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, 2008

Commission File Number 0-22962

HUMAN GENOME SCIENCES, INC.

(Exact name of registrant)

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

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

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

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

Title of Each Class	Name of Each Exchange on Which Registered
Common stock, par value $0.01 per share	The NASDAQ Stock Market LLC

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

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

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.  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ Accelerated filer o Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller reporting company 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, 2009 was 135,745,696. As of June 30, 2008, 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 $515,894,695.*

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 36,528,324 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, 2008. 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 “Risk Factors,” “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, Inc. (HGS) is a commercially focused biopharmaceutical company advancing toward the market with three products in late-stage clinical development: Albuferon^® for chronic hepatitis C, LymphoStat-B^® for systemic lupus erythematosus (SLE), and ABthrax^tm for inhalation anthrax. In January 2009, we achieved our Company’s first product sales when we began delivery of ABthrax to the U.S. Strategic National Stockpile.

Albuferon and LymphoStat-B are also progressing toward commercialization. In December 2008, we reported that Albuferon successfully met its primary endpoint in the first of two Phase 3 clinical trials in chronic hepatitis C; we expect to report results of the second Phase 3 trial in March 2009. If results in the second Phase 3 trial are also successful, we expect the filing of global marketing applications for Albuferon in fall 2009. We completed enrollment in both Phase 3 trials of LymphoStat-B in SLE in 2008, and we expect to report the results of these studies in July and November 2009, respectively. Assuming success in Phase 3, we plan to file global marketing applications for LymphoStat-B in the first half of 2010.

We also have substantial financial rights to two novel drugs that GlaxoSmithKline (GSK) has advanced to late-stage development. In December 2008, GSK initiated the first Phase 3 clinical trial of darapladib, which was discovered by GSK based on HGS technology, in more than 15,000 men and women with chronic coronary heart disease. GSK plans to initiate a second large Phase 3 trial of darapladib in late 2009. In February 2009, GSK initiated a Phase 3 clinical trial program for Syncria^® (albiglutide) in the long-term treatment of type 2 diabetes mellitus. Syncria was created by HGS using our proprietary albumin-fusion technology, and we licensed Syncria to GSK in 2004.

HGS also has several novel drugs in earlier stages of clinical development for the treatment of cancer, led by our TRAIL receptor antibody HGS-ETR1 and a small-molecule antagonist of IAP (inhibitor of apoptosis) proteins.

Strategic partnerships are an important driver of our commercial success. We have co-development and commercialization agreements with prominent pharmaceutical companies for both of our lead products - Novartis for Albuferon and GSK for LymphoStat-B. ABthrax is being developed under a contract with the Biomedical Advanced Research and Development Authority (BARDA) of the Office of the Assistant Secretary for Preparedness and Response (ASPR), U.S. Department of Health and Human Services (HHS).

Our strategic partnerships with leading pharmaceutical and biotechnology companies allow us to leverage our strengths and gain access to sales and marketing infrastructure, as well as complementary technologies. Some of these partnerships provide us with licensing or other fees, clinical development cost-sharing, milestone payments and rights to royalty payments as products are developed and commercialized. In some cases, we are entitled to certain commercialization, co-promotion, revenue-sharing and other product rights.

With a strong cash position, a management team experienced in bringing products to market, an experienced drug development organization and significant capabilities in biologicals manufacturing, HGS has the resources

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and capabilities necessary to achieve near-term commercial success while sustaining a viable pipeline that supports the long-term growth of the Company.

We are a Delaware corporation headquartered at 14200 Shady Grove Road, Rockville, Maryland, 20850-7464. Our telephone number is (301) 309-8504. Our website address 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

Over the last few years, HGS has made strategic decisions that have transformed the Company on multiple levels and created multiple paths for success. We now have three diverse products in final testing and mid-stage products emerging in our clinical pipeline. Our two lead products, Albuferon and LymphoStat-B, have significant therapeutic potential and the commercial potential to achieve leadership positions in the marketplace. Key strategies include:

•  Accelerate the development and commercialization of our late-stage products.  Our priority focus is on our product candidates with the highest therapeutic and commercial potential, and accelerating the progress of our late-stage compounds toward commercialization.

•  Build strong partnerships with global leaders in the pharmaceutical industry.  The co-development and commercialization agreements we have in place for our lead products — with Novartis for Albuferon and with GSK for LymphoStat-B — could help HGS assure that these products achieve their full therapeutic and commercial potential. As our mid-stage products continue to progress, we will consider each individually to assess whether similar collaborations are strategically beneficial.

•  Ensure sustainable growth into the future by continuing to invest in our mid- and early-stage clinical pipeline.  We have taken a number of actions to strengthen our oncology program. In April 2008, we reacquired rights to our TRAIL receptor antibodies HGS-ETR1 (mapatumumab) and HGS-ETR2 (lexatumumab) from GSK. We have advanced HGS-ETR1 to a proof-of-concept phase that currently includes three randomized chemotherapy combination trials to evaluate its potential in the treatment of specific cancers, including multiple myeloma, non-small cell lung cancer and hepatocellular cancer. We have also acquired the rights to develop and commercialize novel small-molecule inhibitors of IAP proteins that show substantial early promise in the treatment of a number of cancers. We will remain opportunistic in our search for new product candidates, assessing the best of the therapeutic opportunities discovered by HGS alongside therapeutic opportunities discovered by other organizations.

•  Pursue strategic acquisitions and collaborations.  We will pursue strategic acquisitions and collaborations to augment our capabilities, provide access to complementary technologies, and expand our portfolio of new drug candidates. We also rely on collaborations for the development of certain products discovered by HGS or others based on our technology, including those to which we have substantial financial rights in the GSK clinical pipeline. In addition, we are engaging in collaborations to leverage our extensive capabilities in protein and antibody process development and manufacturing to produce near-term revenue.

•  Capitalize on our intellectual property portfolio.  We pursue patents to protect our intellectual property and have developed a significant intellectual property portfolio, with hundreds of issued U.S. patents covering genes, proteins, antibodies and proprietary technologies. We have also filed U.S. patent applications covering many additional discoveries and inventions. We will seek opportunities to monetize intellectual property assets that we do not plan to develop ourselves internally.

•  Maintain a strong cash position.  HGS has finances in place that allow us to maintain a priority focus on advancing our late-stage products to commercialization, while also exploring longer-term opportunities that will drive momentum beyond our lead products. Controlling net cash burn and maintaining a strong cash position will continue to be an important ongoing priority.

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Products

HGS has three products in late-stage clinical development: Albuferon for chronic hepatitis C, LymphoStat-B for SLE, and ABthrax for inhalation anthrax. We also have substantial financial rights to certain products in the GSK clinical pipeline; GSK has advanced two of these products to Phase 3 clinical trials, darapladib for cardiovascular disease and Syncria for type 2 diabetes. In addition, we have a portfolio of novel drugs in earlier stages of development, led by our TRAIL receptor antibody HGS-ETR1 in mid-stage development for cancer.

Clinical Programs

Late-Stage Products

Two of our late-stage products, Albuferon for chronic hepatitis C and LymphoStat-B for SLE, are in Phase 3 clinical development. We have already begun to deliver the third lead product, ABthrax, to the U.S. Strategic National Stockpile for emergency use in the treatment of inhalation anthrax.

Albuferon (albinterferon alfa-2b)

Albuferon is a genetic fusion of human albumin and interferon alfa that was created using the Company’s proprietary albumin-fusion technology. Research has shown that genetic fusion of therapeutic proteins to human albumin decreases clearance and prolongs the half-life of the therapeutic proteins. Albuferon is being developed by HGS and Novartis for the treatment of chronic hepatitis C under an exclusive worldwide co-development and commercialization agreement entered into in June 2006 (described below under “Lead Commercial Collaborations”).

Our Company has conducted two pivotal Phase 3 clinical trials of Albuferon in combination with ribavirin: ACHIEVE 2/3 in treatment-naïve patients with genotypes 2 or 3 chronic hepatitis C, and ACHIEVE 1 in treatment-naïve patients with genotype 1 chronic hepatitis C. Both trials were randomized, open-label, active-controlled, multi-center, non-inferiority trials that evaluated the efficacy, safety and impact on health-related quality of life of Albuferon in combination with ribavirin, versus Pegasys (peginterferon alfa-2a) in combination with ribavirin. The primary efficacy endpoint of both trials was sustained virologic response (SVR), defined as undetectable HCV (hepatitis C) RNA at 24 weeks following the end of treatment.

The total duration of therapy in ACHIEVE 2/3 was 24 weeks, with 24 weeks of follow-up. The total duration of therapy in ACHIEVE 1 was 48 weeks, with 24 weeks of follow-up. Both Phase 3 trials were designed to evaluate two doses of Albuferon, 1200-mcg and 900-mcg administered every two weeks, versus an active-control arm in which patients received Pegasys on a standard once-weekly regimen. In January 2008, our Company announced modified dosing in one arm of each of the ACHIEVE trials. Patients who had been receiving the 1200-mcg dose had their dose modified to 900 mcg. The change was based on recommendations made by the studies’ independent Data Monitoring Committee.

In December 2008, we reported that Albuferon met its primary endpoint of non-inferiority to peginterferon alfa-2a (Pegasys) in the ACHIEVE 2/3 study. The data showed that the rate of sustained virologic response was comparable for the 900-mcg dose of Albuferon administered every two weeks, versus the standard 180-mcg dose of peginterferon alfa-2a administered once weekly. Rates of serious adverse events, severe adverse events and discontinuations due to adverse events were also comparable.

The treatment phase of ACHIEVE 1, the second Albuferon Phase 3 clinical trial, was completed in July 2008, and the results of ACHIEVE 1 are expected in March 2009. Assuming success in Phase 3, we expect that global marketing applications for Albuferon will be filed in fall 2009.

We announced in January 2009 that our co-development and commercialization collaborator, Novartis, initiated a separate Phase 2b trial to explore various doses of Albuferon administered monthly, in combination with ribavirin, in treatment-naïve patients with genotypes 2 and 3 chronic hepatitis C. The monthly dosing study is a randomized, open-label, active-controlled, multi-center, adaptive-design dose-ranging study to evaluate the safety and efficacy of albinterferon alfa-2b administered every four weeks plus daily ribavirin in treatment-naïve patients with genotypes 2 and 3 chronic hepatitis C. Approximately 375 patients will be randomized into four treatment

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groups, including three that will receive Albuferon administered once every four weeks (900 mcg, 1200 mcg or 1500 mcg), in addition to the active-control group, which will receive peginterferon alfa-2a at the standard 180-mcg dose once every week. All patients in the study will receive 800-mg daily oral ribavirin. The total duration of treatment will be 24 weeks. The primary efficacy endpoint is sustained virologic response (SVR) at Week 48 (24 weeks following the end of treatment).

LymphoStat-B (belimumab)

LymphoStat-B is a human monoclonal antibody that specifically recognizes and inhibits the biological activity of B-lymphocyte stimulator, or BLyS^®. In lupus, rheumatoid arthritis and certain other autoimmune diseases, elevated levels of BLyS are believed to contribute to the production of autoantibodies — antibodies that attack and destroy the body’s own healthy tissues. LymphoStat-B is being developed by HGS and GSK as a potential treatment for systemic lupus erythematosus (SLE) under a co-development and commercialization agreement entered into in August 2006 (described below under “Lead Commercial Collaborations”).

We are currently conducting two pivotal Phase 3 clinical trials of LymphoStat-B in patients with active SLE — BLISS-52 and BLISS-76 — to evaluate the efficacy and safety of LymphoStat-B plus standard of care, versus placebo plus standard of care, in patients with serologically active SLE. BLISS-52 and BLISS-76 are the largest clinical trials ever conducted in lupus patients.

The design of the two studies is similar, but the duration of therapy is different, 52 weeks for BLISS-52 and 76 weeks for BLISS-76. Data from BLISS-76 will be analyzed after 52 weeks in support of potential global marketing applications. The primary efficacy endpoint of both trials is the patient response rate at Week 52, as defined by a reduction from baseline of at least 4 points in the SELENA SLEDAI disease activity scale, no worsening in Physician’s Global Assessment, and no worsening in BILAG. The Phase 3 trial protocols were agreed upon with FDA under a Special Protocol Assessment.

We expect to report the first Phase 3 results for LymphoStat-B in July 2009 from the BLISS-52 trial, with results from BLISS-76 anticipated in November 2009. Assuming success in Phase 3, we expect that global marketing applications for LymphoStat-B will be filed in the first half of 2010.

In June 2008, at the Congress of the European League Against Rheumatism (EULAR 2008), data were presented on long-term treatment with LymphoStat-B demonstrating that it was associated with sustained improvement in disease activity across multiple clinical measures, decreased frequency of disease flares, potential steroid-sparing activity, and was generally well tolerated through three years on treatment in combination with standard of care in patients with serologically active SLE. These data suggested that the significant clinical benefit observed for LymphoStat-B at Week 52 of this Phase 2 study appeared to be durable through three years — with incidence rates of adverse events, serious adverse events, malignancies, infections and laboratory abnormalities remaining similar to placebo or decreasing over time.

ABthrax (raxibacumab)

ABthrax is a human monoclonal antibody that specifically targets and blocks Bacillus anthracis protective antigen, which research has shown to be the key facilitator of the deadly toxicity of anthrax infection. ABthrax represents a new way to address the anthrax threat. While antibiotics can kill the anthrax bacteria, they are not effective against the deadly toxins that the bacteria produce. ABthrax targets anthrax toxins after they are released by the bacteria into the blood and tissues. In an inhalation anthrax attack, people may not know they are infected with anthrax until the toxins already are circulating in their blood, and it may be too late for antibiotics alone to be effective.

We are developing ABthrax under a $165.0 million contract entered into in 2006 with the Biomedical Advanced Research and Development Authority (BARDA) of the Office of the Assistant Secretary for Preparedness and Response (ASPR), U.S. Department of Health and Human Services (HHS). In January 2009, we began delivery of 20,001 doses of ABthrax to the U.S. Strategic National Stockpile. We expect to receive at least $150.0 million in 2009 from this delivery — our Company’s first product sales — with most of the revenue expected in the first quarter. Also under the contract, we plan to file a BLA with the FDA in the second quarter of

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2009. We will receive an additional $15.0 million from the U.S. Government if we obtain FDA licensure of ABthrax.

In December 2007, we announced that the results of two animal studies demonstrated the life-saving potential of ABthrax. The results showed that a single dose of ABthrax, administered without concomitant antibiotics, improved survival rates by up to 64 percent when administered after animals were symptomatic for anthrax disease as a result of inhalation exposure to massively lethal doses of anthrax spores. These statistically significant findings demonstrated a survival benefit in two animal species, which is the requirement for establishing the efficacy of new drugs used to counter bioterrorism. These data are consistent with the results of previous studies in multiple animal models, which demonstrated that a single dose of ABthrax given prophylactically provided up to 100 percent protection against death.

We have also completed safety studies of ABthrax in more than 400 human volunteers. The clinical results to date suggest that ABthrax was generally safe and well tolerated. In addition, clinical data have demonstrated that co-administration of ABthrax with the antibiotic Cipro (ciprofloxacin) did not affect the pharmacokinetics of either Cipro or ABthrax, and suggested that ABthrax can be administered in combination with antibiotics. This is a key finding given the important role that antibiotics are expected to continue to play in the treatment of anthrax disease.

Oncology Products

As our Company’s late-stage products are nearing commercialization, we have invested strategically to expand and advance our oncology portfolio around our leading expertise in the apoptosis, or controlled cell death, pathway. In April 2008, we reacquired rights to our TRAIL receptor antibodies from GSK. We have also expanded our clinical development program for HGS-ETR1 to demonstrate proof of concept in combination with other anticancer agents, and we have added new early-stage assets by in-licensing small-molecule IAP inhibitors for the treatment of cancer.

TRAIL Receptor Antibodies

HGS has pioneered the development of highly targeted agonistic antibody therapies for cancer based on the TRAIL receptor apoptotic pathway. HGS-ETR1 (mapatumumab) and HGS-ETR2 (lexatumumab) are human monoclonal antibodies that specifically bind to the TRAIL receptor-1 and TRAIL receptor-2 proteins, respectively, and cause them to induce programmed cell death, or apoptosis, in cancer cells. We believe that HGS-ETR1 is the most advanced of all the products in development that target the TRAIL pathway.

HGS-ETR1 has moved to a proof-of-concept phase that currently includes three randomized trials to evaluate its potential in combination with chemotherapy for the treatment of specific cancers:

Non-small cell lung cancer: In August 2008, we completed the enrollment and initial dosing of patients in a randomized Phase 2 trial of HGS-ETR1 in combination with paclitaxel and carboplatin as first-line therapy in patients with advanced non-small cell lung cancer (NSCLC); initial data from the study are anticipated in 2009. NSCLC accounts for approximately 75-80% of all lung cancers and is currently the leading cause of cancer death in developed countries in both men and women.

Hepatocellular cancer: In July 2008, we initiated dosing in the safety lead-in to a randomized Phase 2 trial of HGS-ETR1 in combination with Nexavar (sorafenib) in patients with advanced hepatocellular cancer, which accounts for 80-90% of all liver cancers.

Multiple myeloma: In September 2008, we reported initial topline results from an ongoing Phase 2 clinical trial of HGS-ETR1 in combination with bortezomib (Velcade) in patients with advanced multiple myeloma. The initial data from the study show that HGS-ETR1 was well tolerated and suggest that disease response rates were comparable for this combination versus bortezomib alone. Patients will continue on treatment until the progression of disease, and HGS expects to have final data available from this study in late 2009 or early 2010, including data on the important secondary endpoint of progression-free survival. Multiple myeloma is a cancer of the plasma cells in bone marrow and accounts for about 10 percent of all hematologic cancers.

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These three trials, taken together, will support a decision on whether to advance HGS-ETR1 to Phase 3 development.

IAP Inhibitors

In December 2007, we and Aegera Therapeutics Inc. (“Aegera”) completed a licensing and collaboration agreement that provides us with exclusive worldwide rights (excluding Japan) to develop and commercialize small-molecule inhibitors of IAP (inhibitor of apoptosis) proteins in oncology (described below under “Product Collaborations and Agreements”). In May 2008, we initiated dosing in a Phase 1 clinical trial to evaluate the safety and tolerability of our lead IAP inhibitor, HGS1029, as monotherapy in patients with advanced solid tumors. Results of this study will also help identify the recommended dose for Phase 2 trials. The IAP inhibitors are a novel class of compounds that can block the activity of IAP proteins, thus allowing apoptosis to proceed and causing the cancer cells to die. When IAP proteins are over-expressed in cancer cells, they can help cancer cells resist apoptosis and resume growth and proliferation.

The HGS TRAIL receptor antibodies and small-molecule IAP inhibitors represent two different approaches targeting different points in the apoptosis pathway. Each is able to cause cancer cells to die selectively. Preclinical studies of HGS1029 in combination with our TRAIL receptor antibodies demonstrated dramatic synergistic activity against a number of cancer types, including prostate, breast, esophageal, colorectal and non-small cell lung. HGS1029 has also shown significant anti-tumor activity alone and in combination with other agents in a broad range of cancers. We plan to develop our TRAIL receptor antibodies and IAP inhibitors in combination with one another and in combination with other therapeutic agents.

Products in the GSK Pipeline

There are three products in the GSK clinical development pipeline to which we have substantial financial rights (described below under “Lead Commercial Collaborations”). Two of these are genomics-derived small-molecule drugs discovered by GSK based on our technology: darapladib and GSK649868. The third product, Syncria (albiglutide) is an albumin-fusion protein created by HGS, which we licensed to GSK.

Darapladib

Darapladib was discovered by GSK based on our technology. It is a small-molecule inhibitor of lipoprotein-associated phospholipase-A2 (Lp-PLA₂), an enzyme associated with the formation of atherosclerotic plaques and identified in clinical trials as an independent risk factor for coronary heart disease and ischemic stroke. GSK is developing darapladib as a treatment for atherosclerosis, and it has the potential to be an important treatment for the prevention of cardiovascular risk.

In December 2008, GSK initiated STABILITY, the first Phase 3 clinical trial to evaluate the efficacy of long-term treatment with darapladib in men and women with chronic coronary heart disease. More than 15,000 patients will participate in STABILITY. In its announcement, GSK said, “Despite major advances in medical treatment, coronary heart disease remains the leading cause of death worldwide and new approaches are needed to help reduce this burden to society. GSK is initiating the large STABILITY trial with darapladib as part of a Phase 3 program to determine if this novel medication could improve people’s lives by reducing the risk of cardiovascular events.”

GSK also indicated that it plans to initiate another large event-driven trial with darapladib in late 2009 in a post-ACS (acute coronary syndrome) patient population.

HGS will receive 10% royalties on worldwide sales if darapladib is commercialized, and has a 20% co-promotion option in North America and Europe.

Syncria^® (albiglutide)

Syncria is a biological product generated from the genetic fusion of human albumin and modified human GLP-1 peptide, and is designed to act throughout the body to help maintain normal blood-sugar levels and to control appetite. GSK is developing Syncria as a treatment for type 2 diabetes mellitus. In February 2009, GSK initiated a

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Phase 3 clinical trial program to evaluate the efficacy, safety and tolerability of Syncria (albiglutide) in the long-term treatment of type 2 diabetes mellitus.

Syncria was created by HGS using its proprietary albumin-fusion technology, and licensed to GSK in 2004. HGS is entitled to fees and milestone payments that could amount to as much as $183.0 million — including $24.0 million received to date — in addition to single-digit royalties on worldwide sales if Syncria is commercialized. HGS will receive an additional $9.0 million milestone payment in the first quarter of 2009 related to initiation of Phase 3 development.

GSK649868

GSK649868 was discovered by GSK based on HGS technology. It is a small-molecule orexin antagonist. Orexin is a hormone that plays an important role in the regulation of sleep-wake cycles.

Research and Development

HGS 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.

Human Antibody Technology

We have acquired rights to a variety of human antibody technologies, have integrated these technologies into our research and development program, and continue to collaborate with certain antibody companies. Many medical conditions are the result of an excess of a specific protein in the body, and some antibody drugs can inactivate such proteins and bring therapeutic benefits to patients. These drugs are known as antagonistic antibodies. For example, LymphoStat-B, which is in Phase 3 clinical trials for the treatment of systemic lupus erythematosus, is an antagonistic human monoclonal antibody.

In certain medical conditions, it may be desirable to stimulate a specific biological activity. Antibodies that stimulate biological activity are known as agonistic antibodies. HGS-ETR1 is an agonistic antibody that binds to TRAIL receptor 1 and triggers programmed cell death in cancer cells. We believe that it was the first human agonistic monoclonal antibody 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 and our partners 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 is a genetic fusion of human albumin and human interferon alfa, and Syncria 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 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 that has 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 Biologics License Applications at the appropriate time. We have assembled experienced teams in key strategic areas of development, including:

•  Clinical Research and Biostatistics.  The clinical research and biostatistics groups are responsible for the design, planning and analysis of clinical trials.

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•  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 drug safety 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 our products.

•  Bioanalytical Sciences.  The bioanalytical sciences group develops and performs 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.

•  Biopharmaceutical Development.  The biopharmaceutical development group develops robust manufacturing processes and product formulations to support clinical studies and future commercial supply.

Strategic Collaborations

Strategic collaborations are a key aspect of the HGS business strategy. We have co-development and commercialization agreements with prominent pharmaceutical companies for two of our late-stage products, and our third late-stage product is being developed under a contract with the U.S. Government. Strategic collaborations are an important source of revenues and clinical development cost-sharing. They also allow us to leverage our strengths and gain access to sales and marketing infrastructure, international distribution, and complementary technologies.

Other potential collaborations may provide sources of exciting new product opportunities for in-licensing. In addition, we have assets that may be a better fit for another company than for HGS, and therefore could be out-licensed. Each of these collaborative models is of interest to HGS, and we are committed to remaining alert to new opportunities.

Lead Commercial Collaborations

Novartis

Albuferon.  In June 2006, we entered into an exclusive worldwide agreement for the co-development and commercialization of Albuferon with Novartis, a global leader in the pharmaceutical industry. We and Novartis are working closely together to advance Albuferon to the market for use in the treatment of chronic hepatitis C. Under the agreement, we and Novartis will co-commercialize Albuferon in the United States, and will share clinical development costs, U.S. commercialization costs and U.S. profits equally. Novartis will be responsible for commercialization in the rest of the world and will pay us a double-digit royalty on those sales. We will have primary responsibility for the bulk manufacture of Albuferon, and Novartis will have primary responsibility for commercial manufacturing of the finished drug product. Clinical development, commercial milestone and other payments to HGS could total as much as $507.5 million. To date, we have received $132.5 million in upfront and milestone payments under this agreement. We are recognizing these payments ratably over the remaining clinical development period. We recognized revenues of $28.0 million in 2007 and $35.4 million in 2008. The Novartis agreement includes cost-sharing provisions under which we and Novartis share clinical costs. We recorded cost reimbursement from Novartis of $46.5 million in 2007 and $36.1 million in 2008 under this provision, which was reflected as a reduction in expenses. This agreement will expire on the later of (i) the expiration of Novartis’ obligation to pay royalties under the agreement, which could be as early as 2023, and (ii) the date that we and Novartis cease to co-promote Albuferon in the United States. Novartis has the right to terminate the agreement (i) without cause or (ii) if there are material safety risks associated with Albuferon or Albuferon is not approved by

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the FDA or the European Medicines Agency (“EMEA”). In addition, either party may terminate if the other party commits a material breach of the agreement or if the other party is bankrupt or insolvent.

GlaxoSmithKline

LymphoStat-B.  In August 2006, we entered into an agreement with GSK for the co-development and commercialization of LymphoStat-B. GSK is a world leader that brings global pharmaceutical development and marketing capabilities to the LymphoStat-B program. Under the LymphoStat-B agreement, we and GSK will share Phase 3 and 4 development costs, sales and marketing expenses, and profits equally. We are conducting Phase 3 clinical trials with assistance from GSK, and will have primary responsibility for bulk manufacturing. We have received an execution fee of $24.0 million under this agreement and we are recognizing this payment ratably over the estimated remaining development period. We recognized revenues of $6.5 million in 2007 and 2008. The GSK LymphoStat-B agreement includes cost-sharing provisions under which we and GSK share clinical development costs. We recorded cost reimbursement from GSK of $39.3 million in 2007 and $51.8 million in 2008 under this provision, which was reflected as a reduction in expenses. This agreement will expire three years after the later of (i) the expiration date of certain patent rights related to LymphoStat-B and (ii) a period of ten years after the first commercial sale of LymphoStat-B. These certain patent rights are expected to expire by 2023, with the potential for later expiration that may result from any issuance of additional patents and/or patent term extensions. GSK may terminate the agreement if (i) upon the basis of competent scientific evidence or data regarding commercial potential, GSK determines LymphoStat-B does not merit incurring additional development or marketing expenses or (ii) LymphoStat-B is not approved by the FDA or EMEA. In addition, either party may terminate if the other party commits a material breach of the agreement or if the other party is bankrupt or insolvent.

Darapladib.  In December 2008, GSK initiated Phase 3 development of darapladib, a small-molecule Lp-PLA₂ inhibitor discovered by GSK based on HGS technology. GSK is developing darapladib as a treatment for atherosclerosis, and it has the potential to become an important treatment for the prevention of cardiovascular risk. We will receive a 10% royalty on worldwide sales of darapladib if it is commercialized, and we have a 20% co-promotion option in North America and Europe. We are also entitled to receive a milestone payment if darapladib moves through clinical development into registration.

Syncria.  In February 2009, GSK initiated a Phase 3 clinical trial program to evaluate the efficacy, safety and tolerability of Syncria in the long-term treatment of type 2 diabetes mellitus. Syncria was created by HGS using its proprietary albumin-fusion technology, and licensed to GSK in 2004. HGS is entitled to fees and milestone payments that could amount to as much as $183.0 million — including $24.0 million received to date. HGS will receive an additional $9.0 million milestone payment related to initiation of Phase 3 development in the first quarter of 2009. We are also entitled to single-digit royalties on worldwide sales if Syncria is commercialized.

TRAIL Receptor Antibodies.   In April 2008, we reacquired rights to the TRAIL receptor antibodies HGS-ETR1 and HGS-ETR2 from GSK, in return for a reduction in royalties due to HGS if Syncria is commercialized. The fees and milestone payments due to our Company under the original Syncria agreement, some of which have already been received, could amount to as much as $183.0 million and remain unchanged in the amended agreement.

United States Government

ABthrax.  In September 2005, we entered into a two-phase contract with the Biomedical Advanced Research and Development Authority (BARDA) of the U.S. Department of Health and Human Services (HHS) to supply ABthrax for inhalation anthrax. HHS is the lead agency for public health and medical response to man-made or natural disasters, including acts of bioterrorism. Under the first phase of the contract, we supplied ten grams of ABthrax to HHS for comparative in vitro and in vivo testing and received approximately $1.8 million for this work. In June 2006, under the second phase of the contract, the U.S. Government exercised its option to purchase treatment courses of ABthrax for the U.S. Strategic National Stockpile. Under the contract, we agreed to manufacture and deliver 20,001 treatment courses to the U.S. Strategic National Stockpile. We began delivery to the Stockpile in January 2009. We expect to recognize a total of approximately $165.0 million in revenues from this contract, including at least $150.0 million in early 2009. This agreement can be terminated by the U.S. Government if it determines that a termination is in its interest.

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Product Collaborations and Agreements

Aegera Therapeutics.  In December 2007, we and Aegera Therapeutics, Inc. completed a licensing and collaboration agreement providing us with exclusive worldwide rights (excluding Japan) to develop and commercialize HGS1029 (formerly AEG40826) and other small-molecule inhibitors of IAP (inhibitor of apoptosis) proteins in oncology. Under the agreement, we made an upfront payment to Aegera of $20.0 million as a licensing fee and for an equity investment. Aegera will be entitled to receive up to $295.0 million in future development and commercial milestone payments, including a $5.0 million milestone paid in 2008 upon FDA clearance of an IND. Aegera will receive low double-digit royalties on net sales in the HGS territory. In North America, Aegera will have the option to co-promote, under which it will share certain expenses and profits (30%) in lieu of its royalties. Aegera retains the non-oncology rights to its IAP inhibitors that are not selected for development under this agreement.

CoGenesys.  In June 2006, we completed the transaction establishing CoGenesys as an independent company, established to focus on the early development of selected product opportunities and the monetization of certain HGS intellectual property and technology assets that HGS did not plan to develop internally. In February 2008, Teva Pharmaceutical Industries Ltd. (“Teva”) acquired all the outstanding shares of CoGenesys. We received a total of approximately $52.6 million for our 14% equity interest, approximately $47.3 million of which was received upon closing of the transaction in February 2008, and $5.3 million of which was received in February 2009. We are also entitled to a portion of the revenue that Teva may receive from outlicensing or sales of certain therapeutic and diagnostic products successfully developed and commercialized.

Research and Technology Collaborations

HGS has a rich heritage of scientific discovery that has produced a substantial intellectual property estate and a library of thousands of therapeutic and diagnostic targets. Over the past couple of years, we have conducted a careful review and selected approximately 50 targets for further research and potential development, with the goal of filing INDs in 2010-2011. We plan to develop the selected targets through co-development or research collaborations, as well as through our own internal research, including the application of antibody development technology from various collaborators.

Process Development and Manufacturing Alliances

Protein and antibody process development and manufacturing are core HGS competencies. We currently produce several protein and antibody drugs in two state-of-the-art cGMP-compliant process development and manufacturing facilities — totaling approximately 400,000 square feet and offering both small-scale and large-scale production in batches from 650 to 20,000 liters. We are leveraging these capabilities to produce near-term revenue by entering into strategically appropriate process development and manufacturing alliances.

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 and litigations 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 and opposition proceedings related to products based on TRAIL receptor 2 (such as HGS-ETR2) and interference, opposition and revocation 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

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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. We have hundreds of U.S. patents covering genes, proteins, antibodies and proprietary technologies. 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 additional patents and patent applications will continue to increase as the biotechnology industry progresses. 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. Furthermore, patents are issued for a limited time period and may expire before the useful life of the covered product. 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 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 ability to recruit and retain skilled employees;

•  an organization’s intellectual property estate;

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•  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, manufacturing 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 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 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.

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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 biologics license application, depending on the type of drug. In responding to a new drug application or a biologics 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 (such as Phase 4 trials). 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.

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 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

Most raw materials and other supplies required in our business are generally available from various suppliers in quantities adequate to meet our needs. Certain raw materials and other supplies required for manufacturing are currently available only from single sources. As we prepare for commercialization of our products, we intend to identify alternative sources of supply.

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 in two process development and manufacturing facilities that total approximately 400,000 square feet and offer both small-scale and large-scale manufacturing capabilities. We completed the commissioning and validation of our large-scale manufacturing facility in 2006, and successfully manufactured our first cGMP-compliant material at commercial scale. We do not currently manufacture any

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products for commercial use. We have, however, manufactured ABthrax for supply to the U.S. Strategic National Stockpile.

We cannot assure you that we will be able in the future to consistently 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.”

In the future, 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 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. GSK, Novartis 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 and marketing organization. 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 February 1, 2009, 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.

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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 our Phase 3 and earlier development molecules, 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, antibodies and small molecules for the treatment of human disease. We are also devoting substantial resources to the maintenance 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 tests and studies will yield products approved for marketing by the FDA in the United States or similar regulatory authorities in other countries, 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 our Phase 3 and earlier development molecules, we may be unable to recover the large investment we have made in research, development and manufacturing efforts.

Because we will be disclosing data from three Phase 3 trials on our two lead products this year, 2009 will be a pivotal year for the Company.

In 2009, we will be disclosing data from three ongoing Phase 3 clinical trials on our two lead products, Albuferon and LymphoStat-B. Even if we determine that the results from the trials are positive, FDA may determine that the results are insufficient either to file a BLA or to obtain marketing approval. If the results of the trials are negative for one or both of the products, we may not have sufficient data to file a BLA with the FDA and our results of operations and business will be materially adversely affected. If the results of these trials are negative for both products, we may not have sufficient resources to continue development of other products.

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 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 Phase 3 and earlier development molecules based on these technologies will be ineffective or toxic, or otherwise fail to receive necessary regulatory clearances;

•  the products, even 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 a late-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. Although we have received U.S. Government approval for our initial order of ABthrax, we cannot assure you we will receive additional orders. A number of our products are in late-stage development, however it will be several years, if ever, before we are likely to receive continuing revenue from product sales or substantial royalty payments. We will continue to incur substantial expenses relating to research, development and manufacturing efforts and human studies. Depending on the stage of development, our products may require significant further research,

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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.

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.

Several years ago, we sharpened our focus on our most promising drug candidates. We reduced the number of drugs in early development and focused our resources on the drugs that address the greatest unmet medical needs with substantial growth potential. In 2006, we spun off our CoGenesys division (“CoGenesys”) as an independent company, in a transaction that was treated as a sale for accounting purposes. In 2008, CoGenesys was acquired by Teva Pharmaceuticals Industries, Ltd. (“Teva”) and became a wholly-owned subsidiary of Teva called Teva Biopharmaceuticals USA, Inc. (“Teva Bio”).

Our ability to discover and develop new products will depend on our internal research capabilities and our ability to acquire products. Our internal research capability was reduced when we completed the spin-off of CoGenesys. Although we continue to conduct research and development activities on products, our limited resources for new products may not be sufficient to discover and develop new drug candidates.

PRODUCT DEVELOPMENT RISKS

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

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. Our ability to develop and commercialize products based on proteins, antibodies and small molecules will depend on our ability to:

•  successfully 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;

•  maintain 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.

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 the 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., a drug must be subject to 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 preclinical studies do not predict clinical

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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 time required varies substantially according to the type, complexity, novelty and intended use of the product candidate. The progress of clinical trials is monitored by both the FDA and independent data monitoring committees, which 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 may not be sufficient to support an application for regulatory approval without further studies. Studies conducted by us or by third parties on our behalf may not demonstrate sufficient effectiveness and safety to obtain the requisite regulatory approvals for these or any other potential products. For example, we will be submitting a Biologics License Application (“BLA”) to the FDA for ABthrax, but the studies we have conducted to date may not be sufficient to obtain FDA approval. In addition, 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 also discontinued development of HGS-TR2J and returned all rights to Kirin Brewery Company, Ltd.

We are conducting Phase 3 clinical development programs for Albuferon and LymphoStat-B. Each of these development programs includes two Phase 3 clinical trials which are large-scale, multi-center trials and more expensive than our Phase 1 and Phase 2 clinical trials. The last three of these Phase 3 clinical trials will not be completed until 2009, at the earliest. In January 2008, we modified the dosing in the two Albuferon Phase 3 trials based on a recommendation from our independent Data Monitoring Committee (“DMC”). The DMC recommendation was based on the incidence rate of serious pulmonary adverse events in the high dose arm of the two trials. The DMC for Albuferon has completed the monitoring of these trials now that the dosing period has concluded in both studies. In December 2008, we announced that we had completed one of the Phase 3 studies for Albuferon; in that study, Albuferon met its primary efficacy endpoint of non-inferiority to peginterferon alfa-2a. We cannot assure you that we will be able to complete our other Phase 3 clinical trials successfully or obtain FDA approval of Albuferon or LymphoStat-B, or that FDA approval, if obtained, will not include limitations on the indicated uses for which Albuferon and/or LymphoStat-B may be marketed.

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

The development of ABthrax presents risks beyond those associated with the development of our other products. Numerous other companies and governmental agencies 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

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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, 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 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 ordered 20,001 doses of ABthrax for the Strategic National Stockpile for use in the treatment of anthrax disease. We have begun delivery of these doses and the U.S. Government has accepted our initial deliveries. We have future deliveries to make and have ongoing obligations under the contract, including the obligation to file a BLA and to obtain FDA approval. We will continue to face risks related to these future deliveries and the requirements of the contract. If we are unable to complete these deliveries or to meet our obligations associated with this contract, the U.S. Government will not be required to make future payments related to that order. In addition, we are in discussions with the U.S. Government concerning the possibility of future orders of ABthrax. We cannot assure you that we will be successful in obtaining an order for additional doses of ABthrax or, if we are successful in obtaining an order, that we will be successful in fulfilling 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 other than with respect to ABthrax.

Neither we nor any of our collaboration partners have completed development of any product based on our research and development efforts. 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 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.

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 or could be terminated if we or our partners do not meet our obligations. These agreements are subject to differing interpretations and we and our partners may not agree on the appropriate interpretation of specific requirements. 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 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

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successfully. The difficulties of integration may be increased by any need to coordinate geographically separated organizations and address possible differences in corporate cultures and management philosophies. The integration of certain operations will require the dedication of management resources which 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, the integration and retention of key 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.

We reacquired rights to HGS-ETR1 from GSK, as well as all rights to other TRAIL Receptor 1 and 2 antibodies. We may be unsuccessful in developing and commercializing products from these antibodies without a collaborative partner.

As part of our September 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. In August 2005, we announced that GSK had exercised its option to develop and commercialize HGS-ETR1 (mapatumumab) jointly with us. In April 2008, we announced that we had reacquired all rights to our TRAIL receptor antibodies (including rights to HGS-ETR1 and HGS-ETR2) from GSK, in return for a reduction in royalties due to us if Syncria^®, a GSK product for which we would be owed royalties, is commercialized. We also announced that our agreement with the pharmaceutical division of Kirin Brewery Company, Ltd. for joint development of antibodies to TRAIL receptor 2 had been terminated. Takeda Pharmaceutical Company, Ltd. has the right to develop HGS-ETR1 in Japan. As a result of these actions, we have assumed full responsibility for the development and commercialization of products based on these antibodies, except for HGS-ETR1 in Japan.

Product development and commercialization are very expensive and involve a high degree of risk. We have limited experience in the clinical development, manufacturing, distribution and promotion of our products. We are exploring opportunities for a new partnership to assist in the development and commercialization of TRAIL receptor antibodies. We do not know if we will enter into any such partnership, nor do we know if we will be successful in developing and commercializing TRAIL receptor antibodies either with or without a partnership.

Our ability to receive revenues from the assets licensed in connection with our CoGenesys transaction will now depend on Teva’s ability to develop and commercialize those assets.

We will depend on Teva Bio to develop and commercialize the assets licensed as part of the spin-off of CoGenesys. If Teva Bio is not successful in its efforts, we will not receive any revenue from the development of these assets. In addition, our relationship with Teva Bio will be subject to the risks and uncertainties inherent in our other collaborations.

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

We have received the majority of our revenue from payments made under collaboration agreements with GSK and Novartis, and to a lesser extent, other agreements. The research term of our initial GSK collaboration agreement and many of our other collaboration agreements expired in 2001. None of these collaboration agreements was renewed and we may not be able to enter into additional collaboration agreements. While our partners under our initial GSK collaboration agreement have informed us that they have been pursuing research programs involving 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.

Under the Novartis and GSK collaboration agreements, we are entitled to certain development and commercialization payments based on our development of the applicable product. Under our other collaboration agreements, we are entitled to certain milestone and royalty payments based on our partners’ development of the applicable product.

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We may not receive payments under these agreements if we or our collaborators fail to:

•  develop marketable products;

•  obtain regulatory approvals for products; or

•  successfully market products.

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. Our collaboration partners may also terminate these agreements without cause. If any one of these agreements terminates, 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 milestone or royalty payments.

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. For example, GSK has been developing for the treatment of insomnia an orexin inhibitor based on our technology and to which we are entitled to milestones, royalties and co-promotion rights. In July 2008, GSK announced a collaboration with Actelion Ltd. to co-develop and co-commercialize a different orexin inhibitor. While GSK has stated publicly that it intends to continue work on the inhibitor derived from our technology, there can be no assurance that it will continue to do so or that such work will lead to a commercial product.

Since reimbursement payments from our collaborators will pay for approximately half of our late-phase clinical trial expenses, our ability to develop and commercialize products may be impaired if payments from our collaborators are delayed.

We are conducting Phase 3 clinical development programs for both Albuferon and LymphoStat-B. These development programs include four Phase 3 large-scale, multi-center clinical trials, only one of which has been completed. We rely on our collaborators to reimburse us for approximately half of the expenditures related to these programs. To execute our Phase 3 clinical trial programs, we strengthened our development organization and increased our dependence on third-party contract clinical trial providers. The collaboration agreements with our partners in the development of these two products provide for the reimbursement of approximately half of these increased expenditures. However, our collaborators may not agree with our expenses or may not perform their obligations under our agreements with them. Further, it is difficult to accurately predict or control the amount or timing of these expenditures, and uneven and unexpected spending on these programs may cause our operating results to fluctuate from quarter to quarter. As a result, if we are unable to obtain funding under these agreements on a timely basis, we may be forced to delay, curtail or terminate these Phase 3 trials, which could adversely affect our ability to commercialize our products and harm our business.

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, 2008, we had long-term obligations of approximately $756.5 million of which $510.0 million represents convertible debt. Subsequent to December 31, 2008, we repurchased approximately $106.2 million of convertible subordinated debt. During the year ended December 31, 2008, we made interest and principal payments of $35.0 million on our indebtedness. Our substantial debt 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 income and available cash;

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•  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 may not have adequate resources available to repay our convertible subordinated debt when it becomes due.

As of December 31, 2008, we had $510.0 million in convertible subordinated debt outstanding, with $280.0 million and $230.0 million due in 2011 and 2012, respectively. This debt is convertible into our common stock at a conversion price of approximately $15.55 and $17.78 per share, respectively. In February 2009, we repurchased approximately $82.9 million of the 2011 debt and $23.3 million of the 2012 debt at a cost of approximately $50.0 million plus accrued interest. If our stock price does not exceed the applicable conversion price when the remaining debt matures, we may need to pay the note holders in cash or restructure some or all of the debt. Since it may be several years, if ever, before we are likely to receive continuing revenue from product sales or substantial royalty payments, we may not have enough cash, cash equivalents, short-term investments and marketable securities available to repay the remaining debt in 2011 and 2012.

To become a successful biopharmaceutical company, we are likely to need additional funding in the future. If we do not obtain this funding on acceptable terms, we may not be able to generate sufficient revenue to repay our convertible debt, to launch and market successfully our products and to continue our biopharmaceutical discovery and development efforts.

We continue to expend substantial funds on our research and development programs and human studies on current and future drug candidates. If our Phase 3 programs are successful, we will begin to expend significant funds to support pre-launch and commercial marketing activities. We may need additional financing to fund our operating expenses, including pre-commercial launch activities, marketing activities, research and development and capital requirements. In addition, even if our products are successful, if our stock price does not exceed the applicable conversion price when our remaining convertible debt matures, we may need to pay the note holders in cash or restructure some or all of the debt. If we are unable to restructure the debt, we may not have enough cash, cash equivalents, short-term investments and marketable securities available to repay the remaining debt. We may not be able to obtain additional financing on acceptable terms either to fund operating expenses or to repay the convertible debt. 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 and 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 or cost sharing, 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 costs of launching our products;

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

•  the commercial sources of our products;

•  our stock price;

•  our ability to establish and maintain collaboration partnerships;

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•  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;

•  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 short-term investments, marketable securities and restricted investments are subject to certain risks which could materially adversely affect our overall financial position.

We invest our cash in accordance with an established internal policy and customarily in instruments which historically have been highly liquid and carried relatively low risk. However, the capital and credit markets have been experiencing extreme volatility and disruption. In recent months, the volatility and disruption have reached unprecedented levels. We maintain a significant portfolio of investments in short-term investments, marketable debt securities and restricted investments, which are recorded at fair value. Certain of these transactions expose us to credit risk in the event of default of the issuer. To minimize our exposure to credit risk, we invest in securities with strong credit ratings and have established guidelines relative to diversification and maturity with the objective of maintaining safety of principal and liquidity. We do not invest in derivative financial instruments or auction rate securities, and we generally hold our investments in debt securities until maturity. In September 2008, Lehman Brothers Holdings, Inc. (“LBHI”) filed for bankruptcy and the debt securities issued by LBHI experienced a significant decline in market value, which caused an other-than-temporary impairment of our investment in LBHI. As a result, we recorded an impairment charge of $6.3 million during 2008. In recent months, certain financial instruments, including some of the securities in which we invest, have sustained downgrades in credit ratings and some high quality short term investment securities have suffered illiquidity or events of default. Further deterioration in the credit market may have a further adverse effect on the fair value of our investment portfolio. Should any of our short-term investments, marketable securities or restricted investments lose additional value or have their liquidity impaired, it could materially and adversely affect our overall financial position by imperiling our ability to fund our operations and forcing us to seek additional financing sooner than we would otherwise. Such financing may not be available on commercially attractive terms or at all.

Some of our operating leases contain financial covenants, which may require us to accelerate payment under those agreements or increase the amount of our security deposits.

Under the leases for some of our equipment and our process development and small-scale manufacturing facility, we must maintain minimum levels of unrestricted cash, cash equivalents, marketable securities and net worth. During 2007, we amended certain of these leases to eliminate the minimum net worth covenant and adjust the minimum levels of unrestricted cash, cash equivalents and marketable securities required under the leases. We also pledged additional collateral to another lessor to satisfy the minimum net worth covenant associated with certain other leases. With respect to the small-scale manufacturing facility lease, we increased the amount of our security deposits in 2007 by approximately $1.0 million, raising the level in 2007 to $15.0 million. Under certain circumstances pertaining to this facility lease, if we do not elect to purchase the facility, we could lose either a portion or all of our restricted investments and record a charge to earnings for such a loss.

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Our insurance policies are expensive and protect us only from some business risks, which could 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, fiduciary 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 in the past and may increase in the future, 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 our patent applications do not result in issued patents or if patent laws or the interpretation of patent laws change, our competitors may be able to obtain rights to and commercialize our discoveries.

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 subject to challenge, if they do issue. 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. In the U.S., Congress is considering significant changes to U.S. intellectual property laws which could affect the extent and scope of existing protections for biotechnology products and processes. 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 litigation and administrative proceedings relating to the scope of protection of our patents and those of others in both the United States and in the rest of the world.

We are involved in a number of interference proceedings brought by the United States Patent and Trademark Office and may be involved in other interference proceedings in the future. These proceedings determine the priority of inventions and, thus, the right to a patent for technology in the U.S. For example, we are involved in interferences in the United States with both Genentech, Inc. and Immunex Corporation, a wholly-owned subsidiary of Amgen, Inc., related to products based on TRAIL Receptor 2 (such as HGS-ETR2). In three of these interferences, we have initiated district court litigation to review adverse decisions by the United States Patent and Trademark Office. In one of these cases, we are also seeking appellate review of a jurisdictional issue decided by the district court. Additional litigation related to these TRAIL Receptor 2 interferences is likely.

We are also involved in proceedings in connection with foreign patent filings, including opposition and revocation proceedings and may be involved in other opposition proceedings in the future. For example, we are involved in European opposition proceedings against an issued patent of Biogen Idec. In this opposition, the European Patent Office (“EPO”) found the claims of Biogen Idec’s patent to be valid. The claims relate to a method of treating autoimmune diseases using an antibody to BLyS (such as LymphoStat-B). We and GSK have entered into a definitive license agreement with Biogen Idec that provides for an exclusive license to this European patent. This patent is still under appeal in Europe. We also are involved in an opposition proceeding brought by Eli Lilly and Company with respect to our European patent related to BLyS compositions, including antibodies. Recently, the Opposition Division of the EPO held our patent invalid. We expect to appeal this decision. In addition, Eli Lilly and Company instituted a revocation proceeding against our United Kingdom patent that corresponds to our BLyS European patent; in this proceeding the UK trial court found the patent invalid. We expect to appeal this decision.

We have also opposed European patents issued to Genentech, Inc. and Immunex Corporation related to products based on TRAIL Receptor 2, and Genentech, Inc. and Immunex Corporation have opposed our European patents related to products based on TRAIL Receptor 2. Genentech, Inc. also has opposed our Australian patent related to products based on TRAIL Receptor 2. In addition, Genentech, Inc. has opposed our European patent related to products based on TRAIL Receptor 1 (such as HGS-ETR1).

We cannot assure you that we will be successful in any of these proceedings. Moreover, 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

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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, such litigation or proceeding may allow others to use our discoveries or develop or commercialize our products. 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 or prevent us from using or commercializing our discoveries and products. We cannot assure you that the patents we obtain or the unpatented technology we hold will afford us significant commercial protection.

If others file patent applications or obtain patents similar to ours, then the United States 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 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 or pharmaceutical 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 and antibodies. We have not sought patent protection for these procedures. While we have entered into confidentiality agreements with employees and collaborators, we may not be able to prevent their disclosure of these data or materials. Others may independently develop substantially equivalent information and processes.

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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 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 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.

Marketing Approvals.  Before a product can be marketed and sold in the U.S., 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 biologics license application, depending on the type of drug. In responding to a new drug application or a biologics 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 ability to recruit and retain skilled employees;

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•  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 existing products and products in research or development by our competitors that address 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 or drugs under development obsolete or noncompetitive. In addition, our albumin fusion protein product is 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 other key 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. 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. In addition, in the U.S., a number of proposals have been made to reduce the regulatory burden of follow-on biologics, which could affect the prices and sales of our products in the future. Additional proposals may occur as a result of a change in the presidential administration in January 2009. 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 to successfully establish a manufacturing capability and may be unable to obtain required quantities of our Phase 3 and earlier development molecules economically.

We have not yet manufactured any products approved for commercial use and have limited experience in manufacturing materials suitable for commercial use. We have only limited experience manufacturing in a large-scale manufacturing facility built to increase our capacity for protein and antibody drug production. The FDA must inspect and license our facilities to determine compliance with cGMP requirements for commercial production. We

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may not be able to successfully establish sufficient manufacturing capabilities or manufacture our products economically or in compliance with cGMPs and other regulatory requirements.

While we have expanded our manufacturing capabilities, we have previously 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.

We may be unable to fulfill the terms of our agreement with Hospira, Inc. and other agreements, if any, with potential customers for manufacturing process development and supply of selected biopharmaceutical products.

We have entered into an agreement with Hospira, Inc. (“Hospira”) for manufacturing process development and commercial supply of selected biopharmaceutical products, and may enter into similar agreements with other potential customers. We may not be able to successfully manufacture products under the agreement with Hospira or under other agreements, if any. We have not yet manufactured any products approved for commercial use and have limited experience in manufacturing materials suitable for commercial use. We have limited experience manufacturing in a large-scale manufacturing facility built to increase our capacity for protein and antibody drug production. The FDA must inspect and license our facilities to determine compliance with cGMP requirements for commercial production. We may not be able to enter into additional agreements with other customers. Hospira or any future customer may decide to discontinue the products contemplated under the agreements, and therefore we may not receive revenue from these agreements.

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, although we have sold ABthrax to the U.S. Government. If we develop products that can be marketed, we intend to market the products either independently or together with collaborators or strategic partners. GSK, Novartis 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.

Because we depend on third parties to conduct many of our 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 conduct most of our human studies. We have engaged contract research organizations to manage our global Phase 3 studies. If we are unable to obtain any necessary services on acceptable terms, we may not complete our product development efforts in a timely manner. If we rely on third parties for the management of these human studies, we may lose some control over these activities and become too dependent upon these parties. These third parties may not complete the activities on schedule.

Our certificate of incorporation and bylaws 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. 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;

•  limit who may call special meetings of stockholders; and

27

•  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. For the twelve months ended December 31, 2008, the closing price of our common stock has been as low as $1.24 per share and as high as $11.79 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;

•  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 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.

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ITEM 1B.   UNRESOLVED STAFF COMMENTS

None.

ITEM 2.   PROPERTIES

We currently lease and occupy approximately 900,000 square feet of laboratory, manufacturing and office space in Rockville, Maryland. Our space includes approximately 200,000 square feet of laboratory space, approximately 400,000 square feet of manufacturing and manufacturing support space and approximately 300,000 square feet of office space. In addition, we have subleased a portion of our headquarters facility.

In 2006, we placed a 291,000-square-foot large-scale manufacturing facility into operational service. This manufacturing facility is enabling us to produce larger quantities of our antibody drugs for both clinical development as well as later for commercial sale.

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 party to various claims and legal proceedings from time to time. We are not aware of any legal proceedings that we believe could have, individually or in the aggregate, a material adverse effect on our results of operations, financial condition or liquidity.

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, 2008.

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PART II

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

Our common stock is traded on the NASDAQ Global Market under the symbol HGSI. The following table presents the quarterly high and low closing prices as quoted by NASDAQ.

	High		Low
2007
First Quarter	$	12.52	$	10.25
Second Quarter	$	11.51	$	8.92
Third Quarter	$	10.39	$	7.06
Fourth Quarter	$	11.10	$	9.12
2008
First Quarter	$	11.79	$	4.86
Second Quarter	$	6.79	$	5.21
Third Quarter	$	7.94	$	5.17
Fourth Quarter	$	6.06	$	1.24

As of January 31, 2009, there were approximately 676 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.

The following graph compares the performance of our Common Stock for the periods indicated with the performance of the NASDAQ U.S. Stock Market Total Return Index (the “TRI”) and the NASDAQ Pharmaceutical Index (the “NPI”). The comparison assumes $100 was invested on December 31, 2003 in our Common Stock and in each of the foregoing indices and assumes the reinvestment of dividends, if any.

Comparison of 5 Year Cumulative Total Return

The performance graph and related information shall not be deemed “soliciting material” or be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference into such filing.

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ITEM 6.   SELECTED CONSOLIDATED FINANCIAL DATA

We present below our selected consolidated financial data for the years ended December 31, 2008, 2007 and 2006, and as of December 31, 2008 and 2007, 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, 2005 and 2004, and as of December 31, 2006, 2005 and 2004, 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,
	2008			2007			2006			2005			2004
	(In thousands, except per share and ratio data)
Statement of Operations Data:
Revenue — research and development contracts	$	48,422		$	41,851		$	25,755		$	19,113		$	3,831
Costs and expenses:
Research and development		242,710			245,745			209,242			228,717			219,549
General and administrative		60,865			55,874			53,101			42,066			35,728
Lease termination and restructuring charges (credits)		—			(3,673	)		29,510			—			15,408
Total costs and expenses		303,575			297,946			291,853			270,783			270,685
Income (loss) from operations		(255,153	)		(256,095	)		(266,098	)		(251,670	)		(266,854	)
Investment income		23,487			32,988			27,131			24,218			40,298
Interest expense		(39,483	)		(39,341	)		(26,965	)		(12,085	)		(19,030	)
Charge for impaired investments		(6,284	)		—			—			—			—
Gain on sale of long-term equity investments		32,518			—			14,759			1,302			255
Gain (loss) on extinguishment of debt		—			—			—			(1,204	)		2,433
Income (loss) before taxes		(244,915	)		(262,448	)		(251,173	)		(239,439	)		(242,898	)
Provision for income taxes		—			—			—			—			—
Net income (loss)	$	(244,915	)	$	(262,448	)	$	(251,173	)	$	(239,439	)	$	(242,898	)
Net income (loss) per share, basic and diluted	$	(1.81	)	$	(1.95	)	$	(1.91	)	$	(1.83	)	$	(1.87	)
Other Data:
Ratio of earnings to fixed charges		—			—			—			—			—
Coverage deficiency	$	(244,915	)	$	(262,448	)	$	(251,173	)	$	(239,439	)	$	(242,898	)

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ITEM 6.   SELECTED CONSOLIDATED FINANCIAL DATA, CONTINUED

	As of December 31,
	2008			2007			2006			2005			2004
	(In thousands)
Balance Sheet Data:
Cash, cash equivalents, short-term investments, marketable securities and restricted investments(1)	$	372,939		$	603,840		$	763,084		$	646,220		$	952,686
Total assets(2)		674,164			949,105			1,149,668			997,046			1,249,385
Total debt and lease financing, less current portion(2)		756,477			754,099			751,526			510,000			505,131
Accumulated deficit		(2,127,744	)		(1,882,829	)		(1,620,381	)		(1,369,208	)		(1,129,769	)
Total stockholders’ equity (deficit)		(241,375	)		(11,902	)		213,923			416,966			656,047

(1)

“Cash, cash equivalents, short-term investments, marketable securities and restricted investments” for 2008, 2007, 2006, 2005 and 2004 includes $69,360, $70,931, $61,165, $220,171 and $215,236 respectively, of restricted investments relating to certain leases.

(2)

“Total assets” for 2008, 2007, 2006, 2005 and 2004 includes $69,360, $70,931, $61,165, $220,171 and $215,236 respectively, of restricted investments relating to certain leases. “Total debt and lease financing, less current portion” for 2008, 2007, 2006, 2005 and 2004 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.

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

Overview

Human Genome Sciences, Inc. (“HGS”) is a commercially focused biopharmaceutical company advancing toward the market with three products in late-stage clinical development: Albuferon^® for chronic hepatitis C, LymphoStat-B^® for systemic lupus erythematosus (“SLE”), and ABthrax^tm for inhalation anthrax. In January 2009, we achieved our first product sales when we began delivery of ABthrax to the U.S. Strategic National Stockpile.

Albuferon and LymphoStat-B are also progressing toward commercialization. In December 2008, we reported that Albuferon successfully met its primary endpoint in the first of two Phase 3 clinical trials in chronic hepatitis C; we expect to report results of the second Phase 3 trial in March 2009. If results in the second Phase 3 trial are also successful, we expect the filing of global marketing applications for Albuferon in fall 2009. We completed enrollment in both Phase 3 trials of LymphoStat-B in SLE in 2008, and we expect to report the results of these studies in July and November 2009, respectively. Assuming success in Phase 3, we plan to file global marketing applications for LymphoStat-B in the first half of 2010.

We also have substantial financial rights to two novel drugs that GlaxoSmithKline (“GSK”) has advanced to late-stage development. In December 2008, GSK initiated the first Phase 3 clinical trial of darapladib, which was discovered by GSK based on HGS technology, in more than 15,000 men and women with chronic coronary heart disease. GSK plans to initiate a second large Phase 3 trial of darapladib in late 2009. In February 2009, GSK initiated a Phase 3 clinical trial program for Syncria^® (albiglutide) in the long-term treatment of type 2 diabetes mellitus. Syncria was created by HGS using our proprietary albumin-fusion technology, and we licensed Syncria to GSK in 2004.

HGS also has several novel drugs in earlier stages of clinical development for the treatment of cancer, led by our TRAIL receptor antibody HGS-ETR1 and a small-molecule antagonist of IAP (inhibitor of apoptosis) proteins.

Our strategic partnerships with leading pharmaceutical and biotechnology companies allow us to leverage our strengths and gain access to sales and marketing infrastructure, as well as complementary technologies. Some of these partnerships provide us with licensing or other fees, clinical development cost-sharing, milestone payments and rights to royalty payments as products are developed and commercialized. In some cases, we are entitled to certain commercialization, co-promotion, revenue-sharing and other product rights.

We have not received any significant product sales revenue or royalties from product sales through 2008 and any significant revenue from product sales or from royalties on product sales in the next several years is uncertain, other than with respect to ABthrax. To date, substantially all of our revenue relates to payments received under our collaboration and license agreements.

During 2006, we entered into a collaboration agreement with Novartis International Pharmaceutical, Ltd. (“Novartis”). Under this agreement, Novartis will co-develop and co-commercialize Albuferon and share development costs, sales and marketing expenses and profits of any product that is commercialized in the U.S. Novartis will be responsible for commercialization outside the U.S. and will pay HGS a royalty on these sales. We received a $45.0 million up-front fee from Novartis upon the execution of the agreement and are recognizing this payment as revenue ratably over the estimated development period ending in 2010. Including this up-front fee, we are entitled to payments aggregating $507.5 million upon the successful attainment of certain milestones. As of December 31, 2008, we have contractually earned and received payments aggregating $132.5 million. We are recognizing these milestones as revenue ratably over the estimated remaining development period.

In 2005, GSK exercised its option to co-develop and co-commercialize two of our products, LymphoStat-B and HGS-ETR1. In accordance with a co-development and co-commercialization agreement signed during 2006 related to LymphoStat-B, we and GSK will share Phase 3 and 4 development costs, and will share equally in sales and marketing expenses and profits of any product that is commercialized. We received a $24.0 million payment during 2006 as partial consideration for entering into this agreement with respect to LymphoStat-B and are recognizing this payment as revenue ratably over the estimated development period ending in 2010. During 2008, we reacquired GSK’s rights to TRAIL receptor antibodies (including rights to HGS-ETR1 and HGS-ETR2) from

33

Overview (continued)

GSK, in exchange for a reduction in potential future royalties due to us for a product currently being developed by GSK.

In 2005, we entered into a two-phase contract to supply ABthrax, 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 supplied ten grams of ABthrax to the U.S. Department of Health and Human Services (“HHS”) for comparative in vitro and in vivo testing. During 2006, under the second phase of the contract, the U.S. Government exercised its option to purchase 20,001 treatment courses of ABthrax for the Strategic National Stockpile. In January 2009 we began delivery of ABthrax to the U.S. Strategic National Stockpile and in February 2009 the product was accepted and we recorded revenue for the product as well as certain costs incurred to develop ABthrax.

We expect that any significant revenue or income for at least the next two years may be limited to ABthrax revenue, payments under collaboration agreements (to the extent milestones are met), cost reimbursements from GSK and Novartis, payments from the sale of product rights, payments under manufacturing agreements, such as our agreement with Hospira, Inc., investment income 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 a result, we expect to incur continued and significant losses over the next several years unless we are able to realize additional revenues under existing or any future 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, Summary of Significant Accounting Policies, of the Notes to the 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, except for our investment in Aegera Pharmaceuticals, Inc. (“Aegera”), which is carried at historical cost because it is a privately held company for which no quoted market price is available. 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, or an other-than-temporary impairment is recorded. We classify those marketable securities that may be used in operations within one year as short-term investments. Those marketable securities in which we have both the ability to hold until maturity and

34

Critical Accounting Policies and the Use of Estimates (continued)

have a maturity date beyond one year from our most recent consolidated balance sheet date are classified as non-current marketable securities. We review the carrying value of the Aegera investment on a periodic basis for indicators of impairment, and adjust the value accordingly.

For investments carried at fair value, we disclose the level within the fair value hierarchy as prescribed by SFAS No. 157, Fair Value Measurements (“SFAS No. 157”). We evaluate the types of securities in our investment portfolios to determine the proper classification in the fair value hierarchy based on trading activity and the observability of market inputs. We generally obtain a single quote or price per instrument from independent third parties to help us determine the fair value of securities in Level 1 and Level 2 of the fair value hierarchy.

Leases.  We lease various real properties under operating leases that generally require us to pay taxes, insurance and maintenance. During 2006, we terminated one lease agreement (the “Traville lease”) with Wachovia Development Corporation (“WDC”), which had been structured as a synthetic lease and had been accounted for as an operating lease. In place of the Traville synthetic lease, we entered into a 20-year lease agreement with BioMed Realty Trust, Inc. (“BioMed”), which acquired the Traville facility from WDC. We account for the Traville lease with BioMed as an operating lease.

During 2006 and as described further in Note I, Long-Term Debt, of the Notes to the Consolidated Financial Statements, we sold our LSM facility and headquarters land to BioMed, and simultaneously agreed to lease such assets back over a period of 20 years. We accounted for this transaction in accordance with SFAS No. 98, Accounting For Leases: Sale-Leaseback Transactions Involving Real Estate. Because we have continuing involvement with the properties and an option to repurchase such assets, we recorded the sale and leaseback of these assets as a financing transaction and accordingly recorded the allocated sale proceeds as outstanding debt on our balance sheet. We account for lease payments under the related lease agreements as principal and interest payments on this debt. We retained ownership of approximately $36.5 million in equipment located at the LSM, which is required to be kept in place during the lease term or upon any expiration, termination or default.

Impairments of long-lived assets.  Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. Determination of recoverability is based on an estimate of undiscounted cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount the assets, the assets are written down to their estimated fair values. Long-lived assets to be sold are carried at fair value less costs to sell. During 2006, we recorded exit and impairment charges of approximately $9.2 million and $3.5 million relating to certain space in our Traville headquarters and certain laboratory space, respectively. During 2007, we sold the laboratory space and reversed the remaining exit and impairment charges related to that space.

Revenue.  Our revenue recognition policies for all non-refundable up-front license fees and milestone arrangements are in accordance with the guidance provided in the Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements, as amended by SAB No. 104, Revenue Recognition (“SAB No. 104”). In addition, we follow the provisions of Emerging Issues Task Force (“EITF”) Issue 00-21 (“EITF 00-21”), Revenue Arrangements with Multiple Deliverables, for multiple element revenue arrangements entered into or materially amended after June 30, 2003. EITF 00-21 provides guidance on when an arrangement that involves multiple revenue-generating activities or deliverables should be divided into separate units of accounting for revenue recognition purposes, and if this division is required, how the arrangement consideration should be allocated among the separate units of accounting. If the deliverables in a revenue arrangement constitute separate units of accounting according to the EITF’s separation criteria, the revenue recognition policy must be determined for each identified unit. If the arrangement is a single unit of accounting, the revenue recognition policy must be determined for the entire arrangement. Under arrangements where the license fees and research and development activities cannot be accounted for as separate units of accounting, non-refundable up-front license fees are deferred and recognized as revenue on a straight-line basis over the expected

35

Critical Accounting Policies and the Use of Estimates (continued)

term of our continued involvement in the research and development process. Revenues from the achievement of research and development milestones, if deemed substantive, are recognized as revenue when the milestones are achieved, and the milestone payments are due and collectible. If not deemed substantive, we would recognize such milestone as revenue on a straight-line basis over the remaining expected term of continued involvement in the research and development process. Milestones are considered substantive if all of the following conditions are met: (1) the milestone is non-refundable; (2) achievement of the milestone was not reasonably assured at the inception of the arrangement; (3) substantive effort is involved to achieve the milestone; and, (4) the amount of the milestone appears reasonable in relation to the effort expended, the other milestones in the arrangement and the related risk associated with the achievement of the milestone and any ongoing research and development or other services are priced at fair value. Payments received in advance of work performed are recorded as deferred revenue.

The up-front license fee received in 2006 from Novartis in connection with our Albuferon product is being recognized ratably over an estimated four-year clinical development period ending in 2010. To the extent we achieve the clinical development milestones set forth in the Novartis agreement, these will be recognized ratably over the remaining estimated clinical development period from the date of attainment. Our initial payment from GSK in connection with LymphoStat-B is being recognized ratably over the estimated four-year clinical development period ending in 2010. Our up-front license fee with GSK in connection with Syncria^® is being recognized ratably over the estimated seven-year clinical development period. Our revenues from Teva Biopharmaceuticals USA, Inc. (“Teva Bio”), formerly CoGenesys, as they relate to the intellectual property license, are being recognized on a straight-line basis over the three-year period covered by the manufacturing services agreement, as amended. Our other revenues in 2008, 2007 and 2006 have been recognized in full upon receipt, as we have no continuing obligation.

During 2008, we entered into an agreement whereby we began providing contract manufacturing services. Revenue in 2008, which was not significant, was recorded as milestones were met.

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. Reimbursement of research and development expenses received in connection with collaborative cost-sharing agreements is recorded as a reduction of such expenses.

Stock Compensation.  We have a stock incentive plan (the “Incentive Plan”) 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 quoted market value on the date of grant. The Incentive Plan also provides for awards in the form of stock appreciation rights, restricted (non-vested) or unrestricted stock awards, stock-equivalent units or performance-based stock awards.

We account for share-based awards to employees and non-employee directors pursuant to SFAS No. 123(R), Share-Based Payment (“SFAS No. 123(R)”).

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. The estimated term and estimated future volatility of the options require our judgment.

Exit Accruals.  In 2006, we exited certain facilities, which required us to make significant estimates in several areas including the realizable values of assets deemed redundant or excess and the ability to generate sublease income. We recorded an initial liability of approximately $9.0 million in lease-related costs with respect to our 2006 exit activities. During 2007, we sold one of the facilities that we exited in 2006 and reversed the remaining exit and impairment accrual of $2.0 million related to that space.

36

Results of Operations

Years Ended December 31, 2008 and 2007

Revenues.  We had revenues of $48.4 million and $41.9 million for the years ended December 31, 2008 and 2007, respectively. Revenues for the year ended December 31, 2008 consisted primarily of revenue recognized from Novartis of $35.4 million for the straight-line recognition of up-front license fees and milestones reached for Albuferon and $6.5 million from GSK related to straight-line recognition of up-front license fees for LymphoStat-B.

The 2007 revenues consisted primarily of $28.0 million in revenue recognized from Novartis for the straight-line recognition of up-front license fees and milestones reached for Albuferon and $6.5 million from GSK related to straight-line recognition of up-front license fees for LymphoStat-B.

Expenses.  Research and development expenses were $242.7 million for the year ended December 31, 2008 as compared to $245.7 million for the year ended December 31, 2007. Research and development expenses for 2007 include $16.9 million paid to Aegera in connection with a collaboration and license agreement. Our research and development expenses for the year ended December 31, 2008 are net of $36.1 million and $51.8 million of costs reimbursed by Novartis and GSK, respectively. Our research and development expenses for the year ended December 31, 2007 are net of $46.5 million and $39.3 million of costs reimbursed by Novartis and GSK respectively.

We track our research and development expenditures by type of cost incurred — research, pharmaceutical sciences, manufacturing and clinical development costs.

Our research costs amounted to $25.6 million for the year ended December 31, 2008 as compared to $34.0 million for the year ended December 31, 2007. This decrease is due to the $16.9 million paid to Aegera in 2007 in connection with our licensing and collaboration agreement and purchase price premium as compared to a $5.0 million milestone paid to Aegera in 2008, partially offset by an increase in activities supporting new target development. Our research costs for the years ended December 31, 2008 and 2007 are net of $2.4 million and $3.0 million, respectively, of cost reimbursement from Novartis and GSK under cost sharing provisions in our collaboration agreements.

Our pharmaceutical sciences costs, where we focus on improving formulation, process development and production methods, increased to $35.9 million for the year ended December 31, 2008 from $30.5 million for the year ended December 31, 2007. This increase is primarily due to less cost reimbursement under the Albuferon program and greater activity in other projects for which we have no cost sharing provisions. Pharmaceutical sciences costs for the years ended December 31, 2008 and 2007 are net of $1.2 million and $4.8 million, respectively, of cost reimbursement from Novartis and GSK under cost sharing provisions in our collaboration agreements.

Our manufacturing costs increased to $76.5 million for the year ended December 31, 2008 from $72.8 million for the year ended December 31, 2007. This increase is primarily due to increased production activities for ABthrax and LymphoStat-B, partially offset by decreased activities for HGS-ETR2 and Albuferon. Our manufacturing costs for the years ended December 31, 2008 and 2007 are net of $19.9 million and $15.1 million, respectively, of cost reimbursement from Novartis and GSK under cost sharing provisions in our collaboration agreements.

Our clinical development costs decreased to $104.7 million for the year ended December 31, 2008 from $108.5 million for the year ended December 31, 2007. This decrease is primarily due to reduced Phase 3 Albuferon clinical trial costs as the trials near completion, partially offset by increased Phase 3 trial costs related to LymphoStat-B. Our clinical development costs for the years ended December 31, 2008 and 2007 are net of $64.4 million and $62.9 million, respectively, of cost reimbursement from Novartis and GSK under cost sharing provisions in our collaboration agreements.

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.

37

Results of Operations (continued)

Years Ended December 31, 2008 and 2007 (continued)

General and administrative expenses increased to $60.9 million for the year ended December 31, 2008 from $55.9 million for the year ended December 31, 2007. This increase is primarily due to increased preparatory activities for commercialization. General and administrative expenses include approximately $2.2 million related to the settlement of certain patent proceedings, which were offset by a decrease in other legal expenses.

During 2008, we did not incur any lease termination or restructuring charges. Lease termination and restructuring credits in 2007 related to the reversal of a liability and the recording of a gain aggregating $3.7 million in connection with the purchase and sale of a small laboratory and office building. See Note N, Facility-Related Exit Costs, of the Notes to the Consolidated Financial Statements for additional discussion.

Investment income decreased to $23.5 million for the year ended December 31, 2008 from $33.0 million for the year ended December 31, 2007. The decrease is primarily due to lower average investment balances in 2008 as compared to 2007. Investment income also includes realized net gains on our short-term investments, marketable securities and restricted investments of $0.9 million for the year ended December 31, 2008 as compared to net gains of $0.1 million for the year ended December 31, 2007. The yield on our investments was approximately 4.6% for the year ended December 31, 2008, as compared to approximately 4.8% for the year ended December 31, 2007. We believe investment income will be lower in 2009 as a result of lower interest rates and lower average cash balances. A general decline in interest rates may adversely affect the interest earned from our portfolio as securities mature and may be replaced with securities having a lower interest rate.

Interest expense increased to $39.5 million for the year ended December 31, 2008 compared to $39.3 million for the year ended December 31, 2007. We expect interest expense to increase in 2009 as a result of the adoption of Financial Accounting Standards Board Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (“FSP APB 14-1”). See Note B, Significant Accounting Policies, of the Notes to Consolidated Financial Statements for additional discussion.

The charge for impaired investments of $6.3 million during the year ended December 31, 2008 was due to an other-than-temporary impairment of our investment in debt securities issued by Lehman Brothers Holdings, Inc. (“LBHI”). During 2008, LBHI experienced a significant deterioration in its credit worthiness and filed a petition under Chapter 11 of the U.S. Bankruptcy Code. As a result, we determined that our investment in LBHI debt securities had incurred an other-than-temporary impairment. See Note C, Investments, of the Notes to the Consolidated Financial Statements for additional discussion.

Our gain on sale of long-term equity investments during the year ended December 31, 2008 of $32.5 million relates to the sale of our investment in CoGenesys. In 2006, we completed the sale of assets of our CoGenesys division and held a 14% equity interest in the newly formed company (“CoGenesys”). In 2008, CoGenesys was acquired by Teva Pharmaceuticals Industries, Ltd. (“Teva”). We received initial proceeds of $47.3 million. Our cost basis in this investment was $14.8 million. We received additional proceeds of approximately $5.3 million in February 2009 related to this transaction. See Note D, Collaboration Agreements and U.S. Government Agreement, of the Notes to the Consolidated Financial Statements for additional discussion.

Net Income (Loss).  We recorded a net loss of $244.9 million, or $1.81 per share, for the year ended December 31, 2008, compared to a net loss of $262.4 million, or $1.95 per share, for the year ended December 31, 2007. The decreased loss for 2008 compared to 2007 is primarily due to the gain on sale of our CoGenesys investment of $32.5 million, or $0.24 per share, and increase revenues, partially offset by a decrease in investment income and a charge for impaired investments of $6.3 million, or $0.04 per share.

Years Ended December 31, 2007 and 2006

Revenues.  We had revenues of $41.9 million and $25.8 million for the years ended December 31, 2007 and 2006, respectively. Revenues for the year ended December 31, 2007 consisted primarily of revenue recognized from Novartis of $28.0 million for the straight-line recognition of up-front license fees and milestones reached for Albuferon and $6.5 million from GSK related to straight-line recognition of up-front license fees for LymphoStat-B.

38

Results of Operations (continued)

Years Ended December 31, 2007 and 2006 (continued)

The 2006 revenues consisted primarily of $12.4 million in revenue recognized from GSK, consisting of $7.7 million related to Syncria, including a $6.0 million milestone received and recognized, $2.7 million related to straight-line recognition of up-front license fees for LymphoStat-B, and $2.0 million related to milestones met for two other products under GSK development, revenue recognized from Novartis of $7.1 million for the straight-line recognized of up-front license fees and a milestone reached in 2006 for Albuferon, revenue recognized from Transgene of $2.6 million and revenue recognized from CoGenesys of $1.9 million.

Expenses.  Research and development expenses were $245.7 million for the year ended December 31, 2007 as compared to $209.2 million for the year ended December 31, 2006. Research and development expenses for 2007 include $16.9 million paid to Aegera in connection with our licensing and collaboration agreement and purchase price premium. Our research and development expenses for the year ended December 31, 2007 are net of $46.5 million and $39.3 million of costs reimbursed or to be reimbursed by Novartis and GSK respectively. Our research and development expenses for the year ended December 31, 2006 are net of $22.9 million and $10.2 million of costs reimbursed by Novartis and GSK respectively, and $4.8 million of cost reimbursement from CoGenesys.

Our research costs amounted to $34.0 million for the year ended December 31, 2007 as compared to $20.0 million for the year ended December 31, 2006. This increase is due to the $16.9 million paid to Aegera in connection with our licensing and collaboration agreement and purchase price premium. Our research costs for the years ended December 31, 2007 and 2006 are net of $3.0 million and $1.4 million, respectively, of cost reimbursement from Novartis and GSK under costs sharing provisions in our collaboration agreements.

Our pharmaceutical sciences costs decreased to $30.5 million for the year ended December 31, 2007 from $32.0 million for the year ended December 31, 2006. This decrease is primarily due to cost reimbursement under our collaboration agreements and reduced activity in this area for our ABthrax program. Pharmaceutical sciences costs for the years ended December 31, 2007 and 2006 are net of $4.8 million and $4.1 million, respectively, of cost reimbursement from Novartis and GSK under cost sharing provisions in our collaboration agreements.

Our manufacturing costs decreased to $72.8 million for the year ended December 31, 2007 from $85.6 million for the year ended December 31, 2006. This decrease is primarily due to cost reimbursement under our collaboration agreements and reduced non-project activities, partially offset by increased production activities for HGS-ETR1 and HGS-ETR2. Our manufacturing costs for the years ended December 31, 2007 and 2006 are net of $15.1 million and $7.9 million, respectively, of cost reimbursement from Novartis and GSK under cost sharing provisions in our collaboration agreements.

Our clinical development costs increased to $108.5 million for the year ended December 31, 2007 from $71.6 million for the year ended December 31, 2006. The increase is primarily due to cost associated with the complete enrollment of Phase 3 trials for Albuferon and ongoing enrollment of Phase 3 trials for LymphoStat-B. These Phase 3 trials were just starting at the end of 2006, therefore minimal expenses were incurred in 2006 compared to 2007. Our clinical development costs for the year ended December 31, 2007 and 2006 are net of $62.9 million and $19.7 million, respectively, of cost reimbursement from Novartis and GSK under cost sharing provisions in our collaboration agreements, which began in mid-2006.

General and administrative expenses increased to $55.9 million for the year ended December 31, 2007 from $53.1 million for the year ended December 31, 2006. This increase is primarily due to increased legal expenses associated with patent proceedings for certain of our products, partially offset by lower stock-based compensation expense.

Lease termination and restructuring credits in 2007 related to the reversal of a liability and the recording of a gain aggregating $3.7 million in connection with the purchase and sale of a small laboratory and office building. The lease termination and restructuring charges of $29.5 million for the year ended December 31, 2006 consist of a lease termination charge of $16.8 million related to the BioMed financing and exit and impairment charges of approximately $12.7 million related to space no longer in use at our headquarters location and a small laboratory

39

Results of Operations (continued)

Years Ended December 31, 2007 and 2006 (continued)

building. See Note N, Facility-Related Exit Costs of the Notes to the Consolidated Financial Statements for additional discussion.

Investment income increased to $33.0 million for the year ended December 31, 2007 from $27.1 million for the year ended December 31, 2006. The increase is primarily due to higher interest rates in our portfolio in 2007, partially offset by lower average balances of cash, short-term investments and marketable securities. Investment income also includes realized net gains on our short-term investments, marketable securities and restricted investments of $0.1 million for the year ended December 31, 2007 as compared to net losses of $0.7 million for the year ended December 31, 2006. The yield on our investments was approximately 4.8% for the year ended December 31, 2007, as compared to approximately 3.9% for the year ended December 31, 2006.

Interest expense increased to $39.3 million for the year ended December 31, 2007 compared to $27.0 million for the year ended December 31, 2006, primarily due to interest expense on the debt associated with the sale and leaseback of the LSM facility to BioMed. Interest expense for the year ended December 31, 2006 is net of interest capitalized of $2.5 million in connection with the construction of our LSM facility. No interest expense was capitalized in the third quarter of 2006 or subsequently as we placed the LSM facility in service and ceased capitalization of interest at the end of the second quarter. Interest expense, before capitalized interest, was $29.5 million for the year ended December 31, 2006.

During 2007, we had no gains on sale of equity investments. During 2006 we recognized a gain sale of investment of $14.8 million related to the sale of our remaining equity interest in Cambridge Antibody Technology Ltd. (“CAT”), a long-term investment, for net proceeds of $24.1 million compared to a cost basis of $9.3 million.

Net Income (Loss).  We recorded a net loss of $262.4 million, or $1.95 per share, for the year ended December 31, 2007, compared to a net loss of $251.2 million, or $1.91 per share, for the year ended December 31, 2006. The increased loss for 2007 compared to 2006 is primarily due to increased clinical development costs related to our Phase 3 programs, increased research costs related to our license agreement with Aegera and increased interest expense, partially offset by increased revenue and a decrease in lease termination and restructuring charges.

Liquidity and Capital Resources

We had a working capital shortfall of $52.5 million at December 31, 2008 as compared to working capital of $47.0 million at December 31, 2007. The decrease in our working capital in 2008 is primarily due to the use of working capital to fund our operations, partially offset by receipt of $47.3 million related to the sale of our investment in CoGenesys (see Note P, Teva Biopharmaceuticals USA, Inc. (formerly CoGenesys), of the Notes to the Consolidated Financial Statements for additional discussion). Although current liabilities exceed current assets as of December 31, 2008, current liabilities include $43.7 million of deferred revenue which will be relieved through non-cash amortization. The delivery of ABthrax to the U.S. Strategic National Stockpile will generate over $150.0 million during 2009 which will improve our working capital position, net of $50.0 million used in February 2009 to extinguish approximately $106.2 million of our subordinated convertible notes. We may also receive payments under collaboration agreements, to the extent milestones are met, which would improve our working capital position.

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 clinical trials and manufacturing required for the development of our active product candidates. We will also incur costs related to our pre-commercial launch activities. In the event our working capital needs for 2009 exceