluctuations may cause the market price of our common stock to be lower or more volatile than you expected.

29

ITEM 2.     PROPERTIES

      We currently lease and occupy approximately 1,217,000 square feet of laboratory, manufacturing and office space in Rockville, Maryland. Our space includes approximately 325,000 square feet of laboratory space, approximately 595,000 of manufacturing and manufacturing support space and approximately 297,000 square feet of office space.

      In 2005 we completed construction of a 291,000-square-foot large-scale manufacturing facility for which we have begun the validation phase. We anticipate placing the facility into operational service in the second half of 2006. This manufacturing facility will allow us to produce larger quantities of our antibody drugs for clinical development.

      For additional discussion of the financing of one of our leases, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Off-Balance Sheet Arrangements.”

      We anticipate that existing commercial real estate or the available land located at our laboratory and office campus will enable us to continue to expand our operations in close proximity to one another. We believe that our properties are generally in good condition, well maintained, suitable and adequate to carry on our business.

ITEM 3.     LEGAL PROCEEDINGS

      We are not a party to any material pending legal proceedings, other than ordinary routine litigation incidental to our business.

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      No matters were submitted to a vote of our security holders during the fourth quarter of the fiscal year ended December 31, 2005.

30

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER’S MATTERS

      Our common stock has been traded on the NASDAQ National Market System under the symbol HGSI since December 2, 1993. The following table presents the quarterly high and low closing prices as quoted by NASDAQ.

2004	High		Low
First Quarter	$	14.55	$	11.37
Second Quarter	$	14.10	$	10.34
Third Quarter	$	13.05	$	8.54
Fourth Quarter	$	12.02	$	9.49

2005	High		Low
First Quarter	$	12.95	$	9.08
Second Quarter	$	11.58	$	9.12
Third Quarter	$	15.08	$	11.68
Fourth Quarter	$	14.06	$	7.75

      As of January 31, 2006, there were approximately 796 holders of record of our common stock. We have never declared or paid any cash dividends. We do not anticipate declaring or paying cash dividends for the foreseeable future, in part because existing contractual agreements prohibit such dividends. Instead, we will retain our earnings, if any, for the future operation and expansion of our business.

31

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

      We present below our selected consolidated financial data for the years ended December 31, 2005, 2004 and 2003, and as of December 31, 2005 and 2004, which have been derived from the audited consolidated financial statements included elsewhere herein and should be read in conjunction with such consolidated financial statements and the accompanying notes. We present below our selected financial data for the years ended December 31, 2002 and 2001, and as of December 31, 2003, 2002 and 2001, which have been derived from audited financial statements not included herein. The results of operations of prior periods are not necessarily indicative of results that may be expected for any other period. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.”

				Years Ended December 31,
				2005			2004			2003			2002			2001
				(In thousands, except per share and ratio data)
Statement of Operations Data:
Revenue — research and development contracts				$	19,113		$	3,831		$	8,168		$	3,568		$	12,818
Costs and expenses:
	Research and development:
			Direct expenditures		228,717			219,549			191,483			191,162			146,276
			Charge for construction design changes		—			—			—			14,238			—
			Total research and development		228,717			219,549			191,483			205,400			146,276
			General and administrative		42,066			35,728			43,608			44,175			38,714
			Charge for restructuring		—			15,408			—			—			—
Total costs and expenses					270,783			270,685			235,091			249,575			184,990
		Income (loss) from operations			(251,670	)		(266,854	)		(226,923	)		(246,007	)		(172,172	)
Net investment income					13,435			21,523			41,599			58,449			81,228
(Loss) gain on extinguishment of debt					(1,204	)		2,433			—			—			—
Charge for impaired investments					—			—			—			(32,158	)		(22,314	)
Debt conversion expenses					—			—			—			—			(3,894	)
Income (loss) before taxes					(239,439	)		(242,898	)		(185,324	)		(219,716	)		(117,152	)
Provision for income taxes					—			—			—			—			—
Net income (loss)				$	(239,439	)	$	(242,898	)	$	(185,324	)	$	(219,716	)	$	(117,152	)

32

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA, CONTINUED

	Years Ended December 31,
	2005			2004			2003			2002			2001
	(In thousands, except per share and ratio data)
Statement of Operations Data (continued):
Net income (loss) per share, basic and diluted (1)	$	(1.83	)	$	(1.87	)	$	(1.44	)	$	(1.71	)	$	(0.92	)
Other Data:
Ratio of earnings to fixed charges		—			—			—			—			—
Coverage deficiency (1)	$	(239,439	)	$	(242,898	)	$	(185,324	)	$	(219,716	)	$	(117,152	)

	As of December 31,
	2005			2004			2003			2002			2001
	(In thousands, except per share and ratio data)
Balance Sheet Data:
Cash, cash equivalents, short-term investments, marketable securities and restricted investments (2)	$	646,220		$	952,686		$	1,262,458		$	1,491,740		$	1,689,311
Total assets (3)		997,046			1,249,385			1,466,204			1,662,187			1,865,004
Total debt and capital lease, less current portion (3)		510,000			505,131			503,664			503,281			503,970
Accumulated deficit		(1,369,208	)		(1,129,769	)		(886,871	)		(701,547	)		(481,831	)
Total stockholders’ equity		416,966			656,047			903,333			1,100,553			1,304,463

(1)	For 2005, amounts include a loss on extinguishment of debt of $1,204, or less than $0.01 per share. For 2004, amounts include a net charge of $12,975, or $0.10 per share, arising from a charge for restructuring of $15,408, or $0.12 per share, that is partially offset by a gain on extinguishment of debt of $2,433, or $0.02 per share. For 2002, amounts include charges aggregating $46,396, or $0.36 per share, arising from a charge for an impaired investment and a charge for construction design changes of $32,158, or $0.25 per share, and $14,238, or $0.11 per share, respectively. For 2001, amounts include charges aggregating $26,208, or $0.20 per share, arising from a charge for an impaired investment and debt conversion expenses of $22,314, or $0.17 per share, and $3,894, or $0.03 per share, respectively.
(2)	“Cash, cash equivalents, short-term investments, marketable securities and restricted investments” for 2005, 2004, 2003, 2002 and 2001 includes $220,171, $215,236, $280,776, $205,352 and $144,901, respectively, of restricted investments relating to certain operating leases.
(3)	“Total assets” for 2005, 2004, 2003, 2002 and 2001 includes $220,171, $215,236, $280,776, $205,352 and $144,901, respectively, of restricted investments relating to certain operating leases. “Total debt and capital lease, less current portion” for 2005, 2004, 2003 and 2002 does not include any operating lease obligations under various facility and equipment lease arrangements. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” for additional discussion.

33

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

      Human Genome Sciences is a biopharmaceutical company with a pipeline of novel protein and antibody drugs directed toward large markets that have significant unmet medical needs. Our mission is to discover, develop, manufacture and market innovative drugs that serve patients with unmet medical needs, with a primary focus on protein and antibody products.

      We are conducting clinical trials with a number of our products. Our current focus is to advance clinical trials in two main therapeutic areas: immunology/ infectious disease and oncology. Additional products are in clinical development by companies with which we are collaborating or have out-licensed development rights.

      We have developed and continue to enhance the resources necessary to achieve our goal of becoming a fully integrated global biopharmaceutical company. We have expanded our manufacturing facilities to allow us to produce larger quantities of therapeutic protein and antibody drugs for clinical development. We have completed construction and are beginning the validation phase of a large-scale manufacturing facility to increase our capacity for therapeutic protein and antibody drug production. We anticipate placing the facility into operational service in the second half of 2006. We are strengthening our commercial operations staff, and our intent is to add marketing and sales staff as needed as our products approach commercialization.

      We have relationships with a number of leading pharmaceutical and biotechnology companies to leverage our strengths and to gain access to complementary technologies and sales and marketing infrastructure. Some of these partnerships provide us, and have provided us, with research funding, licensing fees, milestone payments and royalty payments as products are developed and commercialized. In some cases, we also are entitled to certain commercialization, co-development, revenue sharing and other product rights.

      We have not received any significant product sales revenue or royalties from product sales and any significant revenue from product sales or from royalties on product sales in the next several years is uncertain. To date, all of our revenue relates to payments made under our collaboration agreements with GlaxoSmithKline (“GSK”) and, to a lesser extent, other agreements. In the third quarter of 2005, GSK exercised its option to co-develop and co-commercialize two of our products, LymphoStat-B and HGS-ETR1. Under the terms of a 1996 agreement, we and GSK will share equally in Phase 3 and 4 development costs, and will share equally in sales and marketing expenses and profits of any product that is commercialized, under a co-development and commercialization agreement, the remaining terms of which are being negotiated by the parties. We may not receive any future payments and may not be able to enter into additional collaboration agreements.

      We have entered into a two-phase contract to supply ABthrax^tm, a human monoclonal antibody developed for use in the treatment of anthrax disease, with the U.S. Government. Under the first phase of the contract, we have supplied ten grams of ABthrax to the U.S. Department of Health and Human Services (“HHS”) for comparative in vitro and in vivo testing. Under the second phase of the contract, the U.S. Government has the option to place an order by September 2006 for up to 100,000 doses of ABthrax for the Strategic National Stockpile, for use in the treatment of anthrax disease. The HHS comparative testing results, along with our own preclinical and clinical study results, will form the basis of the U.S. Government’s decision process for exercising its option for product for the Strategic National Stockpile. We do not know whether the U.S. Government will purchase ABthrax, and if it does, the timing, extent and amount of such purchases.

      We expect that any significant revenue or income for at least the next several years may be limited to investment income, payments under various collaboration agreements to the extent milestones are met, payments from the sale of product rights and other payments from other collaborators and licensees under existing or future arrangements, to the extent that we enter into any future arrangements. We expect to continue to incur substantial expenses relating to our research and development efforts, as we focus on clinical trials required for the development of antibody and protein product candidates. As a result, we expect to incur continued and significant losses over the next several years unless we are able to realize additional revenues

34

Overview (continued)

under existing or new agreements. The timing and amounts of such revenues, if any, cannot be predicted with certainty and will likely fluctuate sharply. Results of operations for any period may be unrelated to the results of operations for any other period. In addition, historical results should not be viewed as indicative of future operating results.

Critical Accounting Policies and the Use of Estimates

      A “critical accounting policy” is one that is both important to the portrayal of our financial condition and results of operations and that requires management’s most difficult, subjective or complex judgments. Such judgments are often the result of a need to make estimates about the effect of matters that are inherently uncertain. The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. See Note B of the Notes to our Consolidated Financial Statements for further discussion.

      We currently believe the following accounting policies to be critical:

      Investments. We account for investments in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 115, Accounting for Certain Investments in Debt and Equity Securities. We carry our investments at their respective fair values. We periodically evaluate the fair values of our investments to determine whether any declines in the fair value of investments represent an other-than-temporary impairment. This evaluation consists of a review of several factors, including but not limited to the length of time and extent that a security has been in an unrealized loss position, the existence of an event that would impair the issuer’s future repayment potential, the near term prospects for recovery of the market value of a security and our intent and ability to hold the security until the market values recover, which may be maturity. If management determines that such an impairment exists we would recognize an impairment charge. Because we may determine that market or business conditions may lead us to sell a short-term investment or marketable security prior to maturity, we classify our short-term investments and marketable securities as “available-for-sale.” Investments in securities that are classified as available-for-sale and have readily determinable fair values are measured at fair market value in the balance sheets, and unrealized holding gains and losses for these investments are reported as a separate component of stockholders’ equity until realized. If we held investments that were classified as “held-to-maturity” securities, these would be carried at amortized cost rather than at fair market value. If we held investments that were classified as “trading” securities, these would be carried at fair market value, with a corresponding adjustment to earnings for any change in fair market value. We classify those marketable securities that are likely to be used in operations within one year as short-term investments. Those marketable securities in which we have both the intent and ability to hold until maturity and have a maturity date beyond one year from our most recent consolidated balance sheet date are classified as non-current marketable securities.

      Leases. We lease various real properties under operating leases that generally require us to pay taxes, insurance and maintenance. One of our operating leases is commonly referred to as a “synthetic lease.” A synthetic lease is a form of off-balance sheet financing under which an unrelated third party funds 100% of the costs for the acquisition and/or construction of the property and leases the asset to the lessee. Under this lease, we provide a residual value guarantee which guarantees the lessor that the residual value of the leased asset will be at least equal to a specified amount at lease termination. We have determined that the entity that owns the property has sufficient substance such that it can be treated as an unrelated entity to us and, accordingly, does not require consolidation into our financial statements. Further, we have determined that the terms of the property lease qualify it as an operating lease under generally accepted accounting principles. Accordingly, this synthetic lease is treated as an operating lease for accounting purposes. Changes in the equity participation of the third parties or our obligation under the agreement could affect the classification of this lease from

35

Critical Accounting Policies and the Use of Estimates (continued)

operating to capital. In that event, we would include both the cost and debt associated with the property on our consolidated balance sheet.

      Revenue. We recognize revenue from non-refundable up-front license fees where we have continuing involvement to provide access to our technology ratably over the period of obligation in accordance with the guidance provided in the SEC’s Staff Accounting Bulletin No. 104, Revenue Recognition, (“SAB 104”). Revenue associated with performance milestones is recognized based upon the achievement of the milestones, as defined in the respective agreements. Our revenues with Transgene, S.A. (“Transgene”) are being recognized on a straight-line basis over the shorter of the ten-year term of the agreement or prorated upon the selection of genes by Transgene. Our up-front license fee with GlaxoSmithKline (“GSK”) in connection with our Albugon product (“GSK Albugon Agreement”) is being recognized ratably over the estimated seven-year clinical development period. Our other revenues in 2005 have been recognized in full upon receipt as we have no continuing obligation. To date, revenue associated with performance milestones has been recognized upon achievement of the milestones, as defined in the applicable agreement.

      Research and Development. Research and development expenses primarily include related salaries, outside services, materials and supplies, and allocated facility costs. Such costs are charged to research and development expense as incurred. Our drug development expenses include accruals for clinical site and clinical research organization (“CRO”) costs. Estimates of the incurred to date but not yet received invoices must be made for clinical site and CRO costs in determining the accrued balance in any accounting period. Actual results could differ from those estimates under different assumptions.

      Stock Compensation. We have stock option plans under which options to purchase shares of our common stock may be granted to employees, consultants and directors at a price no less than the fair market value on the date of grant. We account for grants to employees in accordance with the provisions of APB No. 25, Accounting for Stock Issued to Employees (“APB No. 25”). Under APB No. 25, compensation expense is based on the difference, if any, on the date of the grant between the fair value of our stock and the exercise price of the option and is recognized ratably over the vesting period of the option. Because our options must be granted with an exercise price no less than the quoted market value of our common stock at the date of grant, we recognize no stock compensation expense at the time of the grant in accordance with APB No. 25. In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”), which is a revision of Statement No. 123, Accounting for Stock-Based Compensation. In April 2005, the Securities and Exchange Commission adopted a rule that amended the adoption dates for SFAS 123(R), allowing us to implement SFAS 123(R) at the beginning of our next fiscal year, or January 1, 2006. The SEC rule does not otherwise change the accounting required by SFAS 123(R). Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. In accordance with Statement 123(R), we will begin recording compensation expense for all option awards beginning January 1, 2006 under the modified prospective method. We have provided pro forma disclosures in the notes to our consolidated financial statements of our net loss and net loss per share as if we used the fair value method under FAS 123. The amount of compensation expense recognized using the fair value method requires us to exercise judgment and make assumptions relating to the factors that determine the fair value of our stock option grants. We use the Black-Scholes-Merton model to estimate the fair value of our option grants. The fair value calculated by this model is a function of several factors, including grant price, the risk-free interest rate, the estimated term of the option and the estimated future volatility of the option. In the event any of these inputs increases from 2005 levels, the fair value of new stock options on a per share basis will increase. The estimated term and estimated future volatility of the option require our judgment. The aggregate stock option expense to be recognized in 2006 and beyond is a function of the fair value associated with the vesting of existing grants as well as the new grants. This aggregate option expense may increase or decrease depending upon the quantity of options vesting and their relative fair value, net of option cancellations.

36

Critical Accounting Policies and the Use of Estimates (continued)

      Use of Estimates. In 2004, we engaged in restructuring actions and activities associated with expense reduction measures and operational improvement initiatives, which required us to make significant estimates in several areas including severance and other employee separation costs, the realizable values of assets deemed redundant or excess and the ability to generate sublease income which involves judgment as to our ability to terminate lease obligations at the amounts we have estimated. At December 31, 2004, the restructuring liability of $10.5 million represented our best estimate of the obligations we expected to incur in connection with these actions, but was subject to change due to various factors including market conditions and the outcome of negotiations with third parties. Most of the transactions with respect to the 2004 restructuring have been completed and settled at amounts that approximated their estimates. Should the remaining restructuring liability of $6.4 million as of December 31, 2005 differ from our estimates, the amount of restructuring charges could be materially impacted.

Results of Operations

Years Ended December 31, 2005 and 2004

      Revenues. We had revenues of $19.1 million and $3.8 million for the years ended December 31, 2005 and December 31, 2004, respectively. The 2005 revenues consisted primarily of the recognition of $12.0 million of milestone payments from GSK related to the Company’s October 2004 outlicensing agreement for GSK716155 (Albugon^tm) and the recognition of $2.6 million from our collaboration with Transgene. The 2004 revenues consisted primarily of the recognition of $2.6 million from Transgene and a $1.0 million milestone payment from GSK relating to our 1996 agreement with GSK (“1996 GSK Agreement”).

      Expenses. Research and development expenses increased to $228.7 million for the year ended December 31, 2005 from $219.5 million for the year ended December 31, 2004. We track our research and development expenditures by type of cost incurred — research, pharmaceutical sciences, manufacturing and clinical development costs.

      Our research costs increased to $35.4 million for the year ended December 31, 2005 from $28.2 million for the year ended December 31, 2004. This increase is due to a greater level of activity, including toxicology and assay development, for HGS-ETR2, LymphoStat-B and other drug candidates, and costs incurred by the CoGenesys division.

      Our pharmaceutical sciences costs, where we focus on improving formulation, process development and production methods, decreased to $37.8 million for the year ended December 31, 2005 from $49.9 million for the year ended December 31, 2004. This decrease is due primarily to the decline in activity for LymphoStat-B, HGS-TR2J and HGS-ETR1, partially offset by increased activity for Albuferon™.

      Our manufacturing costs decreased to $72.4 million for the year ended December 31, 2005 from $82.5 million for the year ended December 31, 2004. This decrease is primarily due to the decrease in production of LymphoStat-B and HGS-TR2J, partially offset by the production of HGS-ETR2, Albuferon and other products.

      Our clinical development costs increased to $83.1 million for the year ended December 31, 2005 from $58.9 million for the year ended December 31, 2004. This increase is primarily due to the cost of increased activity for Albuferon, including the cost of initiating a significant new clinical trial.

      The research and development expenditures noted above are categorized by functional area. We evaluate and prioritize our activities according to functional area, rather than on a per-project basis. For this reason, we do not maintain a formal accounting system that captures or allocates all costs, both direct and indirect, on a per-project basis. Therefore, we do not believe that our available project-by-project information would form a reasonable basis for disclosure to investors.

      The charge for restructuring of $15.4 million for the year ended December 31, 2004 related to our first quarter of 2004 decision to sharpen our focus on our most promising drug candidates. In order to reduce

37

Results of Operations (continued)

Years Ended December 31, 2005 and 2004 (continued)

significantly future expenses, and thus enable us to dedicate more resources to the most promising drugs, we reduced staff, streamlined operations and consolidated facilities. The charge consisted of $7.7 million for the consolidation of facilities, $5.2 million related to the retirement of our former Chairman and CEO and $2.5 million for employee severance benefits. See Note M of the Notes to the Consolidated Financial Statements for additional discussion.

      General and administrative expenses increased to $42.1 million for the year ended December 31, 2005 from $35.7 million for the year ended December 31, 2004. This increase is primarily due to consulting costs relating to a review of our pipeline and commercialization strategies conducted during 2005 and separation costs associated with the departure of a senior executive, aggregating $4.9 million.

      Investment income decreased to $25.5 million for the year ended December 31, 2005 from $40.6 million for the year ended December 31, 2004, due to lower average cash, short-term investment and marketable security balances and reduced yield due to declining interest rates in our portfolio. Investment income also includes realized net losses on our short-term investments, marketable securities and restricted investments of $2.2 million and a realized net gain of $1.3 million relating to the sale of our equity investment in Transgene for 2005. This compares to a net realized gain of $4.6 million along with a realized net gain of approximately $0.2 million relating to sale of our equity investments in Ciphergen Biosystems, Inc. (“Ciphergen”), Cambridge Antibody Technology Ltd. (“CAT”) and Transgene during 2004. See Note C of the Notes to Consolidated Financial Statements for additional discussion. The yield on our investments was 3.0% for the year ended December 31, 2005, as compared to 3.7% for the year ended December 31, 2004. Our average cash balance decreased during 2005 as a result of our net loss and capital expenditures in 2005. We believe investment income will continue to be lower than the prior year as cash and investment balances are likely to be lower in 2006 than 2005.

      Interest expense decreased for the year ended December 31, 2005 compared to the year ended December 31, 2004, primarily due to the replacement of existing debt with more favorable interest-bearing notes in 2004 and 2005. Assuming the cost of the manufacturing facility reaches approximately $233.0 million when validation is complete in the second half of 2006, total capitalized interest for all years could approximate $12.9 million at the time the facility is placed in service. Interest expense, before capitalized interest, was $17.8 million and $22.9 million for the years ended December 31, 2005 and 2004, respectively.

      In 2005 we completed the private placement of $230.0 million of 2¹/4% subordinated convertible notes. We used the net proceeds to repurchase an aggregate principal amount of $221.7 million of 5% and 3³/4% notes for an aggregate purchase price of approximately $221.5 million as of December 31, 2005. In 2005, we recorded a loss on the extinguishment of this debt of $1.2 million, including unamortized debt issuance costs associated with the repurchased debt.

      In 2004, we completed the private placement of $280.0 million of subordinated convertible notes. We used the net proceeds to repurchase an aggregate principal amount of $278.2 million of notes for an aggregate purchase price of $272.9 million. In 2004, we recorded a gain on the extinguishment of this debt of $2.4 million, net of unamortized debt issuance costs associated with the repurchased debt.

      As a result of the issuance of new notes at a lower interest rate, and the repurchase of higher rate notes, we believe interest expense will be approximately $6.4 million lower in 2006 than in 2005, excluding the impact of capitalized interest.

      Net Income (Loss). We recorded a net loss of $239.4 million, or $1.83 per share, for the year ended December 31, 2005, compared to a net loss of $242.9 million, or $1.87 per share, for the year ended December 31, 2004. The decreased loss for 2005 compared to 2004 reflects increased revenues and the absence of restructuring charges, partially offset by increased operating expenses and reduced net investment income. The increased operating expenses for 2005 primarily include an increase in clinical development costs

38

Results of Operations (continued)

Years Ended December 31, 2005 and 2004 (continued)

and a non-cash stock option modification charge of $7.0 million related to the departure of two senior executives, partially offset by decreases in other areas.

Years Ended December 31, 2004 and 2003

      Revenues. We had revenues of $3.8 million and $8.2 million for the years ended December 31, 2004 and December 31, 2003, respectively. The 2004 revenues consisted primarily of the recognition of $2.6 million from our collaboration with Transgene and a $1.0 million milestone payment from GSK relating to our 1996 agreement. We also recognized $0.2 million of the $5.0 million up-front license fee from GSK relating to the GSK Albugon agreement. The 2003 revenues consisted of the recognition of an aggregate of $4.6 million in revenue received from Pfizer, Inc. (“Pfizer”), Genentech and MedImmune, Inc. (“MedImmune”); $2.6 million recognized from our collaboration with Transgene; and a $1.0 million milestone payment from GSK under the 1996 GSK Agreement.

      Expenses. Research and development expenses increased to $219.5 million for the year ended December 31, 2004, from $191.5 million for the year ended December 31, 2003. We track our research and development expenditures by type of cost incurred — research, drug development, manufacturing and clinical development costs.

      Our research costs decreased to $28.2 million for the year ended December 31, 2004 from $34.3 million for the year ended December 31, 2003. This decrease is due primarily to reduced general research activity and staff in the study of preclinical therapeutic protein and antibody drug candidates.

      Our drug development costs, where we evaluate ways to develop or improve our product candidates and production processes, decreased to $49.9 million for the year ended December 31, 2004 from $56.5 million for the year ended December 31, 2003. This decrease is due primarily to decreased process development activities for ABthrax and other projects, partially offset by increased activity for LymphoStat-B.

      Our manufacturing costs increased to $82.5 million for the year ended December 31, 2004 from $60.0 million for the year ended December 31, 2003. This increase is due primarily to the increased production activities for HGS-TR2J and payments made to a third-party manufacturer to provide materials in support of our increased LymphoStat-B clinical activities.

      Our clinical development costs increased to $58.9 million for the year ended December 31, 2004 from $40.7 million for the year ended December 31, 2003. This increase is due primarily to the cost of continuing ongoing trials from 2003 for LymphoStat-B as well as initiating new trials in 2004.

      The research and development expenditures noted above are categorized by functional area. We evaluate and prioritize our activities according to functional area, rather than on a per-project basis. For this reason, we do not maintain a formal accounting system that captures or allocates all costs, both direct and indirect, on a per-project basis. Therefore, we do not believe that our available project-by-project information would form a reasonable basis for disclosure to investors.

      The charge for restructuring of $15.4 million for the year ended December 31, 2004 related to our first quarter of 2004 decision to sharpen our focus on our most promising drug candidates. In order to reduce significantly future expenses, and thus enable us to dedicate more resources to the most promising drugs, we reduced staff, streamlined operations and consolidated facilities. The charge consisted of $7.7 million for the consolidation of facilities, $5.2 million related to the retirement of our former Chairman and CEO and $2.5 million for employee severance benefits. See Note M of the Notes to the Consolidated Financial Statements for additional discussion.

      General and administrative expenses decreased to $35.7 million for the year ended December 31, 2004 from $43.6 million for the year ended December 31, 2003. This decrease is due primarily to lower facility costs achieved through the consolidation of space and reduced marketing research costs.

39

Results of Operations (continued)

       Years Ended December 31, 2004 and 2003 (continued)

      Investment income decreased to $40.6 million for the year ended December 31, 2004 from $64.3 million for the year ended December 31, 2003, due to lower average cash and investment balances and reduced yield due to declining interest rates in our portfolio. Investment income also includes realized net gains on our short-term investments and restricted investments of $4.6 million and $8.7 million for 2004 and 2003, respectively, along with a realized net gain of approximately $0.2 million relating to sale of our equity investments in Ciphergen Biosystems, Inc. (“Ciphergen”), Cambridge Antibody Technology Ltd. (“CAT”) and Transgene during 2004. Investment income also includes a realized gain of approximately $1.1 million on the sale of a portion of our equity investment in Ciphergen during 2003. See Note C of the Notes to Consolidated Financial Statements for additional discussion. The yield on our investments was 3.7% for the year ended December 31, 2004, as compared to 4.6% for the year ended December 31, 2003. Our average cash balance decreased during 2004 as a result of our net loss and capital expenditures in 2004.

      Interest expense decreased for the year ended December 31, 2004 compared to the year ended December 31, 2003, primarily due to $3.8 million and $1.0 million, respectively, of interest capitalized on the construction of the large-scale manufacturing facility. Total interest expense, before capitalized interest, was $22.9 million and $23.7 million for the years ended December 31, 2004 and 2003, respectively. In October 2004, a significant portion of our subordinated convertible notes was repurchased following the issuance of new subordinated convertible notes bearing a lower interest rate.

      In 2004, we completed the private placement of $280.0 million of convertible subordinated notes. We used the net proceeds to repurchase an aggregate principal amount of $278.2 million of notes for an aggregate purchase price of $272.9 million. In 2004, we recorded a gain on the extinguishment of this debt of $2.4 million, net of unamortized debt issuance costs associated with the repurchased debt.

      Net Income (Loss). We recorded a net loss of $242.9 million, or $1.87 per share, for the year ended December 31, 2004, compared to a net loss of $185.3 million, or $1.44 per share, for the year ended December 31, 2003. The increased loss for 2004 compared to 2003 reflects an increase in direct research and development expenditures, a decrease in net investment income, and a charge for restructuring, partially offset by a decrease in general and administrative expenses and a gain on extinguishment of debt.

Liquidity and Capital Resources

      We had working capital of $128.9 million at December 31, 2005 as compared to $670.1 million at December 31, 2004. The decrease in working capital is primarily due to our net loss, our capital expenditures, most of which related to construction phase costs of our large-scale manufacturing facility and the reclassification of $243.8 million of marketable securities not needed for current operations to non-current assets based on our assessment of our ability and intent to hold these investments until a recovery of fair value, which may be to maturity. See Notes B and C of the Notes to the Consolidated Financial Statements for additional discussion.

      We expect to continue to incur substantial expenses relating to our research and development efforts, which may increase relative to historical levels as we focus on manufacturing and clinical trials required for the development of our active product candidates. We may improve our working capital position during 2006 through the receipt of collaboration fees, transfer of securities between our unrestricted and restricted investments as well as financing or refinancing of our facilities. In the event our working capital needs for 2006 exceed our available working capital, after these or other initiatives, we can utilize our non-current marketable securities, which are classified as “available-for-sale”. We will be evaluating our working capital position on a continual basis.

      The amounts of expenditures that will be needed to carry out our business plan are subject to numerous uncertainties, which may adversely affect our liquidity and capital resources. We have several Phase 1 and Phase 2 trials under way and expect to initiate additional trials, including Phase 3 trials, in the future. Completion of these trials may extend several years or more, but the length of time generally varies

40

Liquidity and Capital Resources (continued)

considerably according to the type, complexity, novelty and intended use of the drug candidate. We estimate that the typical completion periods for our Phase 1, Phase 2 and Phase 3 trials could span one year, one to two years and two to four years, respectively. Some trials may take considerably longer to complete.

      The duration and cost of our clinical trials are a function of numerous factors such as the number of patients to be enrolled in the trial, the amount of time it takes to enroll them, the length of time they must be treated and observed, and the number of clinical sites and countries for the trial.

      Our clinical development expenses are impacted by the clinical phase of our drug candidates. Our expenses increase as our drug candidates move to later phases of clinical development. The status of our clinical projects is as follows:

		Clinical Trial Status as of December 31,(2)
Product Candidate(1)	Indication	2005	2004	2003
ACTIVE CANDIDATES:
Antibodies:
LymphoStat-B	Rheumatoid Arthritis	Phase 2 (3)	Phase 2	Phase 2
LymphoStat-B	Systemic Lupus
	Erythematosus	Phase 2 (4)	Phase 2	Phase 2
HGS-ETR1	Cancer	Phase 2	Phase 2	Phase 1
HGS-ETR2	Cancer	Phase 1	Phase 1	Phase 1
HGS-TR2J	Cancer	Phase 1	Phase 1	—
CCR5 mAb	HIV	Phase 1	—	—
ABthrax	Anthrax	(5)	(5)	Phase 1
Albumin Fusion Proteins:
Albuferon	Hepatitis C	Phase 2	Phase 2	Phase 1
INACTIVE CANDIDATES:
Therapeuticproteins:
BlyS	Immunodeficiency	(6)	(6)	Phase 1
Mirostipen	Cancer	(6)	(6)	Phase 2
Repifermin	Mucositis	(6)	(6)	Phase 2
Repifermin	Wound Healing	(6)	(6)	Phase 2
Albumin Fusion Proteins:
Albuleukin	Cancer	(6)	(6)	Phase 1
Other:
LymphoRad131	Cancer	(7)	Phase 1	Phase 1

(1)	Includes only those candidates for which an Investigational New Drug (“IND”) application has been filed with the FDA.
(2)	Clinical Trial Status defined as when patients are being dosed.
(3)	Initial Phase 2 trial completed; extension safety study ongoing.
(4)	Initial Phase 2 trial completed; extension safety study ongoing; Phase 3 planning under way.
(5)	U.S. Government has executed the first phase of the contract in which we supplied ten grams of ABthrax to the U.S. Department of Health and Human Services (HHS) for comparative in vitro and in vivo testing. Under the second phase of the contract, the U. S. Government has the option to place an order by September 2006 for up to 100,000 doses of ABthrax. Further clinical development pending and dependent on the U.S. Government.
(6)	Clinical development discontinued in 2004 or prior.
(7)	Clinical development discontinued in 2005.

41

Liquidity and Capital Resources (continued)

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

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

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

      In addition, part of our business plan includes collaborating with others. For example, GSK is developing products as part of our collaboration or licensing with them. We have no control over the progress of GSK’s development plans. While we have received an aggregate of $14.0 million from GSK in connection with development milestones met by GSK during 2005, 2004 and 2003 relating to our 1996 GSK Agreement, we cannot forecast with any degree of certainty the likelihood of receiving future milestone or royalty payments under these agreements. We cannot forecast with any degree of certainty what impact GSK’s decision to jointly develop and commercialize LymphoStat-B and HGS-ETR1 will have on our development costs, in part because joint development agreements must first be concluded. We also cannot forecast with any degree of certainty whether any of our current or future collaborations will affect our drug development efforts and therefore, our capital and liquidity requirements.

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

      Our future capital requirements and the adequacy of our available funds will depend on many factors, primarily including the scope and costs of our clinical development programs, the scope and costs of our manufacturing and process development activities and the magnitude of our discovery program. There can be no assurance that any additional financing required in the future will be available on acceptable terms, if at all.

      Depending upon market and interest rate conditions, we are exploring, and, from time to time, may take actions to strengthen further our financial position. In this regard, in the third quarter of 2005, we issued $230.0 million of 2¹/4% Convertible Subordinated Notes due 2012 and we repurchased $221.7 million in face value of Convertible Subordinated Notes due 2007.

      We may further modify our lease financings and may restructure some or all of our outstanding convertible debt instruments in the future depending upon market and other conditions.

      We have certain contractual obligations, including one which is not recorded on our balance sheets, which may have a future effect on our financial condition, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources that is material to investors. See “Off-Balance Sheet Arrangements” below for additional discussion. Our operating leases, along with our unconditional purchase obligations, are not recorded on our balance sheets.

42

Liquidity and Capital Resources (continued)

      These contractual obligations as of December 31, 2005 are summarized as follows:

	Payments Due by Period (dollars in millions)
			One year		Two to		Four to		After
Contractual Obligations	Total		or less		three years		five years		five years
Long-term debt (1)	$	513.1	$	3.1	$	—	$	—	$	510.0
Capital lease obligation		0.3		0.3		—		—		—
Operating leases		106.7		17.0		30.9		11.9		46.9
Rental obligation for facility lease with residual value guarantee (2) (3)		39.3		8.9		17.8		12.6		—
Unconditional purchase obligations (4)		9.9		9.9		—		—		—
Other long-term liabilities reflected on our balance sheets (5)		—		—		—		—		—
Total contractual cash obligations (6)	$	669.3	$	39.2	$	48.7	$	24.5	$	556.9

(1)	Contractual interest obligations related to long-term debt not included above total $47,908 as of December 31, 2005. Contractual interest obligations of $11,561, $11,475, $11,475 and $13,397 are due in one year or less, two to three years, four to five years and after five years, respectively.
(2)	Certain of our current or future lease payments are based upon currently applicable interest rates. See additional discussion of this facility lease below.
(3)	One of our operating leases contains a residual value guarantee described below.
(4)	Our unconditional purchase obligations relate primarily to commitments for capital expenditures, consisting primarily of manufacturing space build-out and equipment. The amounts include approximately $8.0 million associated with the completion of construction and validation of our construction of our large-scale manufacturing facility.
(5)	Because we cannot forecast with any degree of certainty whether any of our current collaborations will require us to make future milestone or royalty payments, we have excluded these amounts from the above table.
(6)	For additional discussion of our debt obligations, including any “make-whole” premiums and lease commitments, see Notes H and I of the Notes to the Consolidated Financial Statements.

      As of December 31, 2005, we had net operating loss carry forwards for federal income tax purposes of approximately $1.3 billion, which expire, if unused, by the year 2025. We also have available research and development tax credit and other tax credit carry forwards of approximately $52.3 million, the majority of which will expire, if unused, by the year 2025.

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

Off-Balance Sheet Arrangements

      As of December 31, 2005, we have one lease agreement for a research and development and administrative facility (the “Traville lease”) which has been structured as a synthetic lease and is accounted for as an operating lease. This structure provides us with cost-effective financing and future financing flexibility. None of our directors, officers or employees has any financial interest with regard to this lease arrangement.

      The Traville lease has a term of approximately seven years beginning in 2003 and relates to a research and development and administrative facility located on the Traville site in Rockville, Maryland. The total financed cost of the Traville lease facility is $200.0 million. Our rent obligation approximates the lessor’s debt

43

Off-Balance Sheet Arrangements (continued)

service costs plus a return on the lessor’s equity investment. The rent under this lease is currently based on the rate for short-term commercial paper, but the lessor can lock in a fixed interest rate at any time at our request. To the extent the lessor does not lock in a fixed interest rate, if interest rates increase, our rent obligations would also increase. If interest rates decrease, our rent obligations would decrease. The current floating rate was approximately 4.2% as of December 31, 2005.

      Our restricted investments with respect to the Traville lease and other leases for the existing process development and manufacturing facility are expected to reach approximately $219.0 million. These restricted investments will serve as collateral for the duration of the leases. We are required to restrict investments for the duration of the lease equal to 102% of the full amount of the $200.0 million financed project cost for the Traville lease, or $204.0 million. Also, in connection with the Traville lease, we must maintain minimum levels of unrestricted cash, cash equivalents and marketable securities and certain debt ratios. In addition, we are required to maintain up to a maximum of $15.0 million in restricted investments with respect to the process development and manufacturing facility leases. Our restricted investments for all of these leases aggregated $220.2 million as of December 31, 2005 compared to $215.2 million as of December 31, 2004. The increase in restricted investments is due to interest earned on the principal balance of restricted investments.

      Under the Traville lease, we have the option to purchase the property during and at the end of the lease term for approximately $200.0 million. Alternatively, we can cause the property to be sold to third parties. We are contingently liable for the residual value guarantee associated with this property in the event the net sale proceeds are less than the original financed cost of the facility. We are contingently liable for the residual value guarantee associated with the Traville lease of approximately $175.5 million. See Note I of the Notes to the Consolidated Financial Statements for additional discussion.

      We have entered into various equipment leases with rental payments aggregating $59.3 million over the lease terms which range from five to seven years. We must either purchase the equipment at the end of the initial term at the greater of fair market value or 20% of original cost or, in some cases, extend the term of the lease for an additional year. We have accounted for these leases as operating leases. Minimum annual rentals are approximately $9.1 million.

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

      Certain statements contained in “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The forward-looking statements are based on our current intent, belief and expectations. These statements are not guarantees of future performance and are subject to certain risks and uncertainties that are difficult to predict. Actual results may differ materially from these forward-looking statements because of our unproven business model, our dependence on new technologies, the uncertainty and timing of clinical trials, our ability to develop and commercialize products, our dependence on collaborators for services and revenue, our substantial indebtedness and lease obligations, our changing requirements and costs associated with planned facilities, intense competition, the uncertainty of patent and intellectual property protection, our dependence on key management and key suppliers, the uncertainty of regulation of products, the impact of future alliances or transactions and other risks described in this filing and our other filings with the Securities and Exchange Commission. Existing and prospective investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today’s date. We undertake no obligation to update or revise the information contained in this announcement whether as a result of new information, future events or circumstances or otherwise.

44

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      We do not have operations of a material nature that are subject to risks of foreign currency fluctuations, nor do we use derivative financial instruments in our operations or investment portfolio. Our investment portfolio may be comprised of low-risk U.S. Treasuries, government agency obligations, high-grade debt having at least an “A” rating and various money market instruments. The short-term nature of these securities, which currently have an average term of approximately 17 months, significantly decreases the risk of a material loss caused by a market change. We believe that a hypothetical 100 basis point adverse move (increase) in interest rates along the entire interest rate yield curve would adversely affect the fair value of our cash, cash equivalents, short-term investments, marketable securities and restricted investments by approximately $9.0 million, or approximately 1.4% of the aggregate fair value of $646.2 million, at December 31, 2005. For these reasons, and because these securities are generally held to maturity, we believe we do not have significant exposure to market risks associated with changes in interest rates related to our debt securities held as of December 31, 2005. We believe that any market change related to our investment securities held as of December 31, 2005 is not material to our consolidated financial statements. As of December 31, 2005, the yield on comparable two-year investments was approximately 4.4%, as compared to our current portfolio yield of approximately 3.4%. However, given the short-term nature of these securities, a general decline in interest rates will adversely affect the interest earned from our portfolio as securities mature and are replaced with securities having a lower interest rate.

      As of December 31, 2005, the market values of our equity investments in CAT and Corautus Genetics Inc. (“Corautus”) were approximately $11.9 million and $6.6 million, respectively. Our investment in Corautus is subject to equity market risk. Our investment in CAT is denominated in pounds sterling and is subject to both foreign currency risk as well as equity market risk.

      The facility lease we entered into during 2003 requires us to maintain minimum levels of restricted investments as collateral for this facility. Our restricted investments for this lease were slightly higher than the maximum required level of approximately $204.0 million as of December 31, 2005. Together with the requirement to maintain up to approximately $15.0 million in restricted investments with respect to our process development and manufacturing facility leases, our overall level of restricted investments was approximately $220.2 million at December 31, 2005. Although the market value for these investments may rise or fall as a result of changes in interest rates, we will be required to maintain up to $219.0 of restricted investments in either a rising or declining interest rate environment.

      The rent under the Traville lease is based on a floating interest rate. We can direct the lessor to lock in a fixed interest rate. As of December 31, 2005, such a fixed rate for four years would be approximately 4.9% compared to the floating rate as of December 31, 2005 of approximately 4.2%. If interest rates increase, our rent obligations would also increase, which would result in an increase in our operating expenses.

      Changes in interest rates do not affect interest expense incurred on the Company’s convertible subordinated notes because they bear interest at fixed rates.

      During 2002, we established a wholly-owned subsidiary, Human Genome Sciences Europe GmbH (“HGS Europe”) that is managing our clinical trials and clinical research collaborations in European countries. Although HGS Europe’s activities are denominated primarily in euros, we believe the foreign currency fluctuation risks for 2005 to be immaterial to our operations as a whole. In February 2005, we established a wholly-owned subsidiary, Human Genome Sciences Pacific Pty Ltd. (“HGS Pacific”) that is sponsoring our clinical trials in the AsiaPacific region. We currently do not anticipate HGS Pacific to have any operational activity and therefore we do not believe we will have any foreign currency fluctuation risks for 2006 with respect to HGS Pacific.

45

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The information required by this item is set forth on pages F-1 – F-37.

ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

      None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

      Our management, including our principal executive and principal financial officers, has evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2005. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in this annual report on Form 10-K has been appropriately recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, to allow timely decisions regarding required disclosure. Based on that evaluation, our principal executive and principal financial officers have concluded that our disclosure controls and procedures are effective at the reasonable assurance level.

Changes in Internal Control

      Our management, including our principal executive and principal financial officers, has evaluated any changes in our internal control over financial reporting that occurred during the year ended December 31, 2005, and has concluded that there was no change that occurred during the year ended December 31, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management Report on Internal Control over Financial Reporting

      The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

•  pertain to the management of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

•  provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

•  provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

46

ITEM 9A. CONTROLS AND PROCEDURES (continued)

     Management Report on Internal Control over Financial Reporting (continued)

      The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

      Based on our assessment, management believes that, as of December 31, 2005, the Company’s internal control over financial reporting is effective based on those criteria.

      The Company’s independent auditors have issued an audit report on our assessment of the Company’s internal control over financial reporting which follows herein.

ITEM 9B. OTHER INFORMATION

      None.

47

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Board of Directors and Stockholders
Human Genome Sciences, Inc.
Rockville, Maryland

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

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

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

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

      In our opinion, management’s assessment that Human Genome Sciences, Inc. maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Human Genome Sciences, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the COSO criteria.

      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Human Genome Sciences, Inc. as of December 31, 2005 and 2004, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005 and our report dated March 8, 2006 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

McLean, Virginia
March 8, 2006

48

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      We incorporate herein by reference the information concerning directors and executive officers in our Notice of Annual Stockholders’ Meeting and Proxy Statement to be filed within 120 days after the end of our fiscal year (the “2006 Proxy Statement”).

ITEM 11. EXECUTIVE COMPENSATION

      We incorporate herein by reference the information concerning executive compensation to be contained in the 2006 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

      We incorporate herein by reference the information concerning security ownership of certain beneficial owners and management to be contained in the 2006 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      We incorporate herein by reference the information concerning the CoGenesys transaction set forth in Note N to our consolidated financial statements. We incorporate herein by reference the information concerning certain other relationships and related transactions to be contained in the 2006 Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      We incorporate herein by reference the information concerning principal accountant fees and services to be contained in the 2006 Proxy Statement.

49

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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

(1) Index to Consolidated Financial Statements

	Page
	Number
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets at December 31, 2005 and 2004		F-3
Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003		F-4
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2005, 2004 and 2003		F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003		F-6
Notes to Consolidated Financial Statements		F-8

(2) Financial Statement Schedules

      Financial statement schedules are omitted because they are not required.

(3) Exhibits

Exhibit No.
	3	.1*	Certificate of Incorporation of the Registrant (Filed as Exhibit 3.1 to the Registrant’s Form 10-K for the fiscal year ended December 31, 1993, Exhibit 3.3 to the Form 10-K for the fiscal year ended December 31, 1997, Exhibit 3.1 to the Form 8-K filed December 16, 1999 and Exhibit 3.1 to the Form 10-Q filed July 31, 2001).
	3	.2*	By-laws of the Registrant (Filed as Exhibit 3.2 to the Registrant’s Form 10-Q filed August 3, 2000).
	4	.1*	Form of Common Stock Certificate (Filed as Exhibit 4.1 to the Registrant’s Form S-3 Registration Statement, as amended (Commission File No. 333-45272), filed September 6, 2000).
	4	.2*	Rights Agreement between the Registrant and American Stock Transfer & Trust Company, as Rights Agent, dated as of May 20, 1998 (Filed as Exhibit 4 to the Registrant’s Form 8-K filed May 28, 1998).
	4	.3*	Indenture dated as of June 25, 1999 between the Registrant and The Bank of New York, as trustee, including the form of 51/2% Convertible Subordinated Notes due 2006 (Filed as Exhibit 4.1 to the Registrant’s Form 8-K filed June 28, 1999).
	4	.4*	Indenture dated as of October 4, 2004 between the Registrant and The Bank of New York, as trustee, including the form of 21/4% Convertible Subordinated Notes due 2011 (Filed as Exhibit 4.1 to the Registrant’s Form 8-K filed October 4, 2004).
	4	.5*	Indenture dated as of August 9, 2005 between the Registrant and The Bank of New York, as trustee, including the form of 21/4% Convertible Subordinated Notes due 2012 (Filed as Exhibit 4.1 to the Registrant’s 8-K filed August 9, 2005).
	4	.6*	Registration Rights Agreement dated as of August 9, 2005 by and among the Registrant and the Initial Purchasers named therein (Filed as Exhibit 4.2 to the Registrant’s Form 8-K filed August 9, 2005).
	10	.1*	Retirement Agreement, dated March 24, 2004, with William A. Haseltine, Ph.D. (Filed as Exhibit 99.3 to the Registrant’s Form 8-K filed March 26, 2004).
	10	.2*	Employment Agreement, dated May 6, 2004, with Craig A. Rosen, Ph.D. (Filed as Exhibit 10.1 to the Registrant’s Form 10-Q filed August 6, 2004).

50

Exhibit No.
	10	.3*	Employment Agreement, dated November 21, 2004, with H. Thomas Watkins (Filed as Exhibit 10.1 to the Registrant’s Form 8-K filed November 23, 2004).
	10	.4*	Form of Executive Agreement, dated December 21, 2004, individually with Steven C. Mayer, James H. Davis, Ph.D., David C. Stump, M.D. and Susan Bateson McKay.
	10	.5*	2000 Stock Incentive Plan, as amended (Filed as Exhibit A to the Registrant’s Definitive Proxy Statement on Schedule 14A filed April 18, 2001 and Annexes A and B to the Registrant’s Definitive Proxy Statement on Schedule 14A filed April 16, 2004).
	10	.6*	Amended and Restated 2000 Employee Stock Purchase Plan dated May 21, 2003 (Filed as Exhibit 10.7 to the Registrant’s Form 10-Q file on August 11, 2003).
	10	.7*	Lease Agreement between Maryland Economic Development Corporation and Human Genome Sciences, Inc., dated December 1, 1997 (Filed as Exhibit 10.67 to the Registrant’s Form 10-K for the fiscal year ended December 31, 1997).
	10	.8*	Lease Agreement between Maryland Economic Development Corporation and Human Genome Sciences, Inc. dated December 1, 1999 (Filed as Exhibit 10.43 to the Registrant’s Form 10-K for the fiscal year ended December 31, 1999).
	10	.9*	Amended and Restated Participation Agreement and Appendix A to the Amended and Restated Participation Agreement between Human Genome Sciences, Inc., Wachovia Development Corporation and the other parties named therein dated June 30, 2003 (Filed as Exhibit 10.2 to the Registrant’s Form 10-Q filed August 11, 2003).
	10	.10*	Amended and Restated Lease Agreement between Wachovia Development Corporation and Human Genome Sciences, Inc. dated June 30, 2003 (Filed as Exhibit 10.3 to the Registrant’s Form 10-Q filed August 11, 2003).
	10	.11*	Amended and Restated Agency Agreement between Wachovia Development Corporation and Human Genome Sciences, Inc. dated June 30, 2003 (Filed as Exhibit 10.4 to the Registrant’s Form 10-Q filed August 11, 2003).
	10	.12*	Amended and Restated Security Agreement between Wachovia Development Corporation and Wachovia Bank, National Association, and accepted and agreed to by Human Genome Sciences, Inc., dated June 30, 2003 (Filed as Exhibit 10.5 to the Registrant’s Form 10-Q filed August 11, 2003).
	10	.13*	Amended and Restated Assignment of Liquid Collateral Agreement between Human Genome Sciences, Inc. and Wachovia Development Corporation dated June 30, 2003 (Filed as Exhibit 10.6 to the Registrant’s Form 10-Q filed August 11, 2003).
	10	.14*	Omnibus Agreement between Maryland Economic Development Corporation, Wells Fargo Bank Northwest, National Association, Human Genome Sciences, Inc., Allfirst Bank, a division of M&T Bank and the other parties named therein dated June 26, 2003 (Filed as Exhibit 10.1 to the Registrant’s Form 10-Q filed August 11, 2003).
	10	.15*	Lease Agreement between Wells Fargo Bank Northwest, National Association as Trustee under Trust Agreement and Human Genome Sciences, Inc. dated October 25, 2001 (Filed as Exhibit 10.22 to the Registrant’s Form 10-K for the fiscal year ended December 31, 2001 and amended by Exhibit 10.15 hereto).
	10	.16*	Cash Collateral Pledge Agreement between Human Genome Sciences, Inc., Allfirst Bank and Allfirst Trust Company National Association dated October 25, 2001 (Filed as Exhibit 10.23 to the Registrant’s Form 10-K for the fiscal year ended December 31, 2001).
	10	.17*	Guarantee by Human Genome Sciences, Inc. as Guarantor in favor of Allfirst Bank, as Agent dated October 25, 2001 (Filed as Exhibit 10.24 to the Registrant’s Form 10-K for the fiscal year ended December 31, 2001 and amended by Exhibit 10.15 hereto).
	10	.18*	Amendment No. 1 dated March 29, 2002 to Lease Agreement between Wells Fargo Bank Northwest, National Association as Trustee under Trust Agreement and Human Genome Sciences, Inc. dated October 25, 2001 (Filed as Exhibit 10.25 to the Registrant’s Form 10-K for the fiscal year ended December 31, 2001).

51

Exhibit No.
	10	.19*	Amendment No. 1 dated March 29, 2002 to Guarantee by Human Genome Sciences, Inc. as Guarantor in favor of Allfirst Bank, as Agent dated October 25, 2001 (Filed as Exhibit 10.26 to the Registrant’s Form 10-K for the fiscal year ended December 31, 2001).
	10	.20*	Form of Restricted Stock Agreement (Filed as Exhibit 10.20 to the Registrant’s Form 10-Q filed August 1, 2005).
	10	.21*	Purchase Agreement dated as of August 4, 2005 by and among the Registrant and the Initial Purchasers named therein (Filed as Exhibit 10.1 to the Registrant’s Form 8-K filed August 9, 2005).
	10	.22**	Asset Purchase Agreement dated as of December 12, 2005 by and between TriGenesys, Inc and the Registrant.
	10	.23	First Amendment to Employment Agreement, dated December 13, 2005, with Craig A. Rosen, Ph.D.
	10	.24	Letter Agreement, dated December 13, 2005, with Steven C. Mayer.
	12	.1	Ratio of Earnings to Fixed Charges.
	21	.1	Subsidiaries.
	23	.1	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
	31i	.1	Rule 13a-14(a) Certification of Principal Executive Officer.
	31i	.2	Rule 13a-14(a) Certification of Principal Financial Officer.
	32	.1	Section 1350 Certification of Chief Executive Officer.
	32	.2	Section 1350 Certification of Chief Financial Officer.

*	Incorporated by reference.
**	Confidential treatment requested for certain portions of this Exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended, which portions are omitted and filed separately with the Securities and Exchange Commission.

52

SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

HUMAN GENOME SCIENCES, INC.

By:  /s/ H. Thomas Watkins
 

     H. Thomas Watkins
     Chief Executive Officer and President

Dated: March 14, 2006

      Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and the dates indicated:

Signature	Title	Date
/s/ H. Thomas Watkins H. Thomas Watkins	Chief Executive Officer, President and Director (Principal Executive Officer)	March 14, 2006
/s/ Barry A. Labinger Barry A. Labinger	Executive Vice President, Chief Commercial Officer and Chief Financial Officer (Principal Financial Officer)	March 14, 2006
/s/ Alan V. Esenstad Alan V. Esenstad	Controller (Principal Accounting Officer)	March 14, 2006
/s/ Argeris N. Karabelas, Ph.D. Argeris N. Karabelas, Ph.D.	Chairman of the Board	March 14, 2006
/s/ Richard J. Danzig Richard J. Danzig	Director	March 14, 2006
/s/ Jürgen Drews, M.D. Jürgen Drews, M.D.	Director	March 14, 2006
/s/ Tuan Ha-Ngoc Tuan Ha-Ngoc	Director	March 14, 2006
/s/ Augustine Lawlor Augustine Lawlor	Director	March 14, 2006
/s/ Max Link, Ph.D. Max Link, Ph.D.	Director	March 14, 2006
/s/ Robert C. Young Robert C. Young, M.D.	Director	March 14, 2006
/s/ William D. Young William D. Young	Director	March 14, 2006

53

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
	Number
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets at December 31, 2005 and 2004		F-3
Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003		F-4
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2005, 2004 and 2003		F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003		F-6
Notes to Consolidated Financial Statements		F-8

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
Human Genome Sciences, Inc.
Rockville, Maryland

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

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

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

      We have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Human Genome Sciences, Inc.’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 8, 2006 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

McLean, Virginia

March 8, 2006

F-2

HUMAN GENOME SCIENCES, INC.

CONSOLIDATED BALANCE SHEETS

			December 31,
			2005			2004
			(dollars in thousands, except
			share and per share amounts)
Assets
Current assets:
	Cash and cash equivalents		$	12,268		$	24,075
	Short-term investments			169,961			713,375
	Prepaid expenses and other current assets			6,088			5,678
		Total current assets		188,317			743,128
Marketable securities				243,820			—
Long-term equity investments				18,493			27,081
Property, plant and equipment (net of accumulated depreciation and amortization)				304,809			243,741
Restricted investments				220,171			215,236
Other assets				21,436			20,199
		TOTAL ASSETS	$	997,046		$	1,249,385
Liabilities and Stockholders’ Equity
Current liabilities:
	Current portion of long-term debt		$	3,120		$	—
	Current portion of capital lease obligation			316			328
	Accounts payable and accrued expenses			38,334			63,127
	Accrued payroll and related taxes			14,330			6,229
	Deferred revenues			3,335			3,309
		Total current liabilities		59,435			72,993
Long-term debt, net of current portion				510,000			504,815
Capital lease obligation, net of current portion				—			316
Deferred revenues, net of current portion				5,900			9,210
Other liabilities				4,745			6,004
		Total liabilities		580,080			593,338
Stockholders’ equity:
	Preferred stock — $0.01 par value; shares authorized — 20,000,000; no shares issued			—			—
	Common stock — $0.01 par value; shares authorized — 400,000,000; shares issued of 131,049,798 and 130,527,029 at December 31, 2005 and 2004, respectively			1,310			1,305
	Additional paid-in capital			1,786,549			1,775,005
	Accumulated other comprehensive (loss) income			(1,685	)		9,506
	Accumulated deficit			(1,369,208	)		(1,129,769	)
		Total stockholders’ equity		416,966			656,047
		TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	997,046		$	1,249,385

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

F-3

HUMAN GENOME SCIENCES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

			Year Ended December 31,
			2005			2004			2003
			(dollars in thousands, except share and per share amounts)
Revenue — research and development contracts			$	19,113		$	3,831		$	8,168
Costs and expenses:
	Research and development			228,717			219,549			191,483
	General and administrative			42,066			35,728			43,608
	Charge for restructuring			—			15,408			—
		Total costs and expenses		270,783			270,685			235,091
Income (loss) from operations				(251,670	)		(266,854	)		(226,923	)
Investment income				25,520			40,553			64,297
Interest expense				(12,085	)		(19,030	)		(22,698	)
(Loss) gain on extinguishment of debt				(1,204	)		2,433			—
Income (loss) before taxes				(239,439	)		(242,898	)		(185,324	)
Provision for income taxes				—			—			—
Net income (loss)			$	(239,439	)	$	(242,898	)	$	(185,324	)
Basic and diluted net income (loss) per share			$	(1.83	)	$	(1.87	)	$	(1.44	)
Weighted average shares of common stock outstanding, basic and diluted				130,772,233			130,041,071			129,112,670

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

F-4

HUMAN GENOME SCIENCES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(dollars in thousands, except share amounts)

								Unearned			Accumulated
						Additional		Portion of			Other
		Common Stock				Paid-In		Compensatory			Comprehensive			Accumulated
		Shares		Amount		Capital		Stock Options			Income (Loss)			Deficit			Total
Balance — December 31, 2002			128,850,551	$	1,289	$	1,757,685	$	(229	)	$	43,355		$	(701,547	)	$	1,100,553
Comprehensive income (loss):
	Net loss		—		—		—		—			—			(185,324	)		(185,324	)
	Unrealized gain (loss) on investments		—		—		—		—			(16,636	)		—			(16,636	)
Comprehensive income (loss)																		(201,960	)
Exercises of 485,534 and 97,363 options relating to employee stock option and stock purchase plans, respectively			582,897		5		4,506		—			—			—			4,511
Compensatory stock options earned			—		—		—		229			—			—			229
Balance — December 31, 2003			129,433,448		1,294		1,762,191		—			26,719			(886,871	)		903,333
Comprehensive income (loss):
	Net loss		—		—		—		—			—			(242,898	)		(242,898	)
	Unrealized gain (loss) on investments		—		—		—		—			(17,220	)		—			(17,220	)
	Cumulative translation adjustment		—		—		—		—			7			—			7
Comprehensive income (loss)																		(260,111	)
Exercises of 1,022,625 and 70,956 options relating to employee stock option and stock purchase plans, respectively			1,093,581		11		8,663		—			—			—			8,674
Stock option modification expense			—		—		4,151		(4,151	)		—			—			—
Compensatory stock options earned			—		—		—		4,151			—			—			4,151
Balance — December 31, 2004			130,527,029		1,305		1,775,005		—			9,506			(1,129,769	)		656,047
Comprehensive income (loss):
	Net loss		—		—		—		—			—			(239,439	)		(239,439	)
	Unrealized gain (loss) on investments		—		—		—		—			(11,177	)		—			(11,177	)
	Cumulative translation adjustment		—		—		—		—			(14	)		—			(14	)
Comprehensive income (loss)																		(250,630	)
Exercises of 430,655 and 92,114 options relating to employee stock option and stock purchase plans, respectively			522,769		5		4,436		—			—			—			4,441
Stock option modification expense			—		—		6,985		—			—			—			6,985
Restricted stock grants			—		—		123		—			—			—			123
Balance — December 31, 2005			131,049,798	$	1,310	$	1,786,549	$	—		$	(1,685	)	$	(1,369,208	)	$	416,966

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

F-5

HUMAN GENOME SCIENCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

				Year Ended December 31,
				2005			2004			2003
				(dollars in thousands)
Cash flows from operating activities:
	Net income (loss)			$	(239,439	)	$	(242,898	)	$	(185,324	)
	Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
		Accrued interest on short-term investments and marketable securities			(1,582	)		9,463			8,257
		Depreciation and amortization			18,447			21,579			22,477
		Charge for restructuring			—			14,468			—
		Loss (Gain) due to disposal of property, plant and equipment			60			(7,189	)		456
		Compensation expense related to stock modifications and awards			7,108			4,151			229
		Loss (Gain) on extinguishment of long-term debt			901			(2,433	)		—
		Gain on sale of long-term equity investments			(1,302	)		(309	)		(1,091	)
		Loss (Gain) on sale of investments and marketable securities			1,979			(3,923	)		(8,333	)
		Loss (Gain) on sale of restricted investments			204			(669	)		(383	)
		Changes in operating assets and liabilities:
			Prepaid expenses and other current assets		(410	)		619			4,132
			Other assets		4,298			5,195			1,558
			Accounts payable and accrued expenses		(1,826	)		8,471			(10,333	)
			Accrued restructuring charges		(4,144	)		—			—
			Accrued payroll and related taxes		8,101			(2,831	)		1,149
			Deferred revenues		(3,284	)		2,248			(2,568	)
			Other liabilities		(4,056	)		(4,843	)		(644	)
		Net cash provided by (used in) operating activities			(214,945	)		(198,901	)		(170,418	)
Cash flows from investing activities:
	Capital expenditures — property, plant and equipment				(90,247	)		(105,750	)		(66,776	)
	Capitalized interest				(5,764	)		(3,839	)		(1,025	)
	Proceeds from sale of property, plant and equipment				—			16,600			29,157
	Purchase of short-term investments and marketable securities				(253,952	)		(417,536	)		(702,894	)
	Proceeds from sale of long-term equity investments				4,600			4,397			1,780
	Proceeds from sale and maturities of short-term investments and marketable securities				548,936			630,055			991,415
		Net cash provided by investing activities			203,573			123,927			251,657
Cash flows from financing activities:
	Proceeds from issuance of long-term debt				223,332			271,483			—
	Extinguishment of long-term debt				(221,067	)		(272,891	)		(448	)
	Proceeds from sale and maturities of restricted investments				288,626			156,708			309,551
	Purchase of restricted investments				(295,441	)		(178,562	)		(408,825	)
	Release of restricted investments				—			80,707			22,247
	Proceeds from issuance of common stock (net of expense)				4,443			8,673			4,511
	Payments on capital lease				(328	)		(338	)		(211	)
		Net cash provided by (used in) financing activities			(435	)		65,780			(73,175	)
Net (decrease) increase in cash and cash equivalents					(11,807	)		(9,194	)		8,064
Cash and cash equivalents — beginning of year					24,075			33,269			25,205
Cash and cash equivalents — end of year				$	12,268		$	24,075		$	33,269
Supplemental disclosures of cash flow information:
	Cash paid during the year for:
			Interest	$	17,570		$	22,760		$	21,486
			Income taxes	$	—		$	—		$	—

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

F-6

SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
(DOLLARS IN THOUSANDS):

      In 2003, the Company tendered its equity interest in Vascular Genetics, Inc. (“VGI”), a privately held company, in exchange for approximately an 18% equity interest, as of 2003, in Corautus Genetics Inc. (“Corautus”), a publicly traded company that resulted from the merger of VGI and GenStar Therapeutics Corporation. As of the date of this exchange, the Company had no carrying value in its equity interest in VGI. Immediately following this transaction, the market value of the Company’s investment in Corautus was approximately $5,659.

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

F-7

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

(NOTE A) — The Company

Human Genome Sciences, Inc. (the “Company”) was incorporated and commenced operations on June 26, 1992. The Company is a biopharmaceutical company with a pipeline of novel protein and antibody drugs directed toward large markets that have significant unmet medical needs. The Company’s mission is to discover, develop, manufacture and market innovative drugs that serve patients with unmet medical needs, with a primary focus on protein and antibody products.

The Company is conducting clinical trials with a number of its products. The Company’s focus is to advance clinical trials in two main therapeutic areas: immunology/ infectious disease and oncology. Additional products are in clinical development by companies with which the Company is collaborating or have out-licensed development rights.

The Company has developed and continues to enhance the resources necessary to achieve its goal of becoming a fully integrated global biopharmaceutical company. The Company has expanded its manufacturing facilities to allow it to produce larger quantities of protein and antibody drugs for clinical development and for initial commercial activity. The Company completed construction and is in the validation phase of a large-scale manufacturing facility to increase its capacity for protein and antibody drug production. The Company anticipates placing the facility into operational service in the second half of 2006. The Company is strengthening its commercial operations staff, and its intent is to add marketing and sales staff as needed as the Company’s products approach commercialization.

The Company has relationships with a number of leading pharmaceutical and biotechnology companies to leverage its strengths and to gain access to complementary technologies and sales and marketing infrastructure. Some of these partnerships provide the Company, and have provided the Company, with research funding, licensing fees, milestone payments and royalty payments as products are developed and commercialized. In some cases, the Company also is entitled to certain commercialization, co-development, revenue sharing and other product rights. The Company’s revenues are currently derived from license fees and milestone payments under collaboration agreements. The Company does not yet generate any revenues from product sales. The Company, which operates primarily in the United States, believes it operates in a single business segment.

(NOTE B) — Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates are based on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions.

Principles of Consolidation

The consolidated financial statements include the accounts of Human Genome Sciences, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Cash Equivalents, Short-term Investments, Marketable Securities and Long-term Equity Investments

The Company considers all highly liquid investment instruments purchased with a maturity of three months or less to be cash equivalents.

F-8

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

(NOTE B) — Summary of Significant Accounting Policies (continued)

Cash Equivalents, Short-term Investments, Marketable Securities and Long-term Equity Investments (continued)

The Company classifies its short-term investments, marketable securities and long-term equity investments as “available-for-sale.” Investments in securities that are classified as available-for-sale and have readily determinable fair values are measured at fair market value in the balance sheets, and unrealized holding gains and losses on investments that the Company has the ability and intent to hold until the market values recover are reported as a separate component of stockholders’ equity until realized. Additionally, certain of the Company’s investments are held as restricted investments. Restricted investments with maturities less than three months are not classified as cash in the Company’s consolidated balance sheets. See Note C, Investments, for additional information.

Investment Risk

The Company has invested its cash in obligations of the U.S. Government, government agencies and in high-grade corporate debt securities and various money market instruments. The Company’s investment policy limits investments to certain types of instruments issued by institutions with credit ratings of “A” or better, and places restrictions on maturities and concentrations in certain industries and by issuer.

Other-than-Temporary Impairment of Investments

Periodically, the Company evaluates whether any investments have incurred an other-than-temporary impairment, based on the criteria established in Statement of Financial Accounting Standards (“SFAS”) No. 115, Accounting for Certain Investments in Debt and Equity Securities. This evaluation consists of a review of several factors, including but not limited to the length of time and extent that a security has been in an unrealized loss position, the existence of an event that would impair the issuer’s future repayment potential, the near term prospects for recovery of the market value of a security and the intent and ability of the Company to hold the security until the market value recovers. If the Company determines that such impairment exists, the Company will recognize a charge in the consolidated statement of operations equal to the amount of such impairment. See Note B, Summary of Significant Accounting Policies, Recent Accounting Pronouncements, for additional discussion.

Depreciation and Amortization

Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets as follows:

Laboratory equipment	3 - 10 years
Computer equipment and software	3 - 5 years
Furniture and office equipment	3 - 5 years
Leasehold improvements	lesser of the lease term or the useful life

Impairment of Long-Lived Assets

Periodically, the Company determines whether any property and equipment or any other assets have been impaired based on the criteria established in SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. In 2004, the Company recorded an impairment charge relating to the property and equipment at one of its facilities. See Note M, Charge for Restructuring, for additional discussion.

F-9

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

(NOTE B) — Summary of Significant Accounting Policies (continued)

Fair Value of Financial Instruments

The carrying amounts for the Company’s investments reflected in the consolidated balance sheets at December 31, 2005 and 2004 approximate their respective fair values. The fair value of the Company’s investments is based on quoted market prices. See Note C, Investments, for additional discussion.

The fair value of the Company’s long-term debt is based on quoted market prices. See Note H, Long-Term Debt, for additional discussion.

Leases

The Company accounts for its leases under SFAS 13, Accounting for Leases, and other related guidance. The Company has a number of operating leases, including one operating lease containing significant collateral and guarantee provisions relating to real property, along with one capital lease. See Note I, Commitments and Other Matters, for additional discussion.

Stock-Based Compensation

The Company accounts for its stock-based compensation under the intrinsic value method in accordance with the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”) and has provided the pro forma disclosures of net loss and net loss per share in accordance with SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”) using the fair value method. Under APB No. 25, compensation expense is based on the difference, if any, on the date of the grant between the fair value of the Company’s stock and the exercise price of the option and is recognized ratably over the vesting period of the option. The Company accounts for equity instruments issued to non-employees in accordance with SFAS No. 123 and Emerging Issues Task Force Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services. See Note J, Stockholders’ Equity, for further information.

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

		Year Ended December 31,
		2005			2004			2003
Net income (loss), as reported		$	(239,439	)	$	(242,898	)	$	(185,324	)
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects			(51,971	)		(110,562	)		(109,152	)
Add: Stock-based compensation included in net income (loss)			7,108			4,151			229
Pro forma net income (loss)		$	(284,302	)	$	(349,309	)	$	(294,247	)
Net income (loss) per share:
	Basic and diluted — as reported	$	(1.83	)	$	(1.87	)	$	(1.44	)
	Basic and diluted — pro forma	$	(2.17	)	$	(2.69	)	$	(2.28	)

F-10

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

(NOTE B) — Summary of Significant Accounting Policies (continued)

Stock-Based Compensation (continued)

For the years ended December 31, 2005, 2004 and 2003, diluted net income (loss) per share is the same as basic net income (loss) per share as the inclusion of outstanding stock options and convertible debt would be antidilutive.

The effect of applying SFAS No. 123 on 2005, 2004 and 2003 pro forma net loss and net loss per share as stated above is not necessarily representative of the effects on reported net loss for future years due to, among other things, (1) the vesting period of the stock options and (2) the fair value of additional stock option grants in future years. See Note B, Summary of Significant Accounting Policies, Recent Accounting Pronouncements, for additional discussion of SFAS 123(R) effective in January 1, 2006.

Revenue Recognition

Collaborative research and development agreements can provide for one or more of license fees, research payments, additional payments and milestone payments. Agreements with multiple components (“deliverables” or “items”) are evaluated to determine if the deliverables can be divided into more than one unit of accounting. An item can generally be considered a separate unit of accounting if all of the following criteria are met: (1) the delivered item(s) has value to the customer on a stand-alone basis; (2) there is objective and reliable evidence of the fair value of the undelivered item(s); and (3) if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in control of the Company. Items that cannot be divided into separate units are combined with other units of accounting, as appropriate. Consideration received is allocated among the separate units based on their respective fair values or based on the residual value method and is recognized in full when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the sales price is fixed or determinable; and (4) collectibility is probable. The Company deems service to have been rendered if no continuing obligation exists on the part of the Company. Revenue associated with performance milestones is recognized based upon the achievement of the milestones and completion of the earnings process and not dependent upon future services, as defined in the respective agreements. Revenue from non-refundable, up-front license fees where the Company has a continuing obligation is recognized ratably over the term of the continuing obligation. Payments received in advance of work performed are recorded as deferred revenue.

Research and Development

Research and development costs, including internal expenditures, as well as contracted research and development, are charged to expense as incurred. Research and development costs include salaries and related benefits, outside services, materials and supplies, building costs and allocations of certain support costs. Research and development direct expenditures were $228,717, $219,549 and $191,483 for 2005, 2004 and 2003, respectively.

F-11

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

(NOTE B) — Summary of Significant Accounting Policies (continued)

Financing Costs Related to Long-term Debt

Costs associated with obtaining long-term debt are deferred and amortized over the term of the related debt.

Patent Application Costs

Patent application costs are charged to expense as incurred.

Capitalization of Interest

Interest costs associated with the construction of significant facilities are capitalized as part of the cost of the facilities using the Company’s weighted-average borrowing rate. Capitalized interest costs were $5,764, $3,839 and $1,025 for 2005, 2004 and 2003, respectively.

Net Income (Loss) Per Share

The Company follows the provisions of SFAS No. 128, Earnings Per Share, which requires the Company to present basic and diluted earnings per share. The Company’s basic and diluted losses per share are calculated by dividing the net loss by the weighted average number of shares of common stock outstanding during all periods presented. Options to purchase stock and convertible debt are included in diluted earnings per share calculations, unless the effects are anti-dilutive.

Comprehensive Income (Loss)

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

Comprehensive income (loss) amounted to:

			Year Ended December 31,
			2005			2004			2003
Net income (loss)			$	(239,439	)	$	(242,898	)	$	(185,324	)
Net unrealized gains (losses):
	Short-term investments and marketable securities			(6,197	)		(15,018	)		(17,161	)
	Long-term equity investments			(3,987	)		7,370			10,765
	Restricted investments			(1,875	)		(4,725	)		(434	)
	Foreign currency translation			(14	)		7			—
		Subtotal		(12,073	)		(12,366	)		(6,830	)
	Reclassification adjustments for realized losses (gains) included in net loss			882			(4,847	)		(9,806	)
Total comprehensive income (loss)			$	(250,630	)	$	(260,111	)	$	(201,960	)

The effect of income taxes on items in other comprehensive income is $0 for all periods presented.

During the third quarter of 2005, the Company sold its remaining 578,644 shares in Transgene, S.A. (“Transgene”), a long-term equity investment, for net proceeds of $4,600, and a realized gain of $1,302.

F-12

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

(NOTE B) — Summary of Significant Accounting Policies (continued)

Comprehensive Income (Loss) (continued)

During the third quarter of 2004, the Company sold a total of 145,338 shares of Cambridge Antibody Technology Ltd. (“CAT”), a long-term equity investment, for total net proceeds of $1,357, and realized a loss of $20. The Company also sold 11,667 shares of Transgene, for net proceeds of $111, and realized a loss of $8.

During the second quarter of 2004, the Company sold 246,275 shares of CAT, for net proceeds of $2,266, and realized a loss of $68.

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

During the second quarter of 2003, the Company tendered its equity interest in Vascular Genetics, Inc. (“VGI”), a privately held company, in exchange for approximately an 18% equity interest in Corautus Genetics, Inc. (“Corautus”), a publicly traded company that resulted from the merger of VGI and GenStar Therapeutics Corporation. As of the date of this exchange, the Company had no carrying value in its equity interest in VGI. Immediately following this transaction, the market value of the Company’s investment in Corautus was approximately $5,659. As a result, the Company recorded an unrealized gain equal to the market value for this long-term equity investment as of the date of this exchange.

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board issued SFAS 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”), which is a revision of SFAS No. 123. SFAS 123(R) supersedes APB No. 25. Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123. However, SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statement of operations based on their fair values. Pro forma disclosure is no longer an alternative.

The Company will adopt SFAS 123(R) on January 1, 2006.

SFAS 123(R) permits public companies to adopt its requirements using one of two methods:

A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS 123(R) for all share-based payments granted, modified or settled after the effective date and (b) based on the requirements of SFAS 123 for all awards granted to employees prior to the effective date of SFAS 123(R) that remain unvested on the effective date.

A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under Statement 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.

The Company will adopt SFAS 123(R) using the modified prospective method.

As permitted by SFAS 123, the Company currently accounts for share-based payments to employees using APB No. 25’s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of SFAS 123(R)’s fair value method will have an impact on the Company’s results of operations, although it will have no impact on the Company’s overall financial position. The full impact of adoption of SFAS 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future and on other factors such as stock price volatility and future employee exercise behavior. However, had the Company adopted SFAS 123(R) in prior periods, the impact

F-13

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

(NOTE B) — Summary of Significant Accounting Policies (continued)

Recent Accounting Pronouncements (continued)

of that standard would have approximated the impact of Statement 123 as described in the disclosure of pro forma net income and earnings per share in Note B, Summary of Significant Accounting Policies, Recent Accounting Pronouncements, to the Company’s consolidated financial statements. Based upon the fair value of unvested options as of December 31, 2005, the Company believes that the expense to be recorded in its consolidated statements of operations for 2006 will aggregate approximately $26,000, assuming no material stock option cancellations and excluding the expense associated with any 2006 stock option grants. SFAS 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption.

Because the Company has been in a net operating loss position, it has not been recording any benefits of excess tax deductions as an operating cash flow in its consolidated statements of cash flows.

In November 2005, the Financial Accounting Standards Board issued FASB Staff Position (“FSP”) FAS 115-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (“FSP FAS 115-1”). FSP FAS 115-1, which is effective for reporting periods beginning after December 15, 2005, provides guidance on other-than-temporary impairment models for marketable debt and equity securities accounted for under SFAS No. 115 and non-marketable equity securities accounted for under the cost method. FSP FAS 115-1 provides a basic three-step model to evaluate whether an investment is other-than-temporarily impaired. Other than temporary losses on short-term investments and marketable securities would be expensed rather than included in stockholders’ equity. For those unrestricted investments not scheduled to mature within one year of December 31, 2005 and not needed for current operations, the Company has classified these investments as non-current marketable securities. As of December 31, 2005, the Company believes it has the ability to hold its temporarily impaired securities until their market values recover, which may be maturity. The Company does not believe that the adoption of FSP FAS 115-1 will have a material effect on the Company’s results of operations, financial condition or liquidity. While classifying certain investments as non-current assets does affect the Company’s working capital, the Company does not believe such classification affects its liquidity, given the marketable nature of these securities.

Reclassifications

Certain prior period balances have been reclassified to conform to current year presentation.

Sources of Supply

The Company is currently able to obtain its chemicals and equipment from various sources, and therefore, has no dependence upon a single supplier. No assurance can be given that the Company will be able to continue to obtain commercial quantities at costs that are not economically prohibitive.

F-14

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

(NOTE C) — Investments

Investments, including accrued interest, at December 31, 2005 and 2004 were as follows:

		December 31, 2005
				Gross		Gross
		Amortized		Unrealized		Unrealized			Fair
Available for Sale		Cost		Gains		Losses			Value
U.S. Treasury and agencies		$	56,991	$	—	$	(1,140	)	$	55,851
Corporate debt securities			115,421		3		(1,314	)		114,110
	Subtotal — Short-term investments		172,412		3		(2,454	)		169,961
U.S. Treasury and agencies			68,156		11		(2,075	)		66,092
Corporate debt securities			181,181		108		(3,561	)		177,728
	Subtotal — Marketable securities		249,337		119		(5,636	)		243,820
Investment in CAT			9,368		2,531		—			11,899
Investment in Corautus			—		6,594		—			6,594
	Subtotal — Long-term equity investments		9,368		9,125		—			18,493
Cash and cash equivalents			1,762		—		—			1,762
U.S. Treasury and agencies			86,895		24		(1,775	)		85,144
Corporate debt securities			134,821		69		(1,625	)		133,265
	Subtotal — Restricted investments		223,478		93		(3,400	)		220,171
	Total	$	654,595	$	9,340	$	(11,490	)	$	652,445

		December 31, 2004
				Gross		Gross
		Amortized		Unrealized		Unrealized			Fair
Available for Sale		Cost		Gains		Losses			Value
U.S. Treasury and agencies		$	204,062	$	263	$	(2,317	)	$	202,008
Corporate debt securities			513,063		1,921		(3,617	)		511,367
	Subtotal — Short-term investments		717,125		2,184		(5,934	)		713,375
Investment in Transgene			3,298		1,564		—			4,862
Investment in CAT			9,368		4,323		—			13,691
Investment in Corautus			—		8,528		—			8,528
	Subtotal — Long-term equity investments		12,666		14,415		—			27,081
Cash and cash equivalents			1,567		—		—			1,567
U.S. Treasury and agencies			88,237		130		(779	)		87,588
Corporate debt securities			126,597		422		(938	)		126,081
	Subtotal — Restricted investments		216,401		552		(1,717	)		215,236
	Total	$	946,192	$	17,151	$	(7,651	)	$	955,692

F-15

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

(NOTE C) — Investments (continued)

The Company’s gross unrealized losses and fair value of investments with unrealized losses were as follows:

		December 31, 2005
		Loss Position For				Loss Position For
		Less Than Twelve				Greater Than
		Months				Twelve Months				Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
		Value		Losses		Value		Losses		Value		Losses
U.S. Treasury and agencies		$	3,108	$	32	$	52,742	$	1,108	$	55,850	$	1,140
Corporate debt securities			20,257		45		92,850		1,269		113,107		1,314
	Subtotal — Short-term investments		23,365		77		145,592		2,377		168,957		2,454
U.S. Treasury and agencies			9,247		163		54,135		1,912		63,382		2,075
Corporate debt securities			57,864		814		105,722		2,747		163,586		3,561
	Subtotal — Marketable securities		67,111		977		159,857		4,659		226,968		5,636
U.S. Treasury and agencies			28,933		570		49,656		1,205		78,589		1,775
Corporate debt securities			67,974		755		54,856		870		122,830		1,625
	Subtotal — Restricted investments		96,907		1,325		104,512		2,075		201,419		3,400
	Total	$	187,383	$	2,379	$	409,961	$	9,111	$	597,344	$	11,490

		December 31, 2004
		Loss Position For				Loss Position For
		Less Than Twelve				Greater Than
		Months				Twelve Months				Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
		Value		Losses		Value		Losses		Value		Losses
U.S. Treasury and agencies		$	111,879	$	1,507	$	31,140	$	810	$	143,019	$	2,317
Corporate debt securities			325,319		3,347		7,570		270		332,889		3,617
	Subtotal — Short-term investments		437,198		4,854		38,710		1,080		475,908		5,934
U.S. Treasury and agencies			62,073		764		425		15		62,498		779
Corporate debt securities			77,699		885		2,683		53		80,382		938
	Subtotal — Restricted investments		139,772		1,649		3,108		68		142,880		1,717
	Total	$	576,970	$	6,503	$	41,818	$	1,148	$	618,788	$	7,651

Short-term investments, Marketable securities and Restricted investments — unrealized losses

The unrealized losses on the Company’s investments in U.S. Treasury obligations and direct obligations of U.S. Government agencies were caused by increases in the general level of interest rates. Given the terms and provisions of these investments, it is not expected that these securities would be settled at a price less than the amortized cost of the Company’s investments. Because the Company has the ability and intent to hold these investments until a recovery of fair value, which may be maturity, the Company does not believe these investments to be other-than-temporarily impaired as of December 31, 2005 and 2004.

F-16

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

(NOTE C) — Investments (continued)

Short-term investments, Marketable securities and Restricted investments — unrealized losses (continued)

The unrealized losses on the Company’s investments in corporate debt securities were caused by increases in the general level of interest rates. The Company does not believe it is probable that it will be unable to collect all amounts due according to the contractual terms of these investments. Therefore, it is not expected that all the securities would be settled at a price less than the amortized cost of the investments. Because the Company has the ability and intent to hold these investments until a recovery of fair value, which may be maturity, the Company does not believe these investments to be other-than-temporarily impaired as of December 31, 2005 and 2004.

Other Information

The following table summarizes maturities of the Company’s short-term investments, marketable securities and restricted investment securities at December 31, 2005:

		Short-term				Marketable				Restricted
		Investments				Securities				Investments
		Amortized		Fair		Amortized		Fair		Amortized		Fair
		Cost		Value		Cost		Value		Cost		Value
Less than one year		$	172,412	$	169,961	$	—	$	—	$	95,764	$	94,885
Due in year two through year three			—		—		199,195		194,724		70,646		69,564
Due in year four through year five			—		—		50,142		49,096		53,407		52,116
Due after five years			—		—		—		—		3,661		3,606
	Total	$	172,412	$	169,961	$	249,337	$	243,820	$	223,478	$	220,171

The Company’s short-term investments include mortgage-backed securities with an aggregate cost of $30,841 and an aggregate fair value of $30,074 at December 31, 2005. The Company’s marketable securities include mortgage-backed securities with an aggregate cost of $44,601 and an aggregate fair value of $43,144 at December 31, 2005. The Company’s restricted investments include mortgage-backed securities with an aggregate cost of $44,231 and an aggregate fair value of $43,522 at December 31, 2005. These securities have no single maturity date and, accordingly, have been allocated on a pro rata basis to each maturity range based on each maturity range’s percentage of the total value.

The Company restricts investments with respect to certain leases with required maximum collateral levels of approximately $219,000. At December 31, 2005 and 2004, the Company had pledged $220,171 and $215,236 of investments, respectively, in connection with its leases, which are classified as Restricted investments on the consolidated balance sheets. See Note I, Commitments and Other Matters, for additional discussion.

The Company’s net proceeds, realized gains and realized losses from its investments are as follows:

	Year Ended December 31,
	2005			2004			2003
Net proceeds on sale of investments prior to maturity	$	510,800		$	688,802		$	814,492
Realized gains		1,618			6,543			11,338
Realized losses		(2,499	)		(1,696	)		(1,532	)

Realized gains and losses relate to the Company’s short-term investments, marketable securities, restricted and long-term equity investments are included in investment income in the consolidated statement of operations. The cost of the securities sold is based on the specific identification method.

F-17

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

(NOTE C) — Investments (continued)

Other Information (continued)

During 2005, 2004 and 2003, the Company recognized interest income of $24,277, $40,332 and $63,218, respectively, in investment income.

See Note B, Summary of Significant Accounting Policies, Comprehensive Income, for additional discussion of the Company’s investment activity.

(NOTE D) — Collaborations and U.S. Government Agreement

Agreements with GlaxoSmithKline (formerly SmithKline Beecham Corporation)

In May 1993, the Company entered into a collaboration agreement, providing GlaxoSmithKline (“GSK”), formerly SmithKline Beecham Corporation, a first right to develop and market products in human and animal health care (“GSK Products”), based upon human genes identified by the Company. In June 1996, this agreement was substantially amended (the “1996 GSK Agreement”). Under the 1996 GSK Agreement, the Company is entitled to (1) royalties on the net sales of certain GSK Products developed pursuant to the agreement, (2) product development milestones and (3) the option to co-promote up to 20% of any product developed by GSK under the collaboration agreement. In each of 2004 and 2003, the Company received $1,000 from GSK in connection with development milestones met by GSK during the year. The Company has been informed that GSK is pursuing research programs involving specific genes for the creation of small molecule, protein and antibody drugs. The Company cannot provide any assurance that any of these programs will be continued or result in any approved drugs.

In the third quarter of 2005, GSK exercised its option to co-develop and co-commercialize two of the Company’s products, LymphoStat-B and HGS-ETR1. Under the terms of the 1996 GSK agreement, the Company and GSK will share equally in Phase 3 and 4 development costs, and will share equally in sales and marketing expenses and profits of any product that is commercialized, under a co-development and commercialization agreement, the remaining terms of which are being negotiated by the parties.

In October 2004, the Company entered into an agreement with GSK under which GSK acquired exclusive worldwide rights to develop and commercialize Albugon^tm, a drug that had been in late-stage preclinical development by the Company for potential use in the treatment of diabetes. In 2004, the Company received an up-front fee and is recognizing this revenue ratably over the clinical development period, which is estimated to be seven years. With respect to this fee, the Company recognized $741 and $185 as revenue for 2005 and 2004, respectively. In 2005, the Company received and recognized as revenue $12,000 from GSK in connection with development milestones met by GSK during the year. The Company is also entitled to receive additional milestone payments and royalties under this agreement.

Other Collaboration Agreements related to the 1996 GSK Agreement

During 1995 and 1996, the Company entered into several other collaboration agreements related to the 1996 GSK Agreement. These included a 1995 Option and License Agreement with Takeda Chemical Industries, Ltd. (“Takeda”) and a 1996 agreement among the Company, GSK, Schering Corporation and Schering-Plough Ltd., Sanofi-Synthelabo S.A., and Merck KGaA (collectively “Additional Collaboration Partners”). With respect to Takeda, during 2002, Takeda discontinued development of one product and exercised its option to develop and commercialize a second product in Japan. Takeda exercised no further options prior to June 30, 2004, the date at which the option period expired. The Company is entitled to royalties based on the sale of Takeda products covered by the Option and License Agreement and certain milestone payments. With respect to the 1996 agreement among the Additional Collaboration Partners, the Company is entitled to

F-18

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

(NOTE D) — Collaborations and U.S. Government Agreement (continued)

Other Collaboration Agreements related to the 1996 GSK Agreement (continued)

license fees, research payments, milestone payments and royalties. The initial research term associated with this 1996 agreement expired in June 2001.

The Company has been informed that the Additional Collaboration Partners have been pursuing research programs involving specific genes for the creation of small molecule, protein and antibody drugs. The Company cannot provide any assurance that any of these programs will be continued or result in any approved drugs.

Other Collaborative and License Agreements

Since 1995, the Company has entered into a number of other agreements. These include a 1995 collaboration and license agreement with MedImmune, Inc., which was amended in 1996 and 1997, as well as other collaborative agreements. The Company received no payments and did not recognize any revenues in 2005, 2004 or 2003 pursuant to these agreements.

In March 1998, the Company entered into a gene therapy collaboration agreement with Transgene, of Strasbourg, France. Under this agreement, the Company received a 10% equity interest in Transgene, valued at $25,679 based on the quoted market value of Transgene’s common stock in exchange for giving Transgene the right to develop and co-market gene therapy products from ten genes selected by Transgene from the Company’s database. The Company initially recorded its investment in Transgene at its market value, with a corresponding entry to deferred revenue. The Company is recognizing the $25,679 of revenue from this transaction over the shorter of the ten-year term of the agreement or prorated upon the selection of genes by Transgene. Deferred revenue remaining for Transgene was $5,135 and $7,703 as of December 31, 2005 and 2004, respectively. The Company recognized $2,568 as revenue in each of 2005, 2004 and 2003. During the third quarter of 2005, the Company sold its remaining equity interest in Transgene.

In August 1999, the Company entered into a collaborative agreement with Cambridge Antibody Technology Ltd. (“CAT”) of Melbourn, United Kingdom to jointly pursue the development of fully human monoclonal antibody therapeutics. Under the agreement, CAT will conduct research to identify fully human monoclonal antibodies specific for the Company’s proprietary proteins. CAT will receive milestone payments from the Company in connection with the development of any such antibodies as well as royalty payments on the Company’s net sales of such licensed product following regulatory approval. The agreement provides for additional payments to CAT for each product relating to the achievement of milestones corresponding to the regulatory approval process. In the event of the achievement of other milestones or successful product launch, the Company would be obligated to pay CAT additional compensation and royalties. Subject to early termination under certain circumstances, this agreement will expire on the later of the expiration date of certain CAT patents or ten years after the date of first commercial sale of a product licensed by the Company.

In December 1999, the Company entered into a collaborative agreement, which was amended in 2001, with Abgenix, Inc. (“ABX”), of Fremont, California to exchange technology to identify novel human antibody drug candidates for development and commercialization. The research term of this agreement expired in 2005. During 2003, the Company exercised its option to develop a fully human antibody and paid $100 to ABX in accordance with the terms of this agreement. During 2004, the Company paid ABX $400 for one milestone payment pursuant to this agreement. Under this agreement, the Company would be obligated to ABX for milestone payments for this product along with royalties in the event of a successful product launch. Subject to early termination under certain circumstances, this agreement will expire upon the satisfaction of each party’s royalty obligations.

F-19

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

(NOTE D) — Collaborations and U.S. Government Agreement (continued)

Other Collaborative and License Agreements (continued)

In February 2000, the Company entered into a second agreement with Cambridge Antibody Technology. The ten-year agreement provides the Company with rights to use CAT technology to develop and sell an unlimited number of fully human antibodies for therapeutic and diagnostic purposes. The Company also has rights to use CAT antibody technology for the use and sale of research tools, for which the Company will pay CAT a share of revenues received. The Company will also pay CAT clinical development milestones and royalties based on product sales. The Company and CAT may also plan to combine resources to develop and sell therapeutic antibody products. CAT has the right to select up to twenty-four of the Company’s proprietary antigens for laboratory development. The Company has the option to share clinical development costs and to share the profits equally with CAT on up to eighteen such products. CAT has rights to develop six such products on its own. The Company is entitled to clinical development milestones and royalty payments on the products developed by CAT. Under this same agreement, the Company paid CAT $12,000 for future research support and made an equity investment in CAT. The Company has sold a portion of this equity investment and as of December 31, 2005, owned approximately 2% of CAT. In 2001, the Company exercised an option to enter into an exclusive development partnership with CAT relating to a fully human monoclonal antibody and paid $1,000 to CAT in accordance with the terms of this agreement. During 2002, the Company paid CAT an aggregate of $2,500 relating to the exercise of two options and one clinical milestone payment pursuant to this agreement. During 2003, the Company paid CAT an aggregate of $1,000 relating to two clinical milestones reached pursuant to this agreement. No milestone payments were made in 2004 or 2005.

In March 2000, the Company entered into an agreement with Dyax Corporation (“Dyax”), which was amended in July 2001. The agreement, as amended, provides the Company with rights to use Dyax’s technology for ten years to develop an unlimited number of therapeutic and diagnostic products which the Company may elect to market itself or to out-license. Concluding with the first quarter of 2003, Dyax had provided various research services in exchange for support payments made by the Company. In August 2003, the Company entered into an agreement with Genentech, Inc. (“Genentech”), which granted Genentech exclusive, worldwide patent rights to develop and commercialize therapeutic biologic products for human use based on a human gene discovered by the Company. In 2003, the Company received a non-refundable license fee related to this agreement. In 2005 and 2004, the Company received license maintenance fees associated with the Genentech agreement.

In October 2003, the Company entered into a license agreement with diaDexus, Inc. (“diaDexus”). The agreement provides the Company with the right to use certain intellectual property rights in diagnostic product inventions. The Company paid diaDexus $350 during 2003. During 2003, diaDexus obtained FDA approval to begin marketing a diagnostic aid, which was discovered through the use of the Company’s technology. The Company is entitled to receive royalties on sales of the diagnostic aid.

In March 2005, the Company entered into a license agreement with Biosite, Inc. (“Biosite”) granting exclusive rights to specific intellectual property of the Company in exchange for a non-refundable license fee. Biosite is obligated to the Company for milestone payments as set forth in the agreement. During March 2005, the Company received and recognized revenue associated with a non-refundable license fee and the first milestone of the agreement.

In December 2005, the Company, through its CoGenesys division, entered into a license agreement with Protein Design Labs, Inc. (“PDL”). The agreement provides PDL the right to use certain intellectual property to identify novel human antibody drug candidates for development and commercialization in exchange for a non-refundable license fee. In addition, the Company has the right to use PDL’s proprietary technology for five years. Under this reciprocal agreement, depending upon which party’s product moves

F-20

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

(NOTE D) — Collaborations and U.S. Government Agreement (continued)

Other Collaborative and License Agreements (continued)

through the regulatory approval process, the Company or PDL would be obligated to the other for milestone payments for each therapeutic product or each diagnostic product along with royalties in the event of a successful product launch. Subject to early termination under certain circumstances, this agreement will expire upon the satisfaction of each party’s royalty obligations.

In December 2005, the Company entered into a license agreement with Amgen, Inc. (“Amgen”) in exchange for a non-refundable license fee. The agreement provides Amgen with intellectual property rights to develop and commercialize therapeutic biological product inventions. Amgen would be obligated to the Company for milestone payments for each therapeutic product or each diagnostic product along with royalties in the event of a successful product launch.

The Company has other ongoing technology collaborations and agreements as of December 31, 2005 with Kirin Brewery Company, Ltd., DakoCytomation Denmark A/S and others. During 2005, 2004 and 2003 the Company paid an aggregate of $645, $2,123 and $1,577, respectively, for research services or milestones to certain of these collaborators. While license or royalty payments may occur in the future in connection with these collaborations, no license or royalty payments were made or received during 2005, 2004 or 2003.

U.S. Government Agreement

In September 2005, the Company entered into a two-phase contract to supply ABthrax^tm, a human monoclonal antibody developed for use in the treatment of anthrax disease, to the U.S. Government. Under the first phase of the contract, the Company supplied ten grams of ABthrax to the U.S. Department of Health and Human Services (“HHS”) for comparative in vitro and in vivo testing and received and recognized $1,489 in revenue. Under the second phase of the contract, the U.S. Government has the option to place an order by September 2006 for up to 100,000 doses of ABthrax for the Strategic National Stockpile, for use in the treatment of anthrax disease. The HHS comparative testing results, along with the Company’s own preclinical and clinical study results, will form the basis of the U.S. Government’s decision process for exercising its option for product for the Strategic National Stockpile. The Company does not know whether the U.S. Government will purchase ABthrax, and if it does, the timing, extent and amount of such purchases.

(NOTE E) — Property, Plant and Equipment

Property, plant and equipment are stated at cost and are summarized as follows:

	December 31,
	2005			2004
Laboratory equipment	$	61,504		$	61,033
Leasehold improvements		30,996			32,148
Computer equipment and software		28,559			26,821
Land and improvements		22,982			22,982
Furniture and office equipment		5,123			4,571
Construction in-progress		239,183			165,062
		388,347			312,617
Less: accumulated depreciation and amortization		(83,538	)		(68,876	)
	$	304,809		$	243,741

F-21

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

(NOTE E) — Property, Plant and Equipment (continued)

The Company entered into a capital lease for computer equipment in 2003. The capital lease is included in the Computer equipment and software amount above, at a cost of $982 as of both December 31, 2005 and 2004 and accumulated amortization of $739 and $355 as of December 31, 2005 and 2004, respectively. Amortization expense for this equipment is included in depreciation and amortization within the consolidated statements of cash flows.

Included in Construction in-progress is $234,807 and $157,930 as of December 31, 2005 and 2004, respectively, relating to the Company’s construction and related capitalized interest of a large-scale manufacturing facility. The construction phase is complete and the Company expects to complete the validation phase in the second half of 2006 at a cost of approximately $233,000 plus capitalized interest estimated at $12,900, resulting in a total cost of $245,900.

(NOTE F) — Other Assets

Other assets are comprised of the following:

	December 31,
	2005		2004
Deferred financing costs, net of accumulated amortization of $2,057 and $5,327, as of December 31, 2005 and 2004, respectively	$	13,565	$	10,491
Prepaid services		5,000		6,200
Deferred charge for residual value guarantee		2,797		3,430
All other assets		74		78
	$	21,436	$	20,199

Deferred financing costs were incurred in connection with the Company’s convertible subordinated debt offerings during 2005, 2004, 2000 and 1999. Debt issuance costs for the $513,120 of Notes outstanding as of December 31, 2005 amounted to approximately $15,622, representing primarily underwriting fees of approximately 3% of the gross amount of Notes, and are being amortized on a straight-line basis which approximates an effective interest method over the life of the Notes. Net deferred financing costs of approximately $1,442 were written off in 2005 in connection with the repurchase of a portion of the Company’s convertible subordinated debt. See Note H, Long-Term Debt, for additional discussion of the Company’s convertible subordinated debt.

See Note D, Collaboration Agreements, for discussion of prepaid services relating to CAT.

In accordance with the provisions of Financial Accounting Standards Board Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (“FIN 45”), during the second quarter of 2003 the Company recorded the estimated fair market value of its maximum residual value guarantee of the lease of one of its facilities (“Traville”). The Company estimated the fair market value of the guarantee as approximately $4,380 and is amortizing this amount on a straight-line basis over the term of the lease. As of December 31, 2005 and 2004, the unamortized amount of approximately $2,797 and $3,430, respectively, was recorded within Other assets and Other liabilities on the Company’s consolidated balance sheets. See Note I, Commitments and Other Matters for additional discussion.

F-22

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

(NOTE G) — Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses are comprised of the following:

	December 31,
	2005		2004
Professional fees	$	17,587	$	17,930
Restructuring		6,399		14,468
Accrued expenses		5,606		5,004
Fixed asset purchases		5,403		20,320
Accrued interest		3,339		5,405
	$	38,334	$	63,127

The professional fees as of December 31, 2005 and 2004 primarily relate to the clinical trial costs associated with the Company’s ongoing studies.

The restructuring liability relates primarily to the Company’s actions to sharpen its focus on its most promising drug candidates announced during the first quarter of 2004. See Note M, Charge for Restructuring, for additional discussion.

The fixed asset purchases as of December 31, 2005 and 2004 primarily relate to the construction activity associated with the Company’s large scale manufacturing facility.

(NOTE H) — Long-Term Debt

The components of long-term debt are as follows:

					December 31,
		December 31,
Debt		2005 Interest Rates		Maturities	2005		2004
5.5% Convertible Subordinated Notes due 2006			5.50%	June 2006	$	3,120	$	3,120
2.25% Convertible Subordinated Notes due 2011			2.25%	October 2011		280,000		280,000
2.25% Convertible Subordinated Notes due 2012			2.25%	August 2012		230,000		—
5.0% Convertible Subordinated Notes due 2007			5.00%	(1)		—		139,821
3.75% Convertible Subordinated Notes due 2007			3.75%	(1)		—		81,874
						513,120		504,815
	Less current portion					3,120		—
					$	510,000	$	504,815

(1)  No Notes outstanding as of December 31, 2005.

F-23

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

(NOTE H) — Long-Term Debt (continued)

Annual maturities of all long-term debt are as follows:
	2006	$	3,120
	2007		—
	2008		—
	2009		—
	2010		—
	2011 and thereafter		510,000
		$	513,120

The carrying amount and fair value of the Company’s long-term debt are as follows:

	December 31,
	2005				2004
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
5.5% Convertible Subordinated Notes due 2006	$	3,120	$	3,073	$	3,120	$	3,149
2.25% Convertible Subordinated Notes due 2011		280,000		228,200		280,000		295,050
2.25% Convertible Subordinated Notes due 2012		230,000		176,525		—		—
5.0% Convertible Subordinated Notes due 2007		—		—		139,821		139,821
3.75% Convertible Subordinated Notes due 2007		—		—		81,874		79,418
	$	513,120	$	407,798	$	504,815	$	517,438

During the second quarter of 1999, the Company completed the private placement of $125,000 of 5¹/2% Convertible Subordinated Notes due June 2006 (“5¹/2% Notes”) convertible into common stock at $13.05 per share. Between 2000 and 2001, a total of $121,880 of 5¹/2% Notes was converted into common stock. Total gross remaining debt issuance costs, which are being amortized on a straight-line basis, which approximates the effective interest method, were approximately $111, of which $104 and $88 had been amortized as of December 31, 2005 and 2004, respectively.

During the first quarter of 2000, the Company completed the private placement of $225,000 of 5% Convertible Subordinated Notes due February 2007 (“5% Notes”) and $300,000 of 3³/4% Convertible Subordinated Notes due March 2007 (“3³/4% Notes”). The 5% Notes and the 3³/4% Notes were convertible into common stock at $56.25 and $109.50 per share, respectively. Debt issuance costs for the total $525,000 of Notes amounted to approximately $16,305. During the fourth quarter of 2004, the Company completed the private placement of new convertible subordinated debt, which enabled the Company to repurchase $60,079 of 5% Notes and $218,126 of 3³/4% Notes or an aggregate principal amount of approximately $278,205, for an aggregate purchase price of approximately $272,892. The Company recorded a gain on the extinguishment of this debt of approximately $2,433, net of unamortized debt issuance costs associated with the repurchased debt in 2004. During the third quarter of 2005, the Company completed the private placement of additional convertible subordinated debt, which enabled the Company to repurchase the remaining $139,821 of 5% Notes and $81,874 of 3³/4% Notes or an aggregate principal amount of approximately $221,695, for an aggregate purchase price of approximately $221,458 during the third and fourth quarters of 2005. The Company recorded a loss on the extinguishment of this debt of approximately $1,204, inclusive of unamortized debt issuance costs associated with the repurchased debt. Debt issuance costs, which were being amortized on a straight-line basis, which approximates the effective interest method, amounted to approximately $7,057, of which $5,685

F-24

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

(NOTE H) — Long-Term Debt (continued)

and $4,930 had been amortized as of September 2005 prior to the repurchase program and as of December 31, 2004, respectively.

During the fourth quarter of 2004, the Company completed the private placement of $280,000 of 2¹/4% Convertible Subordinated Notes due October 2011 (“2¹/4% Notes due 2011”), convertible into common stock at approximately $15.55 per share. Debt issuance costs for the $280,000 of 2¹/4% Notes due 2011 amounted to approximately $8,650, which are being amortized on a straight-line basis, which approximates the effective interest method, over the life of the 2¹/4% Notes due 2011. Amortization of the debt issuance costs amounted to approximately $1,545 and $309 as of December 31, 2005 and 2004, respectively. The 2¹/4% Notes due 2011 also contain a provision for a “make-whole” premium to be paid by the Company to holders of the 2¹/4% Notes due 2011 in the event of certain changes in control that could occur during the life of the 2¹/4% Notes due 2011. The premium is payable in the form of cash, the Company’s common stock, or the same form of consideration used to pay for the shares of the Company’s common stock in connection with the transaction constituting the change in control. The premium declines over time and is based upon the price of the Company’s stock as of the effective date of the change in control. As of December 31, 2005, the maximum premium possible is approximately $66,080, or approximately 23.6% of the aggregate face value of 2¹/4% Notes due 2011 outstanding, in the event a qualified change in control occurs during 2006 with a stock price of $16.00 at such date.

During the third quarter of 2005, the Company completed the private placement of $230,000 of 2¹/4% Convertible Subordinated Notes due 2012 (“2¹/4% Notes due 2012”), convertible into common stock at approximately $17.78 per share. Debt issuance costs for the $230,000 of 2¹/4% Notes due 2012 amounted to approximately $6,863, including accrued expenses, which will be amortized on a straight-line basis, which approximates the effective interest method, over the life of the 2¹/4% Notes due 2012, of which $409 had been amortized as of December 31, 2005. The 2¹/4% Notes due 2012 also contain a provision for a “make-whole” premium to be paid by the Company to holders of the 2¹/4% Notes due 2012 in the event of certain changes in control that could occur during the life of the 2¹/4% Notes due 2012. The premium is payable in the form of the Company’s common stock by increasing the conversion rate to the holders of the Notes who convert their Notes. The premium, which is expressed as additional shares of common stock per one thousand dollars principal amount of notes, is based upon the price of the Company’s stock as of the effective date of the change in control. The maximum premium possible is approximately $38,300, or approximately 17% of the aggregate face value of 2¹/4% Notes due 2012 outstanding, in the event a qualified change in control occurs during 2006 with a stock price of $14.82 at such date.

With respect to all of the Company’s convertible subordinated notes (the “Notes”), the Notes are unsecured obligations of the Company and rank junior in right of payment to the Company’s existing and future senior indebtedness. The Company’s options with respect to redemption of all or a portion of the Notes are as follows:

	Optional Redemption		December 31, 2005
Note	Effective Date		Redemption Price
51/2% Notes due 2006		July 2005	100.00%
21/4% Notes due 2011		No redemption option	Not applicable
21/4% Notes due 2012		No redemption option	Not applicable

The indentures under which the Notes have been issued contain no financial covenants or any restriction on the payments of dividends, the incurrence of senior indebtedness, or other indebtedness, or the Company’s issuance or repurchase of securities. There are no sinking fund requirements with respect to the Notes.

F-25

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

(NOTE I) — Commitments and Other Matters

Leases

The Company leases office and laboratory premises and equipment pursuant to operating leases expiring at various dates through 2021. The leases contain various renewal and cancellation options. Minimum annual rentals are as follows:

		Operating		Capital
Year Ending December 31,		Leases		Lease
2006		$	25,869	$	324
2007			24,039		—
2008			24,643		—
2009			15,566		—
2010			8,919		—
2011 and thereafter			46,922		—
		$	145,958		324
Less imputed interest					8
Present value of minimum lease payments					316
	Less current portion				316
Long-term portion of minimum lease payments				$	—

The Company leases all of its research and development and administrative facilities. The Company’s primary research and development and administrative facility, located on the Traville site in Rockville, Maryland, is owned by Wachovia Development Corporation (“WDC”). In June 2003, the Company adopted Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46”). The Company restructured the lease relating to the Traville site in June 2003 and entered into an approximately seven-year operating lease (the “Traville lease”) with WDC. WDC, a wholly-owned subsidiary of Wachovia Corporation, is primarily engaged in real estate finance, development and leasing activities. The total financed cost of the Traville lease facility is $200,000. The construction of the research and development and administrative facility was substantially completed by November 2003, at which time the rent obligations under the Traville lease commenced. The Company’s rent obligation will approximate the lessor’s debt service costs plus a return on the lessor’s equity investment. The Company’s rent obligation under the Traville lease is floating and is based primarily on short-term commercial paper, but the lessor can lock in a fixed interest rate at any time at the Company’s request. The floating rate was approximately 4.2% as of December 31, 2005.

The Company’s operating lease commitments include minimum annual rentals for the Traville lease which have been computed using the interest rate as of December 31, 2005. Over the remaining life of this lease, an aggregate rent obligation of approximately $39,220 has been included in the Company’s total operating lease commitment.

In addition, the Company had leased a research facility at 9800 Medical Center Drive near the Traville facility beginning in October 2001. During the fourth quarter of 2004, the Company exited from its seven-year lease associated with this research facility. In connection with this exit, the Company obtained a release of both its restricted investments of approximately $76,000 and its residual value guarantee of $64,600 and received approximately $16,600 in cash. To facilitate the transition from this space, the Company entered into a two-year operating sublease for this facility with the new lessee of this facility, which is included in the Company’s future minimum lease payment schedule. See Note M, Charge for Restructuring, for additional discussion.

F-26

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

(NOTE I) — Commitments and Other Matters (continued)

Leases (continued)

During 1997 and 1999, the Company entered into two long-term leases expiring January 1, 2019 for a process development and manufacturing facility aggregating 127,000 square feet and built to the Company’s specifications. Annual base rent under the leases is $3,765. Pursuant to the terms of these leases, the Company had security deposits of $12,993 and $12,572 as of December 31, 2005 and 2004, respectively, on deposit with the financing bank which is included in Restricted investments in the consolidated balance sheets. The security deposit will accrue interest up to a total security deposit of $15,000. Any amounts over $15,000 will be released to the Company. The security deposits will be released at the end of the lease term. The lease agreements contain covenants with respect to tangible net worth, cash and cash equivalents and investment securities, restrictions on dividends, as well as other covenants. The leases require an additional security deposit if the Company does not meet its covenants. The Company has an option, but not an obligation, to purchase these facilities during the lease term at various prices or at the end of the lease term for an aggregate price of approximately $19,400.

The Company’s required collateral in the form of restricted investments with respect to the Traville lease, and leases for the existing process development and manufacturing facility, will reach approximately $219,000, which will serve as collateral for the duration of the leases. The Company will be required to restrict investments equal to 102% of the full amount of the $200,000 financed project cost for the Traville lease, or $204,000. The Company’s restricted investments with respect to the Traville lease were $207,178 and $202,664 as of December 31, 2005 and 2004, respectively. In addition, the Company is also required to maintain up to a maximum of $15,000 in restricted investments with respect to the process development and manufacturing facility leases. The Company’s restricted investments were $220,171 and $215,236 as of December 31, 2005 and December 31, 2004, respectively.

Under the Traville lease agreement, which the Company has accounted for as an operating lease, the Company has the option to purchase the property, during or at the end of the lease term, at an aggregate amount of $200,000. Alternatively, the Company can cause the property to be sold to third parties.

With respect to the Traville lease, the Company has a residual value guarantee of 87.75% of the total financed cost at lease termination. In the event of default, the Company is responsible for 100% of the total financed cost of the project. Because the lessor is responsible for servicing and repaying the debt financings to various parties, the Company has made the residual value guarantee to the lessor. In the event the lessor defaults to the lender, the Company has the right to cure the default or exercise its option to acquire the property. At any time during the lease term, the Company has the option to purchase legal and/or beneficial interest in the project for 100% of the lease balance plus any unpaid indemnity amounts. As of December 31, 2005, the Company’s residual value guarantee for the Traville lease had reached the full maximum amount of $175,500.

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

In accordance with the provisions of Financial Accounting Standards Board Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (“FIN 45”), the Company recorded the estimated fair market value of the maximum residual value guarantee of the Traville lease during the second quarter of 2003. The Company estimated the fair market value of the guarantee as approximately $4,380 and is amortizing this amount on a straight-line basis over the term of the lease. As of December 31, 2005 and 2004, the unamortized amount of approximately $2,797 and $3,430, respectively, was recorded within Other assets and Other liabilities on the Company’s consolidated balance sheets.

F-27

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

(NOTE I) — Commitments and Other Matters (continued)

Leases (continued)

There are no recourse provisions under the Traville lease that would enable the Company to recover from third parties any of the amounts paid under the guarantee. The Company has set aside collateral in the form of restricted investments sufficient to satisfy all current obligations under the guarantee. In addition, the Company has the right to cause the sale of the property covered by the lease and may recover all or a portion of the money paid under the guarantee.

The Company has entered into leases for office and laboratory space, which provide for certain rent abatement and rent escalations on each anniversary of the lease commencement date. For financial reporting purposes, rent expense is charged to operations on a straight-line basis over the term of the lease, resulting in a liability for deferred rent of $2,592 and $3,404 at December 31, 2005 and 2004, respectively.

Certain other leases provide for escalation for increases in real estate taxes and certain operating expenses.

The Company has entered into various sale-leaseback transactions resulting in equipment leases with rental payments aggregating $29,549 as of December 31, 2005, with initial terms ranging from five to seven years. The Company must either purchase the equipment at the end of the initial term at the greater of fair market value or 20% of original cost or, in some cases, extend the term of the lease for an additional year. The Company has accounted for these leases as operating leases. Minimum annual rentals are approximately $9,147 as of December 31, 2005.

Rent expense aggregated $29,049, $27,966 and $20,446 for the years ended December 31, 2005, 2004 and 2003, respectively.

Capital Expenditures

At December 31, 2005 and 2004, the Company had commitments for capital expenditures, consisting primarily of manufacturing equipment, of approximately $9,852 and $13,398, respectively. Included in commitments for capital expenditures is $7,986 and $10,276 as of December 31, 2005 and 2004, respectively, relating to the Company’s construction of a large-scale manufacturing facility.

401(k) Plan

The Company has adopted a 401(k) pension plan available to eligible full-time employees. The Company made contributions of $1,210, $1,410 and $1,256 to the plan for the years ended December 31, 2005, 2004 and 2003, respectively.

(NOTE J) — Stockholders’ Equity

Stock Option and Employee Stock Purchase Plans

The Company has stock option plans under which options to purchase shares of the Company’s common stock may be granted to employees, consultants and directors at a price no less than the fair market value on the date of grant.

At December 31, 2005, the total authorized number of shares under all plans was 53,227,896. The vesting period of the options is determined by the Board of Directors and is generally four years. All options expire after ten years or earlier from the date of grant.

In 2001, the Company’s stockholders approved an amendment to the 2000 Stock Incentive Plan (“2000 Plan”), which established the number of shares of common stock that would be reserved for issuance and

F-28

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

(NOTE J) — Stockholders’ Equity (continued)

Stock Option and Employee Stock Purchase Plans (continued)

added to the 2000 Plan for 2001, 2002 and 2003. This limit was equal to five percent of the outstanding common stock as of the end of the preceding fiscal year. Shares that were available for a given year but not subject to awards granted in that year were carried forward to the following year. In 2003, five percent of the outstanding common stock as of December 31, 2002, or 6,442,527 shares, were reserved for issuance under the 2000 Plan. After 2003, only the carried forward shares and the shares that are returned to the pool of available shares due to award forfeitures will be available for issuance.

Option transactions during 2005, 2004 and 2003 are summarized as follows:

	Year Ended December 31,
	2005					2004					2003
				Weighted-					Weighted-					Weighted-
				Average					Average					Average
				Exercise					Exercise					Exercise
	Shares			Price		Shares			Price		Shares			Price
Outstanding at beginning of year		23,473,913		$	20.90		30,769,339		$	27.31		28,307,139		$	31.03
Options granted		7,646,186			12.38		2,520,350			10.97		6,010,898			12.47
Options exercised		(430,655	)		8.59		(1,022,625	)		7.79		(485,534	)		7.74
Options canceled or expired		(1,388,409	)		19.93		(8,793,151	)		42.02		(3,063,164	)		35.66
Outstanding at end of year		29,301,035			18.90		23,473,913			20.90		30,769,339			27.31
Options exercisable at end of year		19,931,261			22.13		16,049,826			24.45		17,488,816			30.90

The following table summarizes information about stock options outstanding at December 31, 2005:

	Options Outstanding				Options Exercisable
			Weighted-
			Average		Weighted-				Weighted-
			Remaining		Average				Average
	Number		Contractual Life		Exercise		Number		Exercise
Range of Exercise Price	Outstanding		(In Years)		Price		Exercisable		Price
$6.60 to $9.36		6,667,474		3.92	$	8.18		5,710,083	$	8.03
$9.37 to $12.39		6,153,696		7.41		11.52		3,088,277		11.60
$12.40 to $21.48		8,986,373		7.14		13.38		3,643,928		14.08
$21.49 to $38.06		3,569,981		3.15		27.44		3,565,462		27.44
$38.07 to $86.26		3,923,511		4.08		53.58		3,923,511		53.58
		29,301,035		5.57		18.90		19,931,261		22.13

During the second quarter of 2004, the Company’s stockholders approved a Stock Option Exchange Program (“Exchange Program”) whereby the Company subsequently made an offer to exchange options outstanding under the Company’s Amended and Restated 2000 Stock Incentive Plan. Pursuant to this offer, eligible employees, other than the Company’s executive officers, were offered a one-time opportunity to exchange their stock options that had an exercise price of at least $35.00 per share for a lesser number of options to be issued at a later date. Pursuant to the offer to exchange, in July 2004 the Company accepted for exchange options to purchase an aggregate of 4,199,094 shares of the Company’s common stock. In January 2005, the Company issued new options to purchase 1,543,580 shares of the Company’s common stock pursuant to the Exchange Program.

F-29

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

(NOTE J) — Stockholders’ Equity (continued)

Stock Option and Employee Stock Purchase Plans (continued)

During the period covered under the Exchange Program and for the six months thereafter, the Company made no grants to employees who elected to participate in this program. In January 2005, the Company issued 3,927,646 options to purchase shares of the Company’s common stock for grants unrelated to the Exchange Program.

In 2000, the Company’s stockholders approved the establishment of an Employee Stock Purchase Plan that qualifies under Section 423 of the Internal Revenue Code and permits substantially all employees to purchase shares of common stock. Participating employees may purchase common stock through payroll deductions at the end of each participation period at a purchase price equal to 85% of the lower of the fair market value of the common stock at the beginning or the end of the participation period. Common stock reserved for future employee purchases under the plan aggregated 143,686 shares as of December 31, 2005. Common stock issued under this plan totaled 92,114, 70,956 and 97,363 in 2005, 2004 and 2003, respectively. Under the plan, eligible employees may purchase shares of common stock on certain dates and at certain prices as set forth in the plan.

The weighted-average fair value of the stock options granted during 2005, 2004 and 2003 is estimated as $4.60, $4.79 and $9.09 per share, respectively. The weighted-average fair value of the employee stock purchase plan rights granted during 2005, 2004 and 2003 is estimated as $3.00, $4.26 and $3.38, per share, respectively. These weighted-average fair values were determined based on the Black-Scholes-Merton option-pricing model with the following assumptions:

		Year Ended December 31,
		2005	2004	2003
Expected life:
	Stock options	3.00 – 5.04 years	5.17 years	6.75 years
	Employee stock purchase plan	1.0 year	1.0 year	1.0 year
Interest rate		3.77% – 4.24%	3.68%	3.95%
Volatility		38% – 40%	40%	78%
Dividend yield		0%	0%	0%

In 2004, the Company reevaluated its method of estimating volatility. The Company determined that the implied volatility of its common stock, rather than its historical volatility, is a better estimate of expected volatility over the expected life of its options. Accordingly, the Company has valued its 2005 and 2004 stock options using implied volatility within the Black-Scholes-Merton option-pricing model.

Options available for future grant were 10,385,308 at December 31, 2005.

During the first quarter of 2004, the Company modified the stock option agreement for the Company’s former Chief Executive Officer (“former CEO”), who retired in the fourth quarter of 2004. This modification included an acceleration of all unvested shares as of the date of retirement and an extension of the standard post-employment exercise period. The Company recorded a non-cash compensation charge of $4,151 ratably over the former CEO’s remaining service period as a result of this modification.

During 2004, the Company modified the stock option agreements for certain key officers by extending the standard post-employment exercise period and for one key officer, also extending vesting beyond the date of termination. In the event any of the key officers terminated employment under certain circumstances, the key officer could receive the benefit of the modification provision(s) and the Company would record an aggregate

F-30

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

(NOTE J) — Stockholders’ Equity (continued)

Stock Option and Employee Stock Purchase Plans (continued)

compensation charge of up to $11,018 for any modified options still outstanding as of the date of termination. During the fourth quarter of 2005, the Company made a second modification to the stock option agreement for one key officer. This officer and another key officer terminated employment the Company on December 31, 2005 and received the benefit of the modifications. Accordingly, the Company recorded a compensation charge of $6,985 during the fourth quarter of 2005. No compensation charge has been recorded as of December 31, 2005 for the other key officers because they are still employees of the Company as of this date and the Company is unable to estimate whether any of these key officers will ultimately obtain any benefit from this modification.

Non-vested Common Stock

Under the Plan, the Company issued 125,000 shares of non-vested common stock at a weighted-average grant date fair value of $13.24 per share, including 50,000 performance-based shares during the third quarter of 2005. No shares of non-vested common stock had been previously granted under the Plan. In the fourth quarter of 2005, 15,000 shares of non-vested stock were subsequently forfeited when a key officer terminated employment. The Company incurred $123 of compensation expense in 2005 related to the non-vested stock awards.

(NOTE K) — Preferred Share Purchase Rights

On May 20, 1998, the Company adopted a Shareholder Rights Plan, which provided for the issuance of rights to purchase shares of Junior Participating Preferred Stock, par value $0.01 per share (the “Preferred Shares”), of the Company. Under the Shareholder Rights Plan, the Company distributed one preferred share purchase right (a “Right”) for each outstanding share of common stock, par value $0.01 (the “Common Shares”), of the Company. The Rights were distributed on June 26, 1998 to stockholders of record on May 27, 1998.

Each Right entitles the holder to purchase from the Company one four-thousandth of a Preferred Share at a price of $250 per one four-thousandth of a Preferred Share, subject to adjustment. The rights become exercisable ten business days after any party acquires or announces an offer to acquire beneficial ownership of 15% or more of the Company’s Common Shares. In the event that any party acquires 15% or more of the Company’s Common Stock, the Company enters into a merger or other business combination, or if a substantial amount of the Company’s assets are sold after the time that the Rights become exercisable, the Rights provide that the holder will receive, upon exercise, shares of the common stock of the surviving or acquiring company, as applicable, having a market value of twice the exercise price of the Right.

The Rights expire May 20, 2008, and are redeemable by the Company at a price of $0.00025 per Right at any time prior to the time that any party acquires 15% or more of the Company’s Common Shares. Until the earlier of the time that the Rights become exercisable, are redeemed or expire, the Company will issue one Right with each new Common Share issued.

F-31

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

(NOTE L) — Income Taxes

The Company provides for income taxes using the liability method. The difference between the tax provision and the amount that would be computed by applying the statutory Federal income tax rate to income before taxes is attributable to the following:

	Year Ended December 31,
	2005			2004			2003
Federal income tax provision at 34%	$	(81,409	)	$	(82,585	)	$	(63,010	)
State taxes, net of federal tax benefit		(10,732	)		(11,024	)		(8,551	)
Tax credits, principally for research and development		(6,930	)		(6,975	)		(6,751	)
Stock option deduction for which no book benefit is available		(560	)		(1,475	)		(667	)
Other		2,426			1,457			81
Increase in valuation allowance on deferred tax asset		97,205			100,602			78,898
	$	—		$	—		$	—

Temporary differences and carryforwards that give rise to a significant portion of deferred tax assets and liabilities are as follows:

		Current			Long-Term
		Asset			Asset/(Liability)
December 31, 2005
	Net operating loss carryforward	$	—		$	512,953
	Research and development and other tax credit carryforwards		—			52,509
	Capital loss carryforward		—			10,605
	Loss on impaired investments		—			8,899
	Net unrealized losses on investments		—			648
	Deferred revenue		992			2,575
	Depreciation		—			(945	)
	Reserves and accruals		8,027			2,683
	Other		—			524
			9,019			590,451
	Less valuation allowance		(9,019	)		(590,451	)
		$	—		$	—

F-32

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

(NOTE L) — Income Taxes (continued)

		Current			Long-Term
		Asset			Asset/(Liability)
December 31, 2004
	Net operating loss carryforward	$	—		$	420,320
	Research and development and other tax credit carryforwards		—			40,996
	Loss on impaired investments		—			21,037
	Net unrealized gains on investments		—			(3,669	)
	Deferred revenue		992			3,843
	Depreciation		—			20
	Reserves and accruals		1,237			8,075
	Other		—			480
			2,229			491,102
	Less valuation allowance		(2,229	)		(491,102	)
		$	—		$	—

The Company recognized a valuation allowance to the full extent of its deferred tax assets since the likelihood of realization of the benefit cannot be determined.

Provision for income taxes is comprised of the following:

		Year Ended
		December 31,
		2005		2004		2003
Current:
	Federal	$	—	$	—	$	—
	State		—		—		—
	Foreign taxes		—		—		—
Deferred			—		—		—
		$	—	$	—	$	—

The Company has available tax credit carryforwards of approximately $52,509, which expire, if unused, from the year 2008 through the year 2025. The Company has net operating loss (“NOL”) carryforwards for federal income tax purposes of approximately $1,328,083, which expire, if unused, from the year 2010 through the year 2025. The Company’s ability to utilize these NOLs may be limited under Internal Revenue Code Section 382. The tax benefit of approximately $242,835 of NOLs related to stock options will be credited to equity when the benefit is realized through utilization of the NOL carryforwards.

(NOTE M) — Charge for Restructuring

During the first quarter of 2004, the Company announced plans to sharpen its focus on its most promising drug candidates. In order to reduce significantly future expenses, and thus enable the Company to dedicate more resources to the most promising drugs, the Company reduced staff, streamlined operations and consolidated facilities. The results for the year ended December 31, 2004 include a charge of $15,408, which is shown as a Charge for restructuring in the consolidated statement of operations. The charge consisted approximately of $7,696 for the consolidation of facilities, approximately $5,212 related to the retirement of the Company’s

F-33

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

(NOTE M) — Charge for Restructuring (continued)

former CEO, including $4,151 related to the modification of the former CEO’s stock options, and $2,500 related to the total cost of employee severance benefits.

With respect to the consolidation of facilities, during the third quarter of 2004, the Company exited a laboratory and production facility in Rockville, Maryland at 9410 Key West Avenue (“9410”), for which it has a remaining operating lease obligation of approximately $2,253 for 2006 through 2008. Based upon certain market information, the Company recorded an accrual for an estimated disposal loss on certain fixed assets and leasehold improvements of $4,000 in the third quarter of 2004. The Company decided to reoccupy 9410 as of the second quarter of 2005. Based on this decision, the Company reevaluated its position as of December 31, 2004 and concluded the assets were recorded at their fair value. The facility is currently being occupied by the Company’s CoGenesys division. In connection with the Company’s planned sale of this division, the Company anticipates assigning the 9410 lease to CoGenesys and selling to CoGenesys the equipment and leasehold improvements at the net book value as of the date of the sale. See Note N, CoGenesys, for additional discussion. The Company may continue to evaluate other facility consolidation alternatives during 2006.

The Company had a lease agreement for a research facility located at 9800 Medical Center Drive, near the Company’s Traville facility in Rockville, Maryland (the “9800 MCD lease”). In December 2004, the Company exited from its seven-year lease associated with this facility. In connection with this exit, the Company obtained a release of both the restricted investments of approximately $76,000 and the residual value guarantee of $64,600. Also, to facilitate the transition from this space, the Company entered into an operating lease for this facility for two years with the new lessee of this facility. The Company received $16,600 in cash consideration from this new lessee in exchange for the Company’s exit of its lease as well as the sale of the leasehold improvements having an aggregate net book value of approximately $9,294 and other assets located at 9800 Medical Center Drive. Transaction costs and exit costs for rent and operating costs, net of estimated sublease income associated with non-utilized space under the new lease, aggregated $11,002. Net of the cash consideration and all the costs, which aggregated $20,296, the Company recorded a loss of $3,696 in 2004 related to this exit, which is included in the Charge for restructuring in the consolidated statements of operations. The Company will review its estimated exit cost accrual on an ongoing basis.

The following table summarizes the activity related to the liability for restructuring costs as of December 31, 2005:

					Former CEO
		Severance			Related
		and			Benefits			Facilities
		Benefits			Charges			Related			Total
Balance as of January 1, 2005		$	21		$	961		$	9,486		$	10,468
9800 Medical Center Drive			—			—			915			915
	Subtotal		21			961			10,401			11,383
Cash paid			(1	)		(519	)		(3,624	)		(4,144	)
Non-cash			—			—			(840	)		(840	)
Balance as of December 31, 2005		$	20		$	442		$	5,937		$	6,399

During the fourth quarter of 2005, the Company vacated from a significant portion of the 9800 Medical Center Drive facility. Accordingly, the Company accrued $915 for the remaining lease obligation associated with the vacated space.

F-34

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

(NOTE M) — Charge for Restructuring (continued)

The non-cash charge of $840 relates to the realized loss incurred in 2005 associated with assets sold in conection with the exit at 9800 Medical Center Drive.

The liability for restructuring costs of $6,399 and $10,468 as of December 31, 2005 and 2004, respectively, was shown within accounts payable and accrued expenses on the consolidated balance sheets.

The Company’s Charge for restructuring for 2004 of $15,408 included in the consolidated statement of operations represents the gross expense of $32,008, net of $16,600 of cash consideration received in connection with the exit from 9800 Medical Center Drive.

(NOTE N) — CoGenesys

During the fourth quarter of 2005, the Company entered into an agreement with TriGenesys, Inc. (“TGS”) that enables TGS to acquire various assets, rights and interests used by the Company’s CoGenesys division (“CoGenesys”) provided that TGS raises at least $25,000 in financing and meets certain other conditions (the “CoGenesys Agreement”). TGS shareholders include two former senior executives of the Company. The CoGenesys Agreement may be terminated prior to the consummation of the acquisition by mutual written consent of both the Company and TGS or by the Company if TGS has not completed the necessary financing by May 31, 2006, unless otherwise extended.

The CoGenesys Agreement provides that TGS will (i) pay at least $10,000 but not more than $20,000 for the CoGenesys assets, rights and interests, (ii) assume certain specified liabilities and (iii) pay for the operating expenses incurred by CoGenesys between January 1, 2006 and the date of acquisition, up to $10,000. At the Company’s option, it can receive these payments in the form of either cash or equity or a combination of both. In the event the Company held an equity interest in TGS, TGS would be deemed a related party.

The CoGenesys Agreement provides the Company with various milestone and royalty rights on any CoGenesys product and the option to reestablish development rights to certain licensed products as well as the option to have CoGenesys conduct drug development activities on the Company’s behalf. CoGenesys can obtain additional product rights by extending the initial seven-year research term upon the payment of additional consideration.

As of December 31, 2005, the Company employed approximately 60 employees in the CoGenesys division, all of whom are expected to become employees of TGS upon the date of acquisition. In addition, the Company has assets with a net book value of approximately $3,078 as of December 31, 2005, that are expected to be sold to TGS.

F-35

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

(NOTE O) — Net Loss Per Share

The following table sets forth the computation of basic and diluted net loss per share:

	Year Ended December 31,
	2005			2004			2003
Numerator:
Net loss	$	(239,439	)	$	(242,898	)	$	(185,324	)
Denominator:
Denominator for basic and diluted earnings per share — weighted-average shares		130,772,233			130,041,071			129,112,670
Net loss per share, basic and diluted:
Net loss per share	$	(1.83	)	$	(1.87	)	$	(1.44	)

Common stock shares issued in connection with the Company’s Employee Stock Purchase Plan and through the exercised options granted pursuant to the Employee Stock Option Plan are included in the Company’s weighted average share balance based upon the issuance date of the related shares. For the years ended December 31, 2005, 2004 and 2003, diluted net income (loss) per share is the same as basic net income (loss) per share as the inclusion of outstanding stock options and convertible debt is anti-dilutive. As of December 31, 2005, 2004 and 2003, the Company had 29,301,035, 23,473,913 and 30,769,339, respectively, of stock options outstanding. As of December 31, 2005, 2004 and 2003, the Company had 31,181,957, 21,482,403 and 6,532,588, respectively, of shares issuable upon the conversion of the Company’s convertible subordinated debt.

(NOTE P) — Related Parties

The Company’s equity investments in CAT and Corautus make them related parties with the Company. Effective with the sale of the Company’s investment in Transgene in 2005, Transgene is no longer a related party. While deemed a related party, the Company recognized revenue of $1,498, $2,568 and $2,568, in 2005, 2004 and 2003, respectively, under a 1998 collaboration agreement with Transgene. In 2005, 2004 and 2003, the Company amortized $1,200 each year for research support costs paid to CAT in connection with a 2000 collaboration agreement. In 2003, the Company paid $1,000 to CAT, in connection with two collaboration agreements. The Company made no payments to CAT in 2005 and 2004.

During the fourth quarter of 2005, the Company entered into an asset purchase and license agreement with TriGenesys, Inc., a company whose stockholders include two individuals who were senior executives of the Company at the time of the agreement. See Note N, CoGenesys, for additional discussion.

The Company had no other material related party transactions during 2005, 2004 or 2003.

F-36

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except share and per share data)

(NOTE Q) — Quarterly Financial Information (unaudited)

Quarterly financial information for 2005 and 2004 is presented in the following tables:

	1st			2nd			3rd			4th
	Quarter			Quarter			Quarter			Quarter
2005
Revenue	$	1,105		$	2,854		$	5,882		$	9,272
Income (loss) from operations		(62,522	)		(58,972	)		(58,022	)		(72,154	)
Net income (loss)		(59,582	)		(55,986	)		(54,363	)		(69,508	)
Net income (loss) per share, basic and diluted		(0.46	)		(0.43	)		(0.42	)		(0.53	)
2004
Revenue	$	1,643		$	644		$	717		$	827
Income (loss) from operations		(64,209	)		(63,789	)		(65,544	)		(73,312	)
Net income (loss)		(55,428	)		(58,527	)		(62,237	)		(66,706	)
Net income (loss) per share, basic and diluted		(0.43	)		(0.45	)		(0.48	)		(0.51	)

The Company’s results for the fourth quarter of 2005 include a non-cash stock option modification charge of $6,985, or $0.05 per share, as a result of the departure of two senior executives.

The Company’s results for the first and second quarters of 2004 include restructuring charges of $3,699, or $0.03 per share, and $1,799, or $0.01 per share, respectively. The charges primarily relate to the accrual of the total cost of employee severance benefits and costs associated with the retirement of the Company’s former CEO. The Company’s results for the third quarter of 2004 include a restructuring charge of $5,799, or $0.04 per share, relating to an accrual for facility closure cost of $4,000 and costs associated with the retirement of the Company’s former CEO of $1,799.

The Company’s results for the fourth quarter of 2004 include a net charge of $1,678, or $0.01 per share, primarily relating to a restructuring charge associated with facility consolidation of $3,696, costs associated with the retirement of the Company’s former CEO of $415 and a gain recognized on the extinguishment of debt of $2,433.

F-37 EX-10.22 2 w17804exv10w22.htm EX-10.22

Exhibit 10.22

ASSET PURCHASE AGREEMENT

Dated as of December 13, 2005

by and between

TriGenesys, Inc.

and

Human Genome Sciences, Inc.

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

TABLE OF CONTENTS

	Page
ARTICLE I. DEFINITIONS		1
Section 1.01. Definitions		1
ARTICLE II. CONSIDERATION		2
Section 2.01. Sale and Delivery of Purchased Assets		2
Section 2.02. Excluded Assets		3
Section 2.03. Liabilities		3
Section 2.04. Further Assurances		4
Section 2.05. Purchase Price		4
Section 2.06. Allocation of Purchase Price		5
Section 2.07. Stock Matters		5
ARTICLE III. CLOSING		5
Section 3.01. Closing		5
Section 3.02. Closing Deliveries		6
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE SELLER		7
Section 4.01. Organization and Good Standing		7
Section 4.02. Execution and Effect of Agreement		8
Section 4.03. Permits; Compliance with Law		8
Section 4.04. Lease of Real Property		8
Section 4.05. Assumed Contracts		9
Section 4.06. Personal Property		9
Section 4.07. No Conflicts		9
Section 4.08. Litigation		10
Section 4.09. Consents		10
Section 4.10. Environmental Matters		10
Section 4.11. Supplier Relationships		10
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF THE BUYER		11
Section 5.01. Organization and Good Standing		11
Section 5.02. Execution and Effect of Agreement		11
Section 5.03. No Violation		11
Section 5.04. Consents		11
ARTICLE VI. PRE-CLOSING COVENANTS		12
Section 6.01. HSR Filing and Other Actions		12
Section 6.02. Continuing Access		12
Section 6.03. Cooperation		13
Section 6.04. Conduct of Business Pending Closing		13
Section 6.05. No Shop		14
Section 6.06. Notification of Certain Matters		14
Section 6.07. Public Announcements		15
Section 6.08. Operating Expenses		15
Section 6.09. Transaction Expenses		15

i

	Page
Section 6.10. Further Assurances		15
ARTICLE VII. POST-CLOSING COVENANTS		16
Section 7.01. Payment of Taxes		16
Section 7.02. Mutual Non-Solicitation; Non-Hire		16
Section 7.03. Access to Records		16
Section 7.04. Qualified Financing Documents		17
Section 7.05. Employees of the CoGenesys Business		17
ARTICLE VIII. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE SELLER		17
Section 8.01. Representations and Warranties		17
Section 8.02. Performance of Obligations		17
Section 8.03. No Litigation		17
Section 8.04. Consents and Approvals		18
Section 8.05. Qualified Financing		18
ARTICLE IX. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE BUYER		18
Section 9.01. Representations and Warranties		18
Section 9.02. Performance of Obligations		18
Section 9.03. No Litigation		18
Section 9.04. No Material Adverse Effect		18
Section 9.05. Consents and Approvals		19
Section 9.06. Qualified Financing		19
ARTICLE X. INDEMNIFICATION		19
Section 10.01. Obligations of the Seller		19
Section 10.02. Obligations of the Buyer		19
Section 10.03. Tax Indemnification		20
Section 10.04. Procedure		20
Section 10.05. Survival		21
Section 10.06. Limitations		21
Section 10.07. Remedies		22
ARTICLE XI. TERMINATION		22
Section 11.01. Termination		22
Section 11.02. Consequences of Termination		23
ARTICLE XII. GENERAL PROVISIONS		23
Section 12.01. Cooperation		23
Section 12.02. Confidentiality		24
Section 12.03. Amendments and Waivers		26
Section 12.04. Successors and Assigns		26
Section 12.05. No Third Party Beneficiaries		27
Section 12.06. Choice of Law		27
Section 12.07. Waiver of Jury Trial		27
Section 12.08. Notices		27
Section 12.09. Waiver of Bulk Sales		28
Section 12.10. Severability		28
Section 12.11. Entire Agreement		28
Section 12.12. Construction		28

ii

	Page
Section 12.13. Titles and Subtitles		29
Section 12.14. Time		29
Section 12.15. Counterparts		29

EXHIBITS	Page
Exhibit A – Definitions		A-1
Exhibit B – Allocation of Purchase Price		B-1
Exhibit C – Term Sheet		C-1
Exhibit D – License Agreement		F-1
Exhibit E – Services Agreement		D-1
Exhibit F – Manufacturing Services Agreement		E-1
Exhibit G – Lease Assignment Agreement		G-1
Exhibit H – Form of Bill of Sale		H-1
Exhibit I – Form of Assignment and Assumption Agreement		I-1
Schedules

iii

ASSET PURCHASE AGREEMENT

     THIS ASSET PURCHASE AGREEMENT (this “Agreement”), dated as of December 13, 2005, is by and between TriGenesys, Inc., a corporation duly organized and existing under the laws of the State of Delaware (the “Buyer”), and Human Genome Sciences, Inc., a corporation duly organized and existing under the laws of the State of Delaware (the “Seller”).

R E C I T A L S

     1. The Seller’s CoGenesys business unit is in the business of early-stage research and development of novel compounds for treating and diagnosing human disease based on the identification and study of genes described in the License Agreement to be entered into by the parties (the “CoGenesys Business”).

     2. The Seller desires to sell, convey, transfer, assign and deliver to the Buyer, and the Buyer desires to purchase and acquire from the Seller, all of the Seller’s right, title and interest in and to certain assets of the CoGenesys Business, as more particularly set forth herein, together with certain obligations and liabilities relating thereto, free and clear of all Liens, other than Permitted Liens.

     3. In furtherance of the consummation of the transactions contemplated by this Agreement, the parties desire to enter into this Agreement.

     NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby expressly acknowledged, the parties, intending to be legally bound hereby, agree as follows:

ARTICLE I.
DEFINITIONS

     Section 1.01. Definitions.

     Except as otherwise expressly provided in this Agreement, the capitalized terms used in this Agreement shall have the meanings specified in Exhibit A hereto and shall be equally applicable to both the singular and plural forms. Any agreement referred to in Exhibit A shall mean such agreement as amended, supplemented and modified from time to time to the extent permitted by the applicable provisions hereof and thereof.

- 1 -

ARTICLE II.
CONSIDERATION

     Section 2.01. Sale and Delivery of Purchased Assets.

     At the Closing and subject to the terms and conditions of this Agreement, the Seller shall sell, convey, assign, transfer and deliver to the Buyer, free and clear of all Liens other than the Permitted Liens, all of the Seller’s right, title and interest in and to the following assets, rights, claims, properties and interests that the Seller owns relating to or used by the CoGenesys Business or in which the Seller has any right, title or interest relating to or used by the CoGenesys Business, other than the Excluded Assets (collectively, the “Purchased Assets”):

     (a) Assumed Contracts and Certain Other Rights of the Seller. All rights and interests of the Seller following the Closing in, to and under all contracts, agreements, arrangements, commitments, bids, revenues in excess of billings on uncompleted contracts and any other contract rights of the CoGenesys Business existing on the Closing Date and specified on Schedule 2.01(a) (the “Assumed Contracts”). In addition, with respect to the GE Capital Lease, the parties would enter into an agreement providing for CoGenesys to service this lease through HGS.

     (b) Equipment. All of the CoGenesys Business’ equipment and other tangible personal property, whether owned or leased, located at 9410 Key West Avenue, Rockville, Maryland, including without limitation the equipment and other tangible personal property specified on Schedule 2.01(b) (the “Equipment”). In addition, the Equipment would also include certain furniture, fixtures and other equipment and tangible personal property located at HGS’ headquarters or in warehouse facilities as may be mutually agreed to by the parties and included on Schedule 2.01(b).

     (c) Inventory. All of the CoGenesys Business’ inventory located at 9410 Key West Avenue, Rockville, Maryland, including all finished goods, work-in-progress, raw materials, spare parts and all other materials and supplies to be used or consumed by the CoGenesys Business in the production of finished goods to the extent specified on Schedule 2.01(c) (the “Inventory”). The Inventory will include all inventory or products for the manufacture of bulk drug products related to the CoGenesys Business, wherever located, including reagents, cell banks and related materials.

     (d) Name. All rights of the Seller to the name “CoGenesys,” together with any derivatives thereof and all logos, designs, phrases and other identifications of or relating to such name and the goodwill associated therewith and all intellectual property rights of the Seller to the Name, including but not limited to any associated trademarks, trade names and service marks, trade dress, logos, internet domain names, and other commercial product or service designations, and all goodwill and similar value associated with any of the foregoing, and all applications, registrations, and renewals in connection therewith (collectively, the “Name”).

- 2 -

     (e) Records. All books, records and accounts, correspondence, technical, accounting, manufacturing and procedural manuals, mailing lists, studies, reports or summaries relating to the Purchased Assets, and any confidential information which has been reduced to writing relating to or arising out of the CoGenesys Business as it relates to the Purchased Assets (the “Records”). The Records will also include photocopies of all personnel files related to employees or consultants of the CoGenesys Business and electronic copies of all governmental, regulatory, clinical, manufacturing and quality control related SOPs.

     (f) Permits. All Permits of the CoGenesys Business, including, without limitation, those Permits specified on Schedule 4.05.

     (g) Goodwill. All goodwill incident to the CoGenesys Business, including, without limitation, the value of the Name associated with the CoGenesys Business that is included in the Purchased Assets.

     The parties acknowledge and agree that the above referenced Schedules identifying the Purchased Assets may be modified and updated prior to Closing by mutual agreement of the parties and that a final version of all Schedules will be appended to this Agreement as of the Closing.

     Section 2.02. Excluded Assets.

     Notwithstanding anything to the contrary contained in Section 2.01 or elsewhere in this Agreement, the following Assets (collectively, the “Excluded Assets”) shall not be part of the sale and purchase contemplated hereunder, are excluded from the Purchased Assets, and shall remain the property of Seller after the Closing:

     (a) Records. Personnel records of any of the current or former employees of the CoGenesys Business and any books, records and accounts and correspondence that pertain to any other assets and properties of the Seller which are not included in the definition of Purchased Assets (collectively, the “Excluded Records”).

     (b) Licensed Technology. The intellectual property that is the subject of the License Agreement to be entered into by the parties.

     (c) Seller’s Other Business. All other assets, rights, claims, properties and interests of the Seller relating to or used in any other business of the Seller other than the Purchased Assets.

     Section 2.03. Liabilities.

     (a) At the Closing, the Buyer will assume Liability for, and complete the obligations arising in the ordinary course under (the “Assumed Liabilities”):

          (i) the Assumed Contracts with respect to all periods at and after the Closing (but shall not assume any Liability arising from the Seller’s performance or non-performance

- 3 -

under any Assumed Contract at any time prior to the Closing, whether asserted before or after the Closing);

          (ii) the vacation, sick leave and other accruals for the Seller’s employees to be hired by the Buyer; provided that the Buyer shall not assume any of the Seller’s employee benefit plans with respect thereto or any obligations thereunder; and

          (iii) all ordinary course accounts payable and trade payables of the CoGenesys Business as of the Closing.

     (b) Except for the Assumed Liabilities, the Buyer shall not assume, and shall not be deemed by anything contained in this Agreement to have assumed, any Liability of the Seller whatsoever (the “Excluded Liabilities”).

     Section 2.04. Further Assurances.

     At any time and from time to time after the Closing, at the Buyer’s reasonable request and without further consideration but at no material cost to the Seller, the Seller promptly shall execute and deliver such instruments of sale, transfer, conveyance, assignment and confirmation, and take such other reasonable action, as the Buyer may reasonably request to more effectively transfer, convey and assign to the Buyer, and to confirm the Buyer’s title to and interest in, all of the Purchased Assets, to put the Buyer in actual possession and operating control thereof, to assist the Buyer in exercising all rights with respect thereto and to carry out the purposes and intent of this Agreement.

     Section 2.05. Purchase Price.

     (a) The consideration for the Purchased Assets and the License Agreement (the “Purchase Price”) shall be (i) an amount of cash equal to [***]% of the gross proceeds received by the Buyer in the Qualified Financing; provided that such amount shall not be less than $10,000,000 nor greater than $20,000,000 and (ii) the assumption of the Assumed Liabilities. As used in this Agreement, the term “Qualified Financing” shall mean the Buyer’s first round of financing that raises $[***] or more in net proceeds to the Buyer (or such other amount as may be mutually agreed to by the parties as would permit the Buyer to pay its obligations to the Seller under this Agreement and provide sufficient working capital for at least twelve (12) months of operations), including any subsequent closings of such first round of financing.

     (b) If the Seller elects in writing at least thirty (30) Business Days prior to the Closing, the Seller shall receive Buyer’s Equity having a value equal to all or any portion of the Purchase Price and all or any portion of the Operating Expenses. For purposes of this Agreement, “Buyer’s Equity” shall mean the same form of preferred stock, common stock and other equity securities (or securities convertible into or exercisable for such equity securities) issued in the Qualified Financing and shall be valued for this purpose at the valuation used in connection with the Qualified Financing. Nothing in this Agreement shall prevent the Seller from increasing its percentage ownership of the Buyer’s Equity after the Qualified Financing

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

- 4 -

through the purchase of additional Buyer’s Equity in future rounds of financing or through future investments in the Buyer.

     Section 2.06. Allocation of Purchase Price.

     The Buyer and the Seller agree to allocate the Purchase Price (and all other capitalizable costs) among the Purchased Assets for all purposes (including financial, accounting and tax purposes) in accordance with the allocation schedule attached hereto as Exhibit B. The Buyer and the Seller shall file all Tax Returns, reports and other documents, including an asset acquisition statement on Form 8594, required by any competent taxing authority in a timely manner consistent with the allocation set forth on Exhibit B hereto. The parties acknowledge that the Purchase Price subject to allocation will be different for each of the Buyer and the Seller (e.g., due to inclusion of differing amounts of transaction cost).

     Section 2.07. Stock Matters.

     (a) If any Buyer’s Equity is issued to the Seller at Closing, such securities will be issued in a transaction exempt from registration under (a) the Securities Act of 1933, as amended (the “Securities Act”), by reason of Rule 506 promulgated thereunder, and (b) applicable state securities laws. Any Buyer’s Equity issued in connection with the transactions contemplated by this Agreement will be “restricted securities” under the Securities Act and Rule 144 promulgated thereunder and may only be sold or otherwise transferred pursuant to an effective registration statement under the Securities Act and applicable state securities laws or pursuant to an exemption from the registration requirements of the Securities Act and applicable state securities laws.

     (b) At the Closing and if the Seller receives any of the Buyer’s Equity, the Seller shall enter into documentation consistent with the documentation entered into by the participants in the Qualified Financing (the “Qualified Financing Documentation”), which shall at a minimum contain the investor protection provisions contained in the term sheet attached hereto as Exhibit C. The Seller shall be afforded the same economic rights and similar monitoring and information rights under the Qualified Financing Documentation as those granted to the participants in the Qualified Financing.

ARTICLE III.
CLOSING

     Section 3.01. Closing.

     Subject to the satisfaction or waiver of all conditions of the parties to consummation of the transactions contemplated hereby, the closing of the transactions contemplated by this Agreement (the “Closing”) shall take place at the offices of the Seller at 14200 Shady Grove Road, Rockville, Maryland 20850 at 10:00 a.m. local time concurrently with the consummation

- 5 -

of the Qualified Financing (unless another location, date or time is otherwise mutually agreed to in writing by the Buyer and the Seller). The date and time of the Closing are herein referred to as the “Closing Date.”

     Section 3.02. Closing Deliveries.

     (a) At the Closing, the Seller shall deliver, or cause to be delivered, to the Buyer each of the following:

     (i) the Purchased Assets;

     (ii) a License Agreement by and between the Seller and the Buyer in the form of Exhibit D attached hereto (the “License Agreement”), duly executed by the Seller;

     (iii) a Services Agreement by and between the Seller and the Buyer in the form of Exhibit E attached hereto (the “Services Agreement”), duly executed by the Seller;

     (iv) a Manufacturing Services Agreement by and between the Seller and the Buyer in the form of Exhibit F attached hereto (the “Manufacturing Services Agreement”), duly executed by the Seller;

     (v) a Lease Assignment Agreement by and between the Seller and the Buyer relating to the Seller’s lease (the “Lease”) of the premises located at 9410 Key West Avenue, Rockville, Maryland 20850 (the “Premises”) in the form of Exhibit G attached hereto (the “Lease Assignment Agreement”), duly executed by the Seller;

     (vi) a General Assignment and Bill of Sale in the form of Exhibit H attached hereto (the “Bill of Sale”);

     (vii) an Assignment and Assumption Agreement in the form of Exhibit I attached hereto (the “Assignment and Assumption Agreement”);

     (viii) if applicable, the Qualified Financing Documents, duly executed by the Seller;

     (ix) all Permits to the extent transferable;

     (x) the certificates required by Sections 9.01 and 9.02; and

     (xi) such other documents and instruments as may be reasonably required, in the opinion of Buyer’s counsel, to consummate the transactions contemplated hereby.

     (b) At the Closing, the Buyer shall deliver, or cause to be delivered, to the Seller each of the following:

- 6 -

     (i) the Purchase Price, either in cash by wire transfer or in the form of Buyer’s Equity represented by certificates issued in such names and denominations as requested by the Seller at least one Business Day before the Closing, or some combination of both, as the Seller so directs pursuant to Section 2.05;

     (ii) the License Agreement, duly executed by the Buyer;

     (iii) the Services Agreement, duly executed by the Buyer;

     (iv) the Manufacturing Services Agreement, duly executed by the Buyer;

     (v) the Lease Assignment Agreement, duly executed by the Buyer;

     (vi) the Operating Expenses, either in cash by wire transfer or in the form of Buyer’s Equity represented by certificates issued in such names and denominations as requested by the Seller at least one Business Day before the Closing, or some combination of both, as the Seller so directs pursuant to Section 2.05;

     (vii) the Bill of Sale;

     (viii) the Assignment and Assumption Agreement;

     (ix) if applicable, the Qualified Financing Documents, duly executed by the Buyer;

     (x) the certificates required by Sections 8.01 and 8.02; and

     (xi) such other documents and instruments as may be reasonably required, in the opinion of Seller’s counsel, to consummate the transactions contemplated hereby.

ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE SELLER

     The Seller hereby represents and warrants to the Buyer that, except as otherwise set forth in the schedules referred to in this Article IV, the following representations and warranties are, as of the date hereof, and will be, as of the Closing Date, true and correct:

     Section 4.01. Organization and Good Standing.

     The Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and is duly authorized and qualified to do business under all applicable laws, regulations, ordinances and orders of public authorities to carry on its business in the places and in the manner as now conducted, to own or hold under lease the properties and assets it now owns or holds under lease, including the Purchased Assets, and to perform all of its

- 7 -

obligations under this Agreement, except where the failure to be so qualified would not have a Material Adverse Effect.

     Section 4.02. Execution and Effect of Agreement.

     The Seller has the corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by the Seller and the consummation by the Seller of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Seller, and no other corporate action on the part of the Seller (or any other Person) is necessary to authorize the execution, delivery and performance of this Agreement and the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Seller and constitutes the legal, valid and binding obligation of the Seller, enforceable against the Seller in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity), and except as limited by the unenforceability under certain circumstances under law or court decisions of provisions providing for the indemnification of or contribution by a party with respect to a liability where such indemnification or contribution is contrary to public policy (the “Enforceability Exceptions”).

     Section 4.03. Permits; Compliance with Law.

     (a) To the Seller’s Knowledge, the Seller is in compliance in all material respects with all applicable federal, state, local and foreign laws, rules and regulations applicable to the CoGenesys Business.

     (b) To the Seller’s Knowledge, the Seller holds all required Permits for the operation of the CoGenesys Business. Schedule 4.03 describes all such Permits. To the Seller’s Knowledge, the Permits listed on Schedule 4.03 are valid and in full force and effect, and the Seller has not received any notice that any Governmental Authority intends to cancel, suspend, terminate or not renew any of such Permits. The Seller has conducted and is conducting the CoGenesys Business in substantial compliance with the requirements, standards, criteria and conditions set forth in the Permits listed on Schedule 4.03. To the Seller’s Knowledge, the transactions contemplated by this Agreement will not result in a default under or a breach or violation of, or materially adversely affect the rights and benefits afforded to the Seller by, any of the Permits listed on Schedule 4.03. Except as set forth on Schedule 4.03, all of the Permits are transferable to the Buyer as contemplated by this Agreement.

     Section 4.04. Lease of Real Property.

     (a) The Lease is in full force and effect. There is no default under the Lease and there are no facts currently existing that could lead to a default under the Lease with the passage of

- 8 -

time. The Seller has good right, title and interest to all tenant improvements located at the Premises. A true, complete and correct copy of the Lease has been furnished to the Buyer.

     (b) No Proceeding is pending or, to the Seller’s Knowledge, threatened for the taking or condemnation of all or any portion of the property demised under the Lease. The Seller owns good and marketable title to the leasehold estate and to the Lease, free and clear of any Liens, except for: (i) real property Taxes, if any, affecting properties of which the premise demised under the Lease forms a part, not yet due and payable; and (ii) the matters and exceptions set forth on Schedule 4.04(b). There is no unpaid brokerage commission, finder’s fee or a similar payment due from the Seller with regard to the Lease.

     (c) To the Seller’s Knowledge, there are no recorded or unrecorded covenants, deed restrictions, easements, leases, subleases or rights of occupancy or Liens that materially encumber the real property subject to the Lease, or any part thereof, or the Lease.

     Section 4.05. Assumed Contracts.

     To the Seller’s Knowledge, no party to any of the Assumed Contracts is in default thereunder. All Assumed Contracts are in full force and effect and are enforceable against the parties thereto in accordance with their terms, subject to the Enforceability Exceptions. The Seller has not been notified that any party to any Assumed Contract intends to cancel, terminate, not renew or exercise an option under any Assumed Contract, whether in connection with the transactions contemplated hereby or otherwise, and to the Seller’s Knowledge, no such action has been threatened or contemplated.

     Section 4.06. Personal Property.

     Schedule 4.06 lists each item of personal property used by the CoGenesys Business with a fair market value of $25,000 or more. Except as set forth on Schedule 4.06, (A) all of the Seller’s personal property used by the CoGenesys Business is either owned by the Seller or leased by the Seller pursuant to a lease noted on Schedule 4.06, (B) to the Seller’s Knowledge, each of the items of personal property of the Seller used by the CoGenesys Business is in good working order and condition, ordinary wear and tear excepted, and (C) all leases and agreements noted on Schedule 4.06 are in full force and effect and to the Seller’s Knowledge, constitute valid and binding agreements of each other party thereto. To the Seller’s Knowledge, the Seller has good and marketable title to all of its respective personal property used by the CoGenesys Business (except for assets disposed of in the ordinary course of business since December 31, 2004 or as set forth on Schedule 4.06), free and clear of all Liens, except for Permitted Liens. The Purchased Assets constitute all of the property and assets, tangible and intangible, necessary in the conduct and operation of the CoGenesys Business.

     Section 4.07. No Conflicts.

     Neither the execution or delivery of this Agreement by the Seller nor the consummation by the Seller of the transactions contemplated hereby: (i) will violate in any material respect any

- 9 -

statute, regulation, rule, injunction, judgment, order, decree, ruling, charge or restriction of any Governmental Authority to which the Seller is a party or to which is bound or subject, conflict in any material respect with or result in a material breach of, or give rise to a right of termination of, or accelerate the performance required by, the terms of any of the Assumed Contracts or (ii) constitute a default in any material respect thereunder, or result in the creation of any Lien, except for Permitted Liens, upon any of the Purchased Assets.

     Section 4.08. Litigation.

     There is no Proceeding pending or, to the Seller’s Knowledge threatened, against the Seller that has had or could reasonably be expected to enjoin the consummation of the transactions contemplated hereby.

     Section 4.09. Consents.

     Except for filings pursuant to the HSR Act, if necessary, or as set forth in Schedule 4.09, no consent, approval, permit, authorization of, declaration to or filing with any Governmental Authority or any Person on the part of the Seller is required in connection with the execution and delivery by such Seller of this Agreement or the consummation of the transactions contemplated hereby.

     Section 4.10. Environmental Matters.

     Except as disclosed in Schedule 4.10, to the Seller’s knowledge, (a) the CoGenesys Business is now and has at all times been in compliance in all material respects with applicable Environmental Laws, (b) the Seller is not subject to any pending or, to the Seller’s Knowledge, threatened or contemplated Proceeding alleging violation of any Environmental Law with respect to the CoGenesys Business or alleging responsibility for any environmental condition at the real property subject to the Lease (the “Site”), (c) the Seller has not received any written notice that it is potentially responsible for any environmental condition at the Site or potentially liable for any claim arising under Environmental Laws; (d) the Seller has not received a request for information under CERCLA or any state or local counterpart with respect to the CoGenesys Business; (e) the Seller has not disposed of or released Hazardous Materials nor, to the Seller’s Knowledge, are underground or aboveground storage tanks, fuel tanks, asbestos containing materials or polychlorinated biphenyls present on, in, at or under the Site; (f) the Seller has all material permits and approvals required by Environmental Laws to conduct the CoGenesys Business and the Seller has not received any notice that any Governmental Authority intends to cancel, terminate or not renew any such permit or approvals; (g) the transactions contemplated hereby are not subject to any state environmental transfer laws and no governmental approval, clearance or consent is required under any Environmental Law for such consummation or for the Buyer to continue the CoGenesys Business after the Closing.

     Section 4.11. Supplier Relationships.

     Schedule 4.11 contains a complete and accurate list of the CoGenesys Business’ suppliers

- 10 -

(representing in excess of $100,000 of expense per year in 2004). Except as set forth on Schedule 4.11, the Seller has not received notice that, and to the Seller’s Knowledge the Seller has no reason to believe that, any such supplier plans to discontinue doing business with the Buyer or will not do business on substantially the same terms, conditions and amounts subsequent to the Closing Date as such supplier did with the Seller prior to the Closing Date.

ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF THE BUYER

     The Buyer hereby represents and warrants to the Seller that the following representations and warranties are, as of the date hereof, and will be, as of the Closing Date, true and correct:

     Section 5.01. Organization and Good Standing.

     The Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Buyer has full corporate power and authority to own its properties and carry on its business as it is now being conducted.

     Section 5.02. Execution and Effect of Agreement.

     The Buyer has the corporate power and authority to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by the Buyer and the consummation by the Buyer of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Buyer, and no other corporate proceeding on the part of the Buyer is necessary to authorize the execution, delivery and performance of this Agreement and the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Buyer and constitutes the legal, valid and binding obligation of the Buyer, enforceable against the Buyer in accordance with its terms, except as limited by the Enforceability Exceptions.

     Section 5.03. No Violation.

     Neither the execution or delivery of this Agreement by the Buyer nor the consummation of the transactions contemplated hereby, will violate any statute, regulation, rule, injunction, judgment, order, decree, ruling, charge or restriction of any Governmental Authority, or court to which the Buyer is a party or to which the Buyer is bound or subject, or the provisions of the charter or by-laws of the Buyer.

     Section 5.04. Consents.

     Except for filings pursuant to the HSR Act, if necessary, or as set forth on Schedule 5.04, no consent, approval, permit, authorization of, declaration to or filing with any Governmental Authority or any other third party on the part of the Buyer is required in connection with the

- 11 -

execution and delivery of this Agreement or the consummation of the transactions contemplated hereby.

ARTICLE VI.
PRE-CLOSING COVENANTS

     Section 6.01. HSR Filing and Other Actions.

     (a) At least forty five (45) Business Days prior to Closing, if necessary, the parties shall file with the United States Federal Trade Commission and the Antitrust Division of the United States Department of Justice Notification and Report Forms relating to the transactions contemplated herein as required by the HSR Act, as well as comparable pre-merger notification forms required by the merger notification or control laws and regulations of any other applicable jurisdiction, as determined by counsel to the Seller. Each party shall promptly: (i) supply the other with any information required in order to make such filings; and (ii) supply any additional information that may be required by the United States Federal Trade Commission, the Antitrust Division of the United States Department of Justice or the competition or merger control authorities of any other jurisdiction, as determined by counsel to the Seller; provided, however, that no party shall be required to agree to any divestiture by itself of any business, assets or property, or the imposition of any limitation on the ability of any party to conduct its business or to own or exercise control over such assets and properties.

     (b) Upon the terms and subject to the conditions contained herein, each of the parties hereto agrees to: (i) cooperate with one another in determining whether any filings are required to be made with, or consents or permits are required to be obtained from, any Governmental Authority in any jurisdiction or any lender, lessor or other third party in connection with the contracts, the proprietary rights and leases, or otherwise, prior to the Closing Date in connection with the consummation of the transactions contemplated hereby and cooperate in making any such filings promptly and in seeking timely to obtain any such consents and permits; (ii) use commercially reasonable efforts to defend all challenges to this Agreement or to consummation of the transactions contemplated hereby and use commercially reasonable efforts to lift or rescind any injunction or restraining order or other court order adversely affecting the ability of the parties to consummate the transactions contemplated hereby; and (iii) use commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all other things necessary, proper or advisable to consummate and make effective the transactions contemplated hereby.

     Section 6.02. Continuing Access.

     The Buyer shall be afforded reasonable access to the CoGenesys Business and the CoGenesys Business as the Buyer may deem appropriate.

- 12 -

     Section 6.03. Cooperation.

     Between the date of this Agreement and the Closing Date, the Seller will cooperate with the Buyer and its Representatives, including the Buyer’s auditors and counsel, in the preparation of any documents or other materials required in connection with the transactions contemplated by this Agreement.

     Section 6.04. Conduct of Business Pending Closing.

     The parties acknowledge that during the period prior to the Closing, the Buyer may enter into transactions, contracts, licensing arrangements and other business relationships for the benefit of the Buyer. In the event the transactions contemplated by this Agreement are consummated, all such transactions, contracts, licensing arrangements and other business relationships entered into by the Buyer prior to Closing will be for the benefit of the Buyer and otherwise for the benefit of the Seller.

     Except as otherwise provided in this Agreement or with the prior written consent of the Buyer, between the date of this Agreement and the Closing Date, the Seller shall:

     (a) carry on the CoGenesys Business in the ordinary course and consistent with the 2006 operating plan of the CoGenesys Business;

     (b) take commercially reasonable steps to preserve existing relationships with all Persons related to the CoGenesys Business, including, without limitation, relationships with its suppliers, employees and agents;

     (c) not amend or terminate any of the Assumed Contracts;

     (d) promptly notify the Buyer of the occurrence of any event that could reasonably be expected to have a Material Adverse Effect;

     (e) not negotiate, sell lease, transfer, convey or otherwise dispose of any individual asset to be sold to the Buyer hereunder with a value in excess of $5,000 each or in the aggregate other than in the ordinary course of business;

     (f) not incur any debt, liability or obligation, except current liabilities incurred in connection with or for services rendered or goods supplied in the ordinary course of business consistent with past custom and practices;

     (g) not create or allow the creation of any Lien on any of the Purchased Assets, except for Permitted Liens;

     (h) not hire any additional salaried employees or salespersons for the CoGenesys Business earning more than $40,000 per year individually or $150,000 in the aggregate;

- 13 -

     (i) not take any action which reasonably could be expected to give rise to a breach of any of the representations and warranties set forth in Article IV hereof;

     (j) promptly notify the Buyer of any Proceeding (whether or not the defense thereof or liabilities in respect thereof are covered by insurance) initiated or threatened by or against the Seller relating to the CoGenesys Business; and

     (k) allow the Buyer to contact the Seller’s Business employees regarding an offer of employment by the Buyer after Closing.

     Section 6.05. No Shop.

     In consideration of the substantial expenditure of time, effort and expense undertaken by the Buyer in connection with its due diligence review and the preparation and execution of this Agreement, the Seller agrees that neither it nor its Representatives will, after execution of this Agreement and until the earlier of the Closing or the termination of this Agreement, (a) solicit, initiate, encourage, enter into, conduct or continue any discussions, or enter into any agreement or understanding, with any Person other than the Buyer regarding a sale, license or other transaction involving the CoGenesys Business or any material portion of the CoGenesys Business’ assets or business, or (b) disclose any non-public information relating to the CoGenesys Business, or afford access to the properties, books or records of the CoGenesys Business, to any Person (other than the Buyer) that may be considering acquiring an interest in the CoGenesys Business or any material portion of the CoGenesys Business’ assets. If the Seller receives any request for information or indication of interest from any Person regarding a possible acquisition involving the CoGenesys Business, the Seller shall promptly disclose to the Buyer such request or indication of interest.

     Section 6.06. Notification of Certain Matters.

     The Seller shall deliver written notice to the Buyer within three Business Days of (a) the occurrence or non-occurrence of any event of which the Seller has knowledge, the occurrence or non-occurrence of which, has caused any representation or warranty of the Seller contained herein to become untrue or inaccurate in any material respect at or prior to the Closing, and (b) any failure of the Seller to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by the Seller hereunder. The Buyer shall give notice within three Business Days to the Seller of (a) the occurrence or nonoccurrence of any event of which the Buyer has knowledge, the occurrence or non-occurrence of which, would cause any representation or warranty of the Buyer contained herein to be untrue or inaccurate in any material respect at or prior to the Closing and (b) any material failure of the Buyer to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder. The delivery of any notice pursuant to this Section 6.06 shall not be deemed to (a) modify the representations or warranties hereunder of the party delivering such notice, (b) modify the conditions set forth in Articles VIII and IX, or (c) limit or otherwise affect the remedies

- 14 -

available hereunder to the party receiving such notice, including, without limitation, termination of this Agreement as contemplated by Article XI.

     Section 6.07. Public Announcements.

     Prior to the Closing Date, the Seller and the Buyer will consult with each other before issuing any press release or otherwise making any public statement with respect to the transactions contemplated by this Agreement, and will not issue any such press release or make any such public statement without the prior approval of the other party, except as may be required by applicable law in which event the other party shall have the right to review and comment upon (but not approve) any such press release or public statement prior to its issuance.

     Section 6.08. Operating Expenses.

     Beginning on January 1, 2006 and up until the Closing Date, the Seller shall pay the ordinary operating expenses of the CoGenesys Business (excluding depreciation costs) to the extent contemplated in the 2006 operating plan of the CoGenesys Business (the “Operating Expenses”), up to a maximum of $10,000,000 of Operating Expenses.

     Section 6.09. Transaction Expenses.

     Except as provided in Sections 10.01 and 10.02 or as otherwise specifically provided in this Agreement, the parties shall bear their respective expenses incurred in connection with the preparation and execution of this Agreement and the consummation of the transactions contemplated hereby, including, without limitation, all fees and expenses of their respective Representatives. Each of the Buyer and the Seller shall split evenly the filing fees incurred by the parties in complying with the HSR Act.

     Section 6.10. Further Assurances.

     Each party hereto agrees to execute and deliver, or cause to be executed and delivered, such further instruments or documents or take such other action as may be necessary or convenient, in the opinion of the other parties’ counsel, to carry out the transactions contemplated hereby. Each party hereto agrees to use commercially reasonable efforts to cause those conditions to Closing that are within its control to be satisfied on or before the Closing Date.

- 15 -

ARTICLE VII.
POST-CLOSING COVENANTS

     Section 7.01. Payment of Taxes.

     The Buyer shall pay in a timely manner all Taxes resulting from or payable in connection with the sale of the Purchased Assets pursuant to this Agreement, regardless of the Person on whom such Taxes are imposed.

     Section 7.02. Mutual Non-Solicitation; Non-Hire.

     Each of the Seller and the Buyer recognizes that each has had access to, and has acquired, and has assisted in developing confidential and proprietary information relating to the other party’s business and operations. Each of the Seller and the Buyer acknowledges that such information is and will continue to be of significant value to the other party and that disclosure of such information to or its use by such party or others could cause substantial loss to the other party hereto. The Seller and the Buyer each accordingly agrees as follows:

     (a) Non-Hire. Each of the Seller and the Buyer agrees that, without the express prior written consent of the other party hereto, anywhere in the world, for a period of twelve (12) months after the Closing Date such party will not directly or indirectly employ any officer or employee (whether or not such person would commit a breach of contract by so doing and whether or not such person was an officer or employee before or after the Closing Date) of the other party hereto.

     (a) Non-Solicitation. Each of the Seller and the Buyer agrees that, without the express prior written consent of the other party hereto, anywhere in the world, for a period of twenty (24) months after the Closing Date such party will not directly or indirectly solicit or aid or assist any other person in soliciting any officer or employee (whether or not such person would commit a breach of contract by so doing and whether or not such person was an officer or employee before or after the Closing Date) of the other party hereto.

     Section 7.03. Access to Records.

     After the Closing, the Buyer shall retain all Records and give the Seller reasonable access thereto for all reasonable business purposes, including, defending any claims or law suits brought against the Seller (other than by the Buyer) or pursuing any claims of the Seller against any third party (other than the Buyer), such access to include, without limitation, the right at the Seller’s expense to make copies thereof. The Buyer shall not destroy any of the Records without giving the Seller at least 30 days prior notice with the right of the Seller to retain any such Records, which the Buyer desires to destroy.

- 16 -

     Section 7.04. Qualified Financing Documents.

     After the Closing, the Buyer shall retain all Records and give the Seller reasonable access thereto for all reasonable business purposes, including, defending any claims or law suits brought against the Seller.

     Section 7.05. Employees of the CoGenesys Business.

     The Buyer shall offer employment to all full-time employees of the Seller set forth on Schedule 7.05 to be assigned to the CoGenesys Business at the Closing, on substantially the same terms and with the same responsibilities. Any employment agreements between the Seller and any of the persons who will become employees of the Buyer shall be terminated in a manner reasonably satisfactory to the Seller and any costs associated with such terminations will be borne by the Seller.

ARTICLE VIII.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE SELLER

     The obligations of the Seller with respect to actions to be taken on the Closing Date are subject to the satisfaction or waiver on or prior to the Closing Date of each of the conditions set forth in this Article VIII.

     Section 8.01. Representations and Warranties.

     All representations and warranties of the Buyer contained in this Agreement shall be true and correct in all material respects as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date; and a certificate to the foregoing effect dated the Closing Date and signed by the President, any Vice President, the Secretary or any Assistant Secretary of the Buyer shall have been delivered to the Seller.

     Section 8.02. Performance of Obligations.

     All of the terms, covenants and conditions of this Agreement to be complied with and performed by the Buyer on or before the Closing Date shall have been duly complied with and performed in all material respects on or before the Closing Date; and certificates to the foregoing effect dated the Closing Date and signed by the President, any Vice President, the Secretary or any Assistant Secretary of the Buyer shall have been delivered to the Seller.

     Section 8.03. No Litigation.

     No Proceeding before a court or any other Governmental Authority or body shall have been instituted or threatened seeking to restrain or prohibit the transactions contemplated by this Agreement, and no Governmental Authority or body shall have taken any other action or made any request of the Seller as a result of which counsel to the Seller deems it inadvisable to proceed with the transactions hereunder.

- 17 -

     Section 8.04. Consents and Approvals.

     All necessary consents of and filings required to be obtained or made by the Buyer with any Governmental Authority or agency relating to the consummation of the transactions contemplated by this Agreement shall have been obtained and made.

     Section 8.05. Qualified Financing.

     The Qualified Financing shall have been completed by the Buyer.

ARTICLE IX.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE BUYER

     The obligations of the Buyer with respect to actions to be taken on the Closing Date are subject to the satisfaction or waiver on or prior to the Closing Date of all of the conditions set forth in this Article IX.

     Section 9.01. Representations and Warranties.

     All the representations and warranties of the Seller contained in this Agreement shall be true and correct in all material respects as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date; and the Seller shall have delivered to the Buyer a certificate dated the Closing Date and signed by the Seller to such effect.

     Section 9.02. Performance of Obligations.

     All of the terms, covenants and conditions of this Agreement to be complied with or performed by the Seller on or before the Closing Date shall have been duly complied with and performed in all material respects on or before the Closing Date; and the Seller shall have delivered to the Buyer a certificate dated the Closing Date and signed by the Seller to such effect.

     Section 9.03. No Litigation.

     No action or proceeding before a court or any other Governmental Authority or body shall have been instituted or threatened to restrain or prohibit the transactions contemplated by this Agreement and no Governmental Authority or body shall have taken any other action or made any request of the Buyer as a result of which counsel to the Buyer deems it inadvisable to proceed with the transactions hereunder.

     Section 9.04. No Material Adverse Effect.

     As of the Closing Date, no event or circumstance shall have occurred with respect to the CoGenesys Business which has caused or could reasonably be expected to cause a Material Adverse Effect.

- 18 -

     Section 9.05. Consents and Approvals.

     All necessary consents of and filings required to be obtained or made by the Seller with any Governmental Authority or agency relating to the consummation of the transactions contemplated herein shall have been obtained and made and all consents and approvals of third parties listed on Schedule 4.11 shall have been obtained, and such consents or approvals shall not contain any provisions which, in the reasonable judgment of the Buyer, are unduly burdensome.

     Section 9.06. Qualified Financing.

     The Qualified Financing shall have been completed by the Buyer.

ARTICLE X.
INDEMNIFICATION

     Section 10.01. Obligations of the Seller.

     Subject to Section 10.06, as consideration for the commitment of the Buyer hereunder, the Seller agrees to indemnify and hold harmless the Buyer, and each of its Affiliates, directors, officers, agents, representatives and employees and each other Person, if any, controlling such person (each a “Buyer Indemnified Person”) from and against all Liabilities to which such Buyer Indemnified Person may become subject as a result of, or based upon or arising out of, directly or indirectly, (a) any inaccuracy in, breach or nonperformance of, any of the representations, warranties, covenants, agreements or schedules made by the Seller in or pursuant to this Agreement, (b) the Seller’s ownership or operation of the Purchased Assets or the conduct of the CoGenesys Business prior to the Closing (except to the extent expressly assumed by the Buyer hereunder or as described in the License Agreement), or (c) the Excluded Liabilities, and (in each case) will reimburse any Buyer Indemnified Person for all reasonable expenses (including the reasonable fees of counsel) as they are incurred by any such Buyer Indemnified Person in connection with investigating, preparing or defending any such action or claim pending or threatened, whether or not such Buyer Indemnified Person is a party hereto.

     Section 10.02. Obligations of the Buyer.

     As consideration for the commitment of the Seller hereunder, the Buyer agrees to indemnify and hold harmless the Seller and each of its Affiliates, directors, officers, agents and employees and each other Person, if any, controlling the Seller or any of their respective Affiliates (each a “Seller Indemnified Person”) from and against any Liability to which such Seller Indemnified Person may become subject as a result of, or based upon or arising out of, directly or indirectly, (a) any inaccuracy in, breach or nonperformance of, any of the representations, warranties, covenants or agreements made by the Buyer in or pursuant to this Agreement; or (b) the Assumed Liabilities, and (in each case) will reimburse any Seller Indemnified Person for all reasonable expenses (including the reasonable fees of counsel) as they are incurred by any such Seller Indemnified Person in connection with investigating, preparing or

- 19 -

defending any such action or claim pending or threatened, whether or not such Seller Indemnified Person is a party hereto.

     Section 10.03. Tax Indemnification.

     The Seller shall be responsible for, and the Seller shall indemnify and hold harmless each Buyer Indemnified Person in respect of, any liability, obligation, loss or expense (or actions or claims in respect thereof) attributable to all Taxes with respect to the ownership, use or leasing of the Purchased Assets on or prior to the Closing, including, without limitation, any Tax that is a Lien upon the Purchased Assets. The Buyer or its Affiliates shall be responsible for, and shall indemnify and hold harmless each Seller Indemnified Person in respect of any Liability attributable to all Taxes with respect to the ownership, use or leasing of the Purchased Assets after the Closing. The Seller’s share of all personal property Taxes, state and local ad valorem Taxes and assessments applicable to the Purchased Assets for any period commencing on or prior to the Closing Date and ending after the Closing Date shall be determined on a pro rata basis based on the length of such period and when the Closing Date occurs therein.

     Section 10.04. Procedure.

     (a) Each Buyer Indemnified Person and Seller Indemnified Person shall be referred to collectively herein as an “Indemnified Person.” Any Indemnified Person seeking indemnification with respect to any actual or alleged Liability shall give notice to the Person from whom indemnification is sought (each, an “Indemnifying Person”) on or before the date specified in Section 10.05. Failure to provide the specified notice, however, will not affect the Indemnified Person’s rights to indemnity hereunder from the Indemnifying Person, unless the Indemnifying Person can show actual material prejudice resulting from such failure and then only to the extent of such actual material prejudice.

     (b) If any Liability is asserted by any third party against any Indemnified Person, the Indemnifying Person shall have the right, unless otherwise precluded by applicable law, to conduct and control the defense, compromise or settlement of any action or threatened action brought against the Indemnified Person in respect of matters addressed by the indemnity set forth in this Article X (an “Action”).

     (c) The Indemnified Person shall have the right to employ counsel separate from counsel employed by the Indemnifying Person in connection with any such Action or threatened Action and to participate in the defense thereof, but the fees and expenses of such counsel employed by the Indemnified Person shall be at the sole expense of the Indemnified Person, unless (i) the Indemnifying Person shall have elected not, or, after reasonable written notice of any such Action or threatened Action, shall have failed (within 10 days after the Indemnifying Persons’ receipt of such written notice), to assume or participate in the defense thereof, (ii) the employment thereof has been specifically authorized by the Indemnifying Person in writing, or (iii) the parties to any such Action or threatened Action (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and the Indemnifying Person shall have been advised in writing by counsel for the Indemnified Person that there may be one or

- 20 -

more defenses available to the Indemnified Person that are not available to the Indemnifying Person or legal conflicts of interest pursuant to applicable rules of professional conduct between the Indemnifying Person and the Indemnified Person (in which case, the Indemnifying Person shall not have the right to assume the defense of such Action on behalf of the Indemnified Person), in any of which events referred to in clauses (i), (ii) and (iii) the fees and expenses of one such separate counsel employed by the Indemnified Person shall be at the expense of the Indemnifying Person.

     (d) The Indemnifying Person shall not, without the written consent of the Indemnified Person, settle or compromise any such Action or threatened Action or consent to the entry of any judgment which does not include as an unconditional term thereof the giving by all other participants to the Indemnified Person a release from all liability in respect of such Action or threatened Action. In addition, the Indemnifying party shall not, without the prior written consent of the Indemnified Person, settle or compromise any such Action or threatened Action or consent to the entry of any judgment which provides for injunctive or equitable relief with respect to any Indemnified Person. Unless the Indemnifying Person shall have elected not, or shall have after reasonable written notice of any such Action or threatened Action failed, to assume or participate in the defense thereof, the Indemnified Person may not settle or compromise any Action or threatened Action without the written consent of the Indemnifying Person, such consent not to be unreasonably withheld.

     (e) If, after reasonable written notice of any such Action or threatened Action, the Indemnifying Person does not affirmatively undertake to defend the Indemnified Person, a recovery against the Indemnified Person for damages suffered by it in good faith, is conclusive in its favor against the Indemnifying Person; provided, however, that no such conclusive presumption shall be made if the Indemnifying Person has not received reasonable written notice of the Action against the Indemnified Person.

     Section 10.05. Survival.

     The representations, warranties, covenants and agreements made by the parties in this Agreement, including the indemnification obligations of the Seller and the Buyer set forth in this Article X, shall survive the Closing and shall continue in full force and effect without limitation after the Closing for a period of twenty four (24) months following the Closing Date, except that (a) claims related to fraud or willful misconduct shall survive indefinitely, and (b) claims related to the Excluded Liabilities shall survive indefinitely.

     Section 10.06. Limitations.

     The Seller shall have no indemnification obligation under Section 10.01 (a) until the aggregate amount of all indemnification claims exceeds $100,000, calculated for purposes of this Article X without regard to any materiality standard contained in the applicable representation, warranty or covenant, and in which case the Seller shall be responsible for the amount of all such claims in excess of $100,000 or (b) with respect to any claim of less than $5,000. The Seller

- 21 -

shall have no indemnification obligation under Section 10.01 for any amounts in excess of the Purchase Price.

     Section 10.07. Remedies.

     (a) Each party hereto acknowledges that irreparable damage would result if this Agreement is not specifically enforced. Therefore, the rights and obligations of the parties under the Agreement, including, without limitation, their respective rights and obligations to sell and purchase the Purchased Assets and comply with the covenants set forth in this Agreement, shall be enforceable by a decree of specific performance issued by any court of competent jurisdiction, and appropriate injunctive relief may be applied for and granted in connection therewith. Each party hereto agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agrees to waive the defense that a remedy at law would be adequate in any action for specific performance or injunctive relief hereunder. The Seller agrees to waive any rights to require the Buyer to prove actual damages or post a bond or other security as a condition to the granting of any equitable relief under this Section 10.07.

     (b) Except as otherwise provided herein, no delay of or omission in the exercise of any right, power or remedy accruing to any party as a result of any breach or default by any other party under this Agreement shall impair any such right, power or remedy, nor shall it be construed as a waiver of or acquiescence in any such breach or default, or of any similar breach or default occurring later; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default occurring before or after that waiver. All rights and remedies of any party described in this Agreement are cumulative of each other and of every right or remedy such party may otherwise have.

ARTICLE XI.
TERMINATION

     Section 11.01. Termination.

     This Agreement may be terminated at any time prior to the Closing upon the occurrence of any of the following:

     (a) by mutual written consent of the Buyer and the Seller;

     (b) by the Seller if the Buyer shall not have completed the Qualified Financing by May 31, 2006, unless the Buyer is making progress towards the completion of the Qualified Financing as evidenced by a written financing proposal from at least one investor willing to act as lead investor in the Qualified Financing, in which case the deadline referenced in this Section 11.01(b) shall be extended until [***], 2006;

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

- 22 -

     (c) by the Seller, if: (i) there has been a material misrepresentation or breach by Buyer of a representation or warranty contained herein and such material misrepresentation or breach, if curable, is not cured within 10 days after written notice thereof from the Seller; (ii) the Buyer has committed a material breach of any covenant imposed upon it hereunder and, if curable, fails to cure such breach within 10 days after written notice thereof from the Seller; or (iii) any condition to the Seller’s obligations hereunder becomes incapable of fulfillment through no fault of the Seller or its Affiliates or Representatives and is not waived by the Seller;

     (d) by the Buyer, on the one hand, or the Seller, on the other hand, if there shall be any law that makes consummation of the transactions contemplated by this Agreement illegal or otherwise prohibited, or if any final, non-appealable Order enjoining the Buyer, on the one hand, or the Seller, on the other hand, from finally consummating the transactions contemplated by this Agreement is entered;

     (e) by the Buyer, if: (i) there has been a material misrepresentation or breach by the Seller of a representation or warranty contained herein and such material misrepresentation or breach, if curable, is not cured within 10 days after written notice thereof from the Buyer; (ii) the Seller has committed a material breach of any covenant imposed upon the Seller hereunder and, if curable, fails to cure such breach within 10 days after written notice thereof from the Buyer; or (iii) any condition to the Buyer’s obligations hereunder becomes incapable of fulfillment through no fault of the Buyer or its Affiliates or Representatives and is not waived by the Buyer.

     Section 11.02. Consequences of Termination.

     In the event that this Agreement shall be terminated pursuant to this Article XI, (a) each party will redeliver all documents, work papers and other material of any other party relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to the party furnishing the same, and (b) all further obligations of the parties under this Agreement shall terminate without further liability of any party to any other party (except that each party shall remain liable for any breach or default by such party of any representation, warranty, covenant or agreement contained herein, as to which all remedies shall remain available, including, but not limited to, the availability of specific performance or other injunctive relief and reasonable legal and audit costs and out of pocket expenses); provided, however, that the confidentiality provisions contained in Section 12.02 shall survive such termination.

ARTICLE XII.
GENERAL PROVISIONS

     Section 12.01. Cooperation.

     The Seller and the Buyer shall each deliver or cause to be delivered to the other on the Closing Date, and at such other times and places as shall be reasonably agreed to, such additional instruments as the other may reasonably request for the purpose of carrying out the transactions contemplated by this Agreement. The Seller will cooperate and use its reasonable efforts to have

- 23 -

the present officers, directors, managers and employees of the Seller cooperate with the Buyer on and after the Closing Date in furnishing information, evidence, testimony and other assistance in connection with any Tax Return filing obligations, actions, proceedings, arrangements or disputes of any nature with respect to matters pertaining to all periods prior to the Closing Date.

     Section 12.02. Confidentiality.

     (a) The Buyer agrees to keep non-public information regarding the Seller confidential until the Closing Date and agrees that it will only use such information in connection with the transactions contemplated by this Agreement and not disclose any of such information other than (i) to the Buyer’s Representatives who are involved with the transactions contemplated by this Agreement, (ii) to the extent such information presently is or hereafter becomes available, on a non-confidential basis, from a source other than the Seller or any of its Representatives, and (iii) to the extent disclosure is required by law, legal process, regulation or judicial order by any Governmental Authority.

     (b) The Seller agrees to keep non-public information regarding the Buyer, the Purchased Assets or the CoGenesys Business, confidential and agrees that the Seller will only use such information in connection with the transactions contemplated by this Agreement and not disclose any of such information other than (i) to the Seller’s Representatives who are involved with the transactions contemplated by this Agreement, (ii) to the extent such information presently is or hereafter becomes available, on a non-confidential basis, from a source other than the Buyer or any of its Representatives and (iii) to the extent disclosure is required by law, legal process, regulation or judicial order by any Governmental Authority.

     (c) Prior to any disclosure required by law, legal process, regulation or judicial order, the Buyer or the Seller, as the case may be, shall advise the other of such requirement so that it may seek a protective order.

     (d) The Seller recognizes and acknowledge that it has in the past, currently has, and in the future may have, access to certain confidential information of the CoGenesys Business, such as operational policies, development plans and pricing and cost policies that are valuable, special and unique assets of the CoGenesys Business. The Seller agrees that it will not disclose such confidential information to any Person for any purpose or reason whatsoever, except (i) to authorized Representatives of the Buyer who need to know information in connection with the transactions contemplated hereby and (ii) to counsel and other advisors, provided that such advisers (other than counsel) agree to the confidentiality provisions of this Section, unless (A) such information becomes known to the public generally through no fault of the Seller, or (B) disclosure is required by law, legal process, regulation or judicial order, provided, that prior to disclosing any information pursuant to this clause (C), the Seller shall give prior written notice thereof to the Buyer and provide the Buyer with the opportunity to contest such disclosure. In the event of a breach or threatened breach of the provisions of this Section, the Buyer shall be entitled to an injunction restraining the Seller from disclosing, in whole or in part, such confidential information. Nothing herein shall be construed as prohibiting the Buyer from

- 24 -

pursuing any other available remedy for such breach or threatened breach, including the recovery of damages.

     (e) The Buyer recognizes and acknowledges that certain of its stockholders, directors and/or officers have in the past, currently have, and in the future may have, access to certain confidential information of the Seller through their past roles as officers of the Seller, such as operational policies, development plans and pricing and cost policies that are valuable, special and unique assets of the Seller’s businesses. The Buyer agrees that it will not disclose such confidential information to any Person for any purpose or reason whatsoever, unless (A) such information becomes known to the public generally through no fault of the Buyer, or (B) disclosure is required by law, legal process, regulation or judicial order, provided, that prior to disclosing any information pursuant to this clause (B), the Buyer shall give prior written notice thereof to the Seller and provide the Seller with the opportunity to contest such disclosure. In the event of a breach or threatened breach of the provisions of this Section, the Seller shall be entitled to an injunction restraining the Buyer from disclosing, in whole or in part, such confidential information. Nothing herein shall be construed as prohibiting the Seller from pursuing any other available remedy for such breach or threatened breach, including the recovery of damages.

     (f) Because of the difficulty of measuring economic losses as a result of the breach of the foregoing covenants in this Section, and because of the immediate and irreparable damage that would be caused for which they would have no other adequate remedy, the parties hereto agree that, in the event of a breach by any of them of the foregoing covenants, the covenant may be enforced against the other parties by any equitable remedies, including, without limitation, injunctions and specific performance, and restraining orders without the necessity of proving actual damages or posting a bond or other security.

     (g) The obligations of the parties under this Section 12.02 shall survive the termination of, or Closing under, this Agreement for a period of five years.

     (h) Upon the Closing, any prior confidentiality or non-disclosure agreement between the parties with respect to the transactions contemplated by this Agreement will terminate.

     (i) The confidentiality obligations under Section 12.02 shall not apply to the extent that a party is required to disclose information by applicable law, regulation or order of a governmental agency or a court of competent jurisdiction, including, but not limited to, disclosures required under rules promulgated by the United States Securities and Exchange Commission or by a nationally recognized stock exchange; provided, however, that to the extent practicable, such party (a) shall provide advance written notice thereof to the other party and consult with the other party prior to such disclosure with respect thereto, and (b) shall provide the other party with reasonable assistance, as requested by the other party, to object to any such disclosure or to request confidential treatment thereof, and (c) shall take reasonable action to avoid and/or minimize the extent of such disclosure. In furtherance of the foregoing, the parties will agree as promptly as practicable after the execution of this Agreement on the confidential treatment request to be filed by the Seller (if applicable) with the U.S. Securities and Exchange

- 25 -

Commission and the redacted form of this Agreement related thereto. In that connection, any redaction reasonably requested by either party shall be included in such filing. The parties will reasonably cooperate in responding promptly to any comments received from the U.S. Securities and Exchange Commission with respect to such filing in an effort to achieve confidential treatment of such redacted form; provided, however, that the Seller shall be relieved of such obligation to seek confidential treatment for a provision requested by the Buyer if such treatment is not achieved after the second round of responses to comments from the U.S. Securities and Exchange Commission.

     Section 12.03. Amendments and Waivers.

     Any term of this Agreement may be amended, supplemented or modified only with the written consent of the Buyer and the Seller and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the party against whom the waiver is sought to be enforced. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.

     Section 12.04. Successors and Assigns.

     This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective legal representatives, successors, heirs, executors and assigns; provided, however, that this Agreement and all rights and obligations hereunder may not be assigned or transferred without the prior written consent of the other parties hereto, except (i) that the Buyer may assign its rights hereunder to an Affiliate or a successor to substantially all of the CoGenesys Business of the Buyer, whether as a result of a merger, sale of stock, sale of substantially all of the Buyer’s assets or other transaction, so long as such Affiliate or successor entity assumes in writing the Buyer’s obligations under this Agreement, or (ii) that the Seller may assign its rights hereunder to an Affiliate or a successor to substantially all of the business of the Seller, whether as a result of a merger, sale of stock, sale of substantially all of the Seller’s assets or other transaction, so long as such Affiliate or successor entity assumes in writing the Seller’s obligations under this Agreement. Nothing in this Agreement, express or implied, is intended to confer upon any Person other than the parties hereto or their respective legal representatives, successors, heirs, executors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement.

- 26 -

     Section 12.05. No Third Party Beneficiaries.

     The rights created by this Agreement are solely for the benefit of the parties hereto and the respective successors or permitted assigns, and no other Person shall have or be construed to have any legal or equity right, remedy or claim under or in respect of or by virtue of this Agreement or any provision herein contained; provided, however, that the provisions of Article X above concerning indemnification are intended for the benefit and burden of the parties specified therein, and their respective legal representatives, successors, heirs, executors and assigns.

     Section 12.06. Choice of Law.

     (a) This Agreement shall be governed by and construed under and the rights of the parties determined in accordance with the laws of the State of Delaware (without reference to the choice of law provisions of the State of Delaware).

     (b) Each of the parties hereto irrevocably consents to the service of any process, pleading, notices or other papers by the mailing of copies thereof by registered, certified or first class mail, postage prepaid, to such party at such party’s address set forth herein, or by any other method provided or permitted under the laws of the State of Delaware.

     (c) To the extent that a party hereto has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, such party hereby irrevocably waives such immunity in respect of its obligations pursuant to this Agreement.

     Section 12.07. Waiver of Jury Trial.

     EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING (WHETHER BASED IN CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY TRANSACTION OR AGREEMENT CONTEMPLATED HEREBY OR THE ACTIONS OF ANY PARTY HERETO IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF.

     Section 12.08. Notices.

     Unless otherwise provided in this Agreement, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon the earlier of (a) personal delivery to the party to be notified, (b) the next Business Day after dispatch via nationally recognized overnight courier or (c) confirmation of transmission by facsimile (provided such transmission is also contemporaneously sent via one of the methods specified in clauses (a) or (b)), or (d) confirmation of transmission by facsimile, all addressed to the party to be notified at the address indicated for such party below, or at such other address as such party

- 27 -

may designate by 10 Business Days’ advance written notice to the other parties. Notices should be provided in accordance with this Section 12.08 at the following addresses:

If to the Buyer, to:	With a copy to:
TriGenesys, Inc. 22400 Rolling Hill Lane Laytonsonville, Maryland 20852	Cooley Godward LLP 11951 Freedom Drive Reston, Virginia 20190
	Fax: 703-456-8100
Attn: Craig A. Rosen, Ph.D.	Attn: Michael R. Lincoln
If to the Seller, to:	With a copy to:
Human Genome Sciences, Inc. 14200 Shady Grove Road Rockville, Maryland 20850 Fax: (301) 309-8512 Attn: James H. Davis, Ph.D., Esq.	DLA Piper Rudnick Gray Cary US LLP 6225 Smith Avenue Baltimore, Maryland 21209 Fax: (410) 580-3170 Attn: Robert W. Smith, Jr., Esq.

     Section 12.09. Waiver of Bulk Sales.

     The Buyer and the Seller hereby waive compliance with the bulk transfer provisions of the Uniform Commercial Code (or any similar law) to the extent applicable in connection with the transactions.

     Section 12.10. Severability.

     If one or more provisions of this Agreement shall be held invalid, illegal or unenforceable, such provision shall, to the extent possible, be modified in such manner as to be valid, legal and enforceable but so as to most nearly retain the intent of the parties, and if such modification is not possible, such provision shall be severed from this Agreement. In either case, the balance of this Agreement shall be interpreted as if such provision were so modified or excluded, as the case may be, and shall be enforceable in accordance with its terms.

     Section 12.11. Entire Agreement.

     This Agreement, together with the exhibits and schedules hereto, constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior understandings and agreements, whether written or oral, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein.

     Section 12.12. Construction.

- 28 -

     The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of authorship of any provision of this Agreement.

     Section 12.13. Titles and Subtitles.

     The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

     Section 12.14. Time.

     Time is of the essence with respect to this Agreement.

     Section 12.15. Counterparts.

     This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

[Signatures appear on the following pages]

- 29 -

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

“BUYER”	TRIGENESYS, INC.
	By:	/s/ Craig A. Rosen, Ph.D.
	Name:	Craig A. Rosen, Ph.D.
	Title:	Chairman of the Board of Directors
“SELLER”	HUMAN GENOME SCIENCES, INC.
	By:	/s/ H. Thomas Watkins
	Name:	H. Thomas Watkins
	Title:	Chief Executive Officer

- 30 -

EXHIBIT A

DEFINITIONS

     “Action” has the meaning specified in Section 10.04 of this Agreement.

     “Affiliate” as to a specified Person, means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by or is under common control with, the Person specified.

     “Agreement” has the meaning specified in the first paragraph of this Agreement.

     “Assignment and Assumption Agreement” has the meaning specified in Section 3.02 of this Agreement.

     “Assumed Contracts” has the meaning specified in Section 2.01 of this Agreement.

     “Assumed Liabilities” has the meaning specified in Section 2.03 of this Agreement.

     “Bill of Sale” has the meaning specified in Section 3.02 of this Agreement.

     “Business” has the meaning specified in the Recitals to this Agreement.

     “Business Day” shall mean any weekday on which commercial banks in New York City are open for business. Any action, notice or right which is to be exercised or lapses on or by a given date which is not a Business Day may be taken, given or exercised, and shall not lapse, until the end of the next Business Day.

     “Buyer” has the meaning specified in the first paragraph of this Agreement.

     “Buyer Indemnified Person” has the meaning specified in Section 10.01 of this Agreement.

     “Buyer’s Equity” has the meaning specified in Section 2.05 of this Agreement.

     “Buyer’s Knowledge” means the actual knowledge of the Buyer and its executive officers (including the executive officers of the Seller who are expected to be employees of the Buyer after the Closing).

     “CERCLA” has the meaning specified in the definition of Hazardous Materials.

     “Closing” has the meaning specified in Section 3.01 of this Agreement.

     “Closing Date” has the meaning specified in Section 3.01 of this Agreement.

     “Enforceability Exceptions” has the meaning specified in Section 4.02 of this Agreement.

     “Environmental Laws” shall mean any applicable federal, state, or local law, ordinance, regulation, order or permit pertaining to the environment, natural resources or human health or safety as presently in effect or as amended as of the Closing Date.

     “Equipment” has the meaning specified in Section 2.01 of this Agreement.

     “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

     “Excluded Assets” has the meaning specified in Section 2.02 of this Agreement.

     “Excluded Liabilities” has the meaning specified in Section 2.03 of this Agreement.

     “Excluded Records” has the meaning specified in Section 2.02 of this Agreement.

     “Governmental Authority” shall mean any governmental, regulatory or administrative body, agency, subdivision or authority, any court or judicial authority, or any public, private or industry regulatory authority, whether national, Federal, state, local, foreign or otherwise.

     “Hazardous Materials” shall mean any pollutant, contaminant, substance, material or waste (regardless of physical form or concentration) that is regulated, listed or identified under any Environmental Law and any other substance, material or waste (regardless of physical form or concentration) which is hazardous or toxic to living things or the environment, including without limitation hazardous wastes as presently defined by the Resource Conservation and Recovery Act of 1976, 42 U.S.C. § 6901 et. seq., as amended, and regulations promulgated thereunder and hazardous substances as presently defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. § 9601 et seq., as amended (“CERCLA” or “Superfund”) and regulations promulgated thereunder.

     “HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

     “Indemnified Person” has the meaning specified in Section 10.04 of this Agreement.

     “Indemnifying Person” has the meaning specified in Section 10.04 of this Agreement.

     “Inventory” has the meaning specified in Section 2.01 of this Agreement.

     “Lease” has the meaning specified in Section 3.02 of this Agreement.

     “Lease Assignment Agreement” has the meaning specified in Section 3.02 of this Agreement.

     “Liability” means any direct or indirect indebtedness, liability, assessment, claim, loss, damage, deficiency, obligation or responsibility, expense (including, without limitation, reasonable attorneys’ fees, court costs, accountants’ fees, environmental consultants’ fees, laboratory costs and other professionals’ fees), Order, settlement payments, Taxes, fines and penalties, fixed or unfixed, choate or inchoate, liquidated or unliquidated, secured or unsecured, accrued, absolute, actual or potential, contingent or otherwise (including any liability under any guaranties, letters of credit, performance credits or with respect to insurance loss accruals).

     “Lien” means, with respect to any Purchased Asset, any lien (including mechanics, warehousemen, laborers and landlords liens), charge, claim, hypothecation, pledge, security interest, mortgage, preemptive right, right of first refusal, option, judgment, title defect right of first refusal, easement or conditional sale or other title retention agreement or other restriction or encumbrance of any kind in respect of or affecting such asset; provided, however, that Liens shall not include any Permitted Lien.

     “License Agreement” has the meaning specified in Section 3.02 of this Agreement.

     “Material Adverse Effect” means a materially adverse effect on the CoGenesys Business’ business, condition (financial or other), properties or results of operations, taken as a whole, whether as a result of an act of God, fire, flood, accident, casualty, war, labor disturbance, legislation or other event, occurrence or non-occurrence.

     “Manufacturing Services Agreement” has the meaning specified in Section 3.02 of this Agreement.

     “Name” has the meaning specified in Section 2.01 of this Agreement.

     “Operating Expenses” has the meaning specified in Section 6.08 of this Agreement.

     “Order” means any order, judgment, preliminary or permanent injunction, temporary restraining order, award, citation, decree, consent decree or writ.

     “Permits” means any approval, consent, license, permit, waiver or other authorization issued, granted, given or otherwise made available by or under the authority of any Governmental Authority.

     “Permitted Lien” shall mean, (a) Liens imposed by any Governmental Authority for Taxes, assessments or charges not yet due and payable (excluding any Lien arising under ERISA Section 4068); (b) inchoate, carriers’, warehousemen’s, mechanics’,

materialmen’s, repairmen’s or other like Liens arising in the ordinary course of business; (c) pledges or deposits in connection with worker’s compensation, unemployment insurance and other social security legislation; (d) deposits to secure the performance of any or all of the following: bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements, rights-of-way, restrictions and other similar encumbrances on real property incurred in the ordinary course of business; and (f) all the exceptions to title reflected in Schedule 4.08.

     “Person” means any natural person, corporation, partnership, proprietorship, other business organization, trust, union, association or Governmental Authority.

     “Proceeding” means any action, arbitration, mediation, audit, hearing, investigation, litigation or suit (whether civil, criminal, administrative, investigative or informal) commenced, brought, conducted or heard by or before or otherwise involving any Governmental Authority, arbitrator or mediator.

     “Purchased Assets” has the meaning specified in Section 2.01 of this Agreement.

     “Purchase Price” has the meaning specified in Section 2.05 of this Agreement.

     “Qualified Financing” has the meaning specified in Section 2.05 of this Agreement.

     “Qualified Financing Documentation” has the meaning set forth in Section 2.07 of this Agreement.

     “Records” has the meaning specified in Section 2.01 of this Agreement.

     “Representative” as to a specified Person shall mean any officer, director, agent, employee, attorney, accountant, consultant or other representative of the Person specified.

     “Securities Act” has the meaning specified in Section 2.07 of this Agreement.

     “Seller” has the meaning specified in the first paragraph of this Agreement.

     “Seller Indemnified Person” has the meaning specified in Section 10.02 of this Agreement.

     “Seller’s Knowledge” means the actual knowledge of the Seller and its executive officers (other than the executive officers who are expected to be employees of the Buyer after the Closing).

     “Services Agreement” has the meaning specified in Section 3.02 of this Agreement.

     “Site” has the meaning set forth in Section 4.14 of this Agreement.

     “Tax” or “Taxes” means all taxes, charges, fees, imposts, levies or other assessments, including, without limitation, all net income, franchise, profits, minimum, alternative minimum, gross receipts, capital, sales, use, ad valorem, value added, transfer, transfer gains, inventory, intangibles, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation, real or personal property, abandoned property assessment, and estimated taxes, water, rent and sewer service charges, customs duties, fees, assessments and charges of any kind whatsoever, together with any interest and any penalties, fines, additions to tax or additional amounts thereon, imposed by any taxing authority (federal, state, local or foreign) and shall include any transferee liability in respect of Taxes.

     “Tax Code” shall mean the Internal Revenue Code of 1986, as amended.

EX-10.22

exv10w22

EX-10.23

Exhibit 10.23

FIRST AMENDMENT TO THE EMPLOYMENT AGREEMENT
BY AND BETWEEN
HUMAN GENOME SCIENCES, INC. AND CRAIG A. ROSEN, PH. D.

     WHEREAS, HUMAN GENOME SCIENCES, INC. (the “Company”) and CRAIG A. ROSEN, Ph.D. (“Executive”) have entered into an EMPLOYMENT AGREEMENT, dated as of May 6, 2004 (the “Employment Agreement”);

     WHEREAS, the Company and Executive now desire to amend the Employment Agreement to reflect an agreement between the parties regarding certain terms of the Employment Agreement; and

     WHEREAS, Section 14 of the Employment Agreement provides that all amendments to the Employment Agreement must be in writing and signed by both parties.

     NOW, THEREFORE, the Employment Agreement is hereby amended as follows:

     1. Sections 5(e) and 6(d) of the Employment Agreement are hereby amended to waive the requirement that Executive provide the Company with at least ninety (90) days’ advance written notice, if Executive voluntarily terminates employment, other than for Good Reason, after the start of employment with the Company of a new Chief Executive Officer.

     2. Section 6(d)(ii) of the Employment Agreement is hereby deleted in its entirety.

     3. Section 6(h)(ii)(A) of the Employment Agreement is hereby amended in its entirety as follows:

“(A) A salary continuation benefit (the “Salary Continuation”), based on Executive’s Base Salary as in effect as of the Date of Termination, for the eighteen (18)-month period that commences on the Date of Termination (the “18-Month Salary Continuation Period”); provided, however, that no payments of Salary Continuation shall be paid to the Executive during the six (6)-month period immediately following the Date of Termination (the “IRC Section 409A Period”). On the first business day after expiration of the IRC Section 409A Period, Executive shall be paid a single sum payment equal to the aggregate Base Salary that Executive would have been paid if Executive had remained actively employed by the Company during the IRC Section 409A Period. Thereafter, Executive’s Base Salary shall be paid at the same time and in the same manner as Base Salary would have been paid if Executive had remained actively employed by the Company until the end of the 18-Month Salary Continuation Period.”

- 1 -

     4. Section 6(h)(ii)(C) of the Employment Agreement is hereby amended in its entirety as follows:

“(C) Executive and his eligible dependents have the right to elect COBRA continuation coverage under the Health Plan, and any premiums for such COBRA coverage shall be paid solely by Executive. As soon as practical after expiration of the IRC Section 409A Period, the Company shall reimburse Executive in a single sum payment for the aggregate amount of any COBRA premiums paid to the Health Plan by Executive during the IRC Section 409A Period. Thereafter, the Company shall reimburse Executive monthly for the amount of COBRA premiums paid by Executive as soon as practical after such payments are paid by Executive to the Health Plan. At the end of the COBRA continuation period, the Company shall continue to provide coverage for Executive and his eligible dependents for sixty (60) months under the Health Plan at Executive’s sole expense; provided that Executive is not eligible to participate in a group health plan of another entity. Executive’s (and his eligible dependents’) right to receive coverage under this Agreement (other than COBRA coverage) and his right to reimbursement for payment of COBRA premiums will terminate upon the earlier of the date specified herein or the date that Executive (or such eligible dependent, as applicable) first becomes eligible to participate in a group health plan of another entity.”

     5. Section 7(a) of the Employment Agreement is hereby amended by adding the following sentence at the end thereof:

“The provisions of this Section 7(a) shall not apply to Executive’s activities with TriGenesys, Inc., a Delaware corporation (“TriGenesys”), that are consistent with the terms and conditions of that certain Asset Purchase Agreement entered into by and between the Company and TriGenesys, dated December 12, 2005 (the “APA”) and the related licensing agreement.”

     6. Section 7(b) of the Employment Agreement is hereby amended in its entirety as follows:

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

- 2 -

event Executive shall terminate Executive’s relationship with such organization or person within ten (10) business days following the date Executive becomes aware of such competitive situation. The provisions of this Section 7(b) shall not apply to Executive’s activities with TriGenesys that are consistent with the terms and conditions of the APA. Notwithstanding the foregoing, in no event shall it be a violation of this Section 7(b) for Executive to enter the employ of, or render any services to, whether as an owner, officer, director, employee, consultant, partner or agent, any person, firm, entity or corporation engaged in any not-for-profit business or any academic institution.”

     7. Section 7(c) of the Employment Agreement is hereby amended in its entirety as follows:

“(c) SOLICITATION OF EMPLOYEES. During Executive’s employment with the Company and for a period of twelve (12) months after the Date of Termination, Executive shall not solicit, participate in or promote the solicitation of any person who was employed by the Company or any of its subsidiary or affiliate companies at the time of the Date of Termination to leave the employ of the Company or any of its subsidiary or affiliate companies, or, on behalf of himself or any other person, hire, employ or engage any such person. Executive further agrees that, during such time, if an employee of the Company or any of its subsidiary or affiliate companies contacts Executive about prospective employment, Executive will inform such employee that he cannot discuss the matter further without informing the Company. The provisions of this Section 7(c) shall not apply with respect to the employees, of the Company or any of its subsidiary or affiliate companies, who are specifically identified on an appropriate schedule to the APA to whom offers of employment may be extended by TriGenesys.”

     8. The Employment Agreement is hereby amended to add a new Section 19 as follows:

“19. CONSULTING SERVICES. In consideration of the payments received under Section 6(h) of this Agreement, Executive agrees to provide consulting services to the Company during the one (1) year period after the Date of Termination on an as-needed basis upon the request of the Company, up to 25 hours per month unless the parties mutually agree otherwise. No additional consideration will be paid for these consulting services.”

     9. In all other respects, the Employment Agreement is hereby ratified and confirmed.

[Signature page follows]

- 3 -

     IN WITNESS WHEREOF, the Company and Executive hereby amend the Employment Agreement, effective as of this 13th day of December, 2005.

CRAIG A. ROSEN, Ph.D.	WITNESS:
/s/ Craig A. Rosen, Ph.D.	/s/ Rose Hadidian
HUMAN GENOME SCIENCES, INC.	ATTEST:
By: /s/ Susan Bateson McKay	/s/ James H. Davis, Ph.D.,
Title: Senior Vice President, Human Resources

- 4 -

EX-10.24

Exhibit 10.24

December 13, 2005

Steven Mayer

Dear Steve:

Confirming the Agreement reached with the Board of Directors regarding your separation from employment with Human Genome Sciences, Inc. (“HGS” or “Company”) and your pursuit of a new professional opportunity with CoGenesys, HGS offers you the following terms contingent upon your agreement with the terms set forth below:

1) You have elected to resign from your position as Chief Financial Officer effective December 12, 2005, but you will remain employed by HGS through December 31, 2005. You will be paid your salary through December 31, 2005. Effective January 1, 2006, you will begin to serve as a consultant to HGS. During this period, you will make yourself reasonably available to provide advice on real estate transactions, financial transactions, and assistance related to transition of CFO duties, it being understood and agreed that (i) such services shall be provided at times and places reasonably agreeable to the parties, taking into account your business and personal schedule and (ii) it is anticipated that you will dedicate approximately 20% of your time each month to consulting on behalf of HGS.

2) In exchange for your agreement to provide consulting services pursuant to Section 1 hereof, HGS agrees to pay you commencing January 1, 2005 bi-weekly through June 30, 2006 a sum equivalent to two weeks of your current annual base salary. No withholdings or deductions will be taken or made from any monies paid to you for consulting services and HGS will issue a Form 1099 at the end of 2006 reflecting all payments made to you pursuant hereto. In addition, you will be eligible to receive a bonus award for 2005 calculated to be 40% of your estimated 2005 earnings. This bonus will amount to $137,523.00 and will be paid on or before December 31, 2005. In addition:

a) Following your termination date, at your election, you will be permitted to continue to participate in the HGS medical, dental, and vision care plans under COBRA. Your rights under COBRA begin as of January 1, 2006 and will be communicated separately through our third party administrator, Conexis. The Company will reimburse you for the cost of COBRA continuation coverage through June 30,

	2006. HGS will reimburse you either monthly or in total at the end of the 6 month COBRA period for which reimbursement will be made.
b)	Your participation in the 401(k) Plan, including the HGS match and the life and ADD insurance plans terminate effective December 31, 2005. Any vested rights that you currently have in the 401(k) Plan shall not be affected by this Agreement.
c)	Your vacation leave accrual ceases effective December 31, 2005. Payment for all accrued, unused vacation leave will be made in the next payroll run.
d)	You will be credited, as of December 31, 2005 with 6 months of additional vesting service under all outstanding equity awards made to you under the Company’s Stock Incentive Plans so that such equity awards will have a vested status as of December 31, 2005 as that which they would otherwise have had on June 30, 2006, under each applicable vesting schedule had your employment with the Company continued uninterrupted through June 30, 2006.
e)	Your right to exercise all outstanding stock options, to the extent vested (including the acceleration of vesting described in the preceding paragraph), will be extended to the earlier of the original ten-year-term expiration date of the applicable option agreement or December 31, 2006. Any vested stock options that are not exercised by 5:00 p.m. Eastern Time on the earlier of the original ten-year-term expiration date of the applicable option agreement or December 31, 2006, shall expire at that time and shall no longer be exercisable thereafter.
f)	You will be reimbursed for all ordinary and necessary reasonable business related expenses incurred by you prior to December 31, 2005. You must submit your request for reimbursement for these expenses, accompanied by proper documentation, to me on or before January 10, 2006.
g)	You acknowledge and agree that the terms set forth above include compensation and benefits to which you are not otherwise entitled. Furthermore, you acknowledge that, except as expressly set forth herein, you are entitled to no other or further compensation, remuneration or benefits from HGS.

3) In exchange and as consideration for the promises and undertakings set forth above, you agree as follows:

a) You acknowledge that by reason of your position with the Company you have been given access to trade secrets and confidential information. You agree that you will comply with the terms of the Employee Confidential Information, Invention and Non-Competition Agreement you have signed with the Company, the terms of which are incorporated herein, and agree to return to the Company and, except as set forth on Exhibit A, shall not take, copy or disclose in any form or manner, any tangible work product belonging to HGS.

	Except as set forth on Exhibit A, you also agree that you will not remove any tangible property of HGS from the Company’s premises. Not later than December 31, 2005 and except as set forth on Exhibit A, you will return to HGS all Company property in your possession or control. You agree not to delete any information, files or any other materials from HGS’ computer systems or any computer owned by HGS other than in the ordinary course. You further understand pursuant to your Employee Confidential Information, Invention and Non-Competition Agreement with the Company that you have assigned and are obligated to assign any inventions made by you at the Company and are further obligated to execute patent documents related to such inventions and hereby agree to execute all such documents.
b)	You recognize the need for HGS to maintain continued harmonious relationships with its workforce, the public, the scientific community, the regulatory authorities, and the business community. Therefore, you agree that you will not make any public statement or any private statement to any HGS employee, customer, potential customer, investor, potential investor, business analyst or any other person or entity doing business or likely to do business with HGS, disparaging HGS or criticizing its operations, personnel, or employment practices. HGS agrees that neither it nor any member of its Board of Directors or any officer will make any public statement or private statement to any business analyst, or person or entity actually or potentionally doing business or likely to do business with you or any entity with which you are associated (whether as a customer, investor, employee or consultant) disparaging you. Both parties agree that neither he, it or they will make or publish any communication that reflects adversely upon the reputation of the other party.
c)	You hereby forever release, waive, discharge and covenant not to sue HGS, its directors, officers, agents and employees (in their individual and/or representative capacities), affiliates, subsidiaries, successors and assigns (collectively, the “Releasees”) relating to any claims, demands, charges, suits and causes of action, whether known or unknown, up to the effective date of this Agreement that are in any way whatever related to your employment by, or termination of employment with, HGS and its affiliates, which you have or may have against any of the Releasees to the greatest extent permitted by law; provided that this release shall not apply to, and you shall not be considered to have released any, (i) claims for accrued compensation and benefits; or (ii) claims arising under this Agreement, THIS IS INTENDED TO BE A GENERAL RELEASE.
	You expressly agree not to join in, encourage or voluntarily assist others in the filing or pursuit of a lawsuit or claim against the Releasees that is related to your employment by, or termination of employment with, HGS, provided that nothing in this paragraph shall preclude you from complying with your legal obligations as described in Paragraph 3(c) above. You agree not to provide any aid or assistance of any type, other than testimony required by subpoena, to any person or entity

	who has filed or who seeks to file or prosecute any grievance, claim, complaint or lawsuit against the Releasees. You further agree that in the event that you are asked or required by subpoena to provide testimony to any person or entity who has filed or who seeks to file or prosecute any grievance, claim, charge, complaint or lawsuit against the Releasees, to provide written notice of such request or subpoena to HGS’ General Counsel, James H. Davis, in writing, at 14200 Shady Grove Road, Rockville, MD 20850, within five business days of the date you are aware that you have received such request or subpoena. If any individual or entity brings a lawsuit or other claim against any of the Releasees on behalf of you or a class of which you are a part, involving any matter released hereby, you agree not to seek or accept any damages or other personal relief in such proceeding.
	You agree that, in the event the Releasees are or becomes a party or witness to any actual or threatened legal proceeding regarding any matter which arose or occurred during the term of your employment with HGS, you shall make yourself reasonably available (taking into account your personal and business schedule) to and cooperate with HGS and its counsel in such proceedings.
	The foregoing release, waiver and covenant not to sue pertains to, but is not limited to, claims arising under: federal, state and local statutes, ordinances and regulations prohibiting employment discrimination (including, but not limited to, claims arising under the Age Discrimination in Employment Act of 1967, as amended; the Older Worker Benefit Protection Act (“OWBPA”); Title VII of the Civil Rights Act, as amended; the Fair Labor Standards Act, and the Americans with Disabilities Act); the Employee Retirement Income Security Act of 1974, as amended; and any and all other federal, state and local statutes, cases, authorities or laws (including common law) providing a cause of action that can be the subject of a release under applicable law. Nothing in this release shall be construed to waive any claims that cannot be waived as a matter of law.
d)	You agree that (i) your continued failure to materially abide by the consulting provisions contained in paragraph 1 and (ii) your intentional or reckless failure to comply with the nondisparagement provision of Paragraph 3(b) above, shall release HGS from honoring any outstanding obligations owed to you under this Agreement, among whatever other relief may be available under the terms of this Agreement and at law or in equity.
e)	In executing this Agreement, you affirm that you are competent and understand and accept the nature, terms, and scope of this Agreement as fully and totally resolving any differences and disputes between you and HGS concerning the circumstances of your employment and your termination from employment. You further affirm that your decision to execute this Agreement is entirely voluntary, and that you have done so without any pressure or undue influence by HGS or its representatives or agents.

4) The parties mutually understand and agree that by executing this Agreement, the Releasees are not admitting any violation of your rights under statutory or common law or any contract or Agreement entered into with HGS.

5) If any provision of this Agreement is found to be invalid, unenforceable or void for any reason, such provision shall be severed from the Agreement and shall not affect the validity or enforceability of the remaining provisions. This Agreement shall be deemed to have been made and entered into in Maryland and shall in all respects be interpreted, enforced and governed by the laws of Maryland, without giving effect to the conflicts of laws provisions thereof.

6) This Agreement shall be binding upon the parties hereto and their respective heirs, personal representatives, successors, and assigns.

7) Any controversy or claim arising out of, or relating to, this Agreement shall first be discussed informally between you and the Company in an attempt to resolve the matter. If you and the Company are unable to resolve the matter, then any controversy or claim arising out of, or relating to, this Agreement shall be submitted to mandatory private mediation and then, if necessary, to final and binding private arbitration in accordance with the rules and procedures of the American Arbitration Association National Rules for the Resolution of Employment Disputes (“AAA Rules”). It is agreed that the procedures set forth in this paragraph will be the exclusive, final, and binding means for the resolution of any disputes arising out of or relating to this Agreement, except as provided below in Paragraph 8. It is further agreed that any proceedings initiated pursuant to this provision will be brought in Washington, D.C. The parties shall share the costs of the mediation/arbitration process, with the Company paying three-quarters and you paying one-quarter. Each party shall be responsible for paying their own attorneys’ fees incurred with regard to such mediation/arbitration.

8) You acknowledge and agree that a breach by you of any of the provisions of Paragraph 3 of this Agreement will cause immediate and irreparable injury to the Company, for which injury there is no adequate remedy at law. Accordingly, Paragraph 7 of this Agreement notwithstanding, you agree that in the event of such breach or threatened breach, the Company will be entitled to an immediate injunction by a court of competent jurisdiction to prevent and restrain such breach, with the losing party being required to pay the costs and attorneys’ fees incurred by the other in bringing or defending, as applicable, any court action or arbitration claim relating to such actual or threatened breach of said paragraphs. You expressly agree to waive the requirement for HGS to post a bond in any such injunction action and you expressly agree to submit to the jurisdiction of the courts of the State of Maryland for any injunction proceeding brought pursuant to this provision.

9) You shall be indemnified for actions or inactions occurring during your employment with HGS and its affiliates to the fullest extent permitted by Delaware law and HGS’s by-laws as in effect on the date hereof.

10) You and HGS agree that this Agreement, consisting of seven (7) pages, supersedes any previous agreements between the parties, provided that the Employee Confidential Information, Invention and Non-Competition Agreement, and any and all other confidentiality, intellectual property, and non-compete agreements signed by you and HGS shall survive this Agreement and shall remain in full force and effect after your separation from HGS and are incorporated herein. You agree that in executing this Agreement, you do not rely on any statement or promise by HGS or any of its agents or employees, other than what is written in this Agreement. This Agreement may be modified only by a written document signed by both you and the CEO of HGS. You acknowledge that this Agreement is a full and accurate embodiment of the understanding between the parties.

11) The parties, intending to be legally bound by this Agreement, each execute it without coercion and with knowledge of the nature and consequences of its terms and conditions.

12) You acknowledge that you have been given the opportunity to consider this Agreement for up to twenty-one (21) days. You also acknowledge that you have been advised in writing to consult an attorney about this Agreement and that you have had a fair and full opportunity to do so. Your signature on this Agreement prior to the expiration of this period evidences your intent to knowingly and voluntarily waive this review period.

13) You may revoke this Agreement within seven (7) days, following its execution by notifying the General Counsel of HGS, James H. Davis, in writing, at 14200 Shady Grove Road, Rockville, MD 20850. If the Agreement is revoked, it is null and void. In any event, the Agreement does not become effective until the seven (7) day revocation period expires. After that time, if there has been no written revocation, this Agreement shall be fully effective, enforceable and irrevocable.

14) You understand that your obligation to comply with the Employee Confidential Information, Invention and Non-Competition Agreement that you signed upon commencing employment with HGS will continue, regardless of whether or not you accept this Agreement.

If you agree with these terms, please sign this Agreement below and return it to me by January 3, 2006. Your signature will confirm that you are entering into this Agreement voluntarily and with a full understanding of all of the above terms. No changes in this Agreement will be valid unless in writing and signed by both parties.

Sincerely,

/s/ Susan Bateson McKay                    
Susan Bateson McKay
Senior Vice President, Human Resources
On Behalf of HGS and the Releasees

I HAVE READ THE FOREGOING OFFER AND I FULLY UNDERSTAND ITS TERMS. I AM SIGNING THIS AGREEMENT FREELY AND VOLUNTARILY, HAVING BEEN GIVEN A FULL AND FAIR OPPORTUNITY TO CONSIDER IT AND CONSULT WITH ADVISORS OF MY CHOICE.

READ AND AGREED TO:	Subscribed and sworn to before me
	this 13th day of December 2005.
	/s/ Rose Hadidian
	Rose Hadidian
	Notary Public State of Maryland
/s/ Steven C. Mayer                     Steven Mayer
Date___December 13, 2005___

EXHIBIT A

Notwithstanding anything to the contrary contained herein or in any other agreement between you and HGS, including the Employee Confidential Information, Invention and Non-Competition Agreement between the parties, the parties agree that you may retain the following items:

Laptop computer provided by HGS
Fax and copy machine(s) provided by HGS
Personal property in your office
Rolodex or other lists of contacts
Information regarding your compensation and benefits
Employment agreements, equity award agreements or copies of other agreements related to your employment by HGS or its affiliates
Documents or information described in CoGenesys documentation

In addition, you shall be given access to your HGS e-mail account until June 30, 2006 to provide continuity for you and support of HGS through your consulting arrangement.

EX-12.1

EXHIBIT 12.1

Ratio of Earnings to Fixed Charges
(dollars in thousands, except ratio data)

	Year Ended December 31,
	2005			2004			2003			2002			2001
Fixed Charges:
Interest expense on indebtedness (including amortization of debt expense and discount)	$	17,849		$	22,868		$	23,723		$	23,746		$	24,638
Interest expense on portion of rent expense representative of interest		14,614			9,089			7,604			7,206			6,159
Total Fixed Charges	$	32,463		$	31,957		$	31,327		$	30,952		$	30,797
Earnings (Loss):
Net loss before provision for income taxes and cumulative effect of change in accounting principle	$	(239,439	)	$	(242,898	)	$	(185,324	)	$	(219,716	)	$	(117,152	)
Fixed Charges per above		32,463			31,957			31,327			30,952			30,797
Total Earnings (Loss)	$	(206,976	)	$	(210,941	)	$	(153,997	)	$	(188,764	)	$	(86,355	)
Ratio of Earnings to Fixed Charges		—			—			—			—			—
Coverage deficiency (1)(2)(3)	$	(239,439	)	$	(242,898	)	$	(185,324	)	$	(219,716	)	$	(117,152	)

(1)	The Company’s Coverage deficiency for 2004 includes net charges of $12,975, relating to a $15,408 charge for restructuring partially offset by a gain recognized on the extinguishment of debt of $2,433.
(2)	The Company’s Coverage deficiency for 2002 includes charges aggregating $46,396 arising from the Company’s impairment charge relating to its investment in CAT and a charge for construction design changes of $32,158 and $14,238, respectively.
(3)	The Company’s Coverage deficiency for 2001 includes charges aggregating $26,208 arising from the Company’s impairment charge relating to its investment in Transgene and debt conversion expenses of $22,314 and $3,894, respectively.

EX-21.1

EXHIBIT 21.1

Subsidiaries

Name	Jurisdiction of Incorporation
Human Genome Sciences Pacific Pty Ltd.	Australia
Human Genome Sciences Europe GmbH	Germany
Traville LLC	Maryland

EX-23.1

EXHIBIT 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference of our reports dated March 8, 2006, with respect to the consolidated financial statements of Human Genome Sciences, Inc., Human Genome Sciences, Inc. management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Human Genome Sciences, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 2005, in the following Registration Statements:

(1)	Registration Statement Number 333-85319 on Form S-3
(2)	Registration Statement Number 333-96387 on Form S-3
(3)	Registration Statement Number 333-33252 on Form S-3
(4)	Registration Statement Number 333-36384 on Form S-3
(5)	Registration Statement Number 333-44798 on Form S-8
(6)	Registration Statement Number 333-45272 on Form S-3
(7)	Registration Statement Number 333-47292 on Form S-3
(8)	Registration Statement Number 333-66670 on Form S-8
(9)	Registration Statement Number 333-89392 on Form S-8
(10)	Registration Statement Number 333-104219 on Form S-8
(11)	Registration Statement Number 333-121724 on Form S-3
(12)	Registration Statement Number 333-123472 on Form S-3
(13)	Registration Statement Number 333-128874 on Form S-3

/s/ Ernst & Young LLP

McLean, Virginia
March 13, 2006

EX-31.I.1

EXHIBIT 31i.1

I, H. Thomas Watkins, certify that:

      1. I have reviewed this Annual Report on Form 10-K for the period ended December 31, 2005 of Human Genome Sciences, Inc.;

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

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

      4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

      (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

      (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

      (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

      (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

      (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

      (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ H. Thomas Watkins

H. Thomas Watkins

Chief Executive Officer and President

(Principal Executive Officer)

Date: March 14, 2006

EX-31.I.2

EXHIBIT 31i.2

I, Barry A. Labinger, certify that:

      1. I have reviewed this Annual Report on Form 10-K for the period ended December 31, 2005 of Human Genome Sciences, Inc.;

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

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

      4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

      (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

      (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

      (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

      (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

      (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

      (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Barry A. Labinger

Barry A. Labinger

Executive Vice President, Chief Commercial Officer

and Chief Financial Officer

(Principal Financial Officer)

Date: March 14, 2006

EX-32.1

EXHIBIT 32.1

Certification of Principal Executive Officer

Pursuant to 18 U.S.C. 1350

(Section 906 of the Sarbanes-Oxley Act of 2002)

I, H. Thomas Watkins, Chief Executive Officer (principal executive officer) of Human Genome Sciences, Inc. (the “Registrant”), certify, to the best of my knowledge, based upon a review of the Annual Report on Form 10-K for the period ended December 31, 2005 of the Registrant (the “Report”), that:

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

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

/s/ H. Thomas Watkins

Name: H. Thomas Watkins

Date: March 14, 2006

EX-32.2

EXHIBIT 32.2

Certification of Principal Financial Officer

Pursuant to 18 U.S.C. 1350

(Section 906 of the Sarbanes-Oxley Act of 2002)

I, Barry A. Labinger, Executive Vice President and Chief Financial Officer (principal financial officer) of Human Genome Sciences, Inc. (the “Registrant”), certify, to the best of my knowledge, based upon a review of the Annual Report on Form 10-K for the period ended December 31, 2005 of the Registrant (the “Report”), that:

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

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

/s/ Barry A. Labinger

Name: Barry A. Labinger

Date: March 14, 2006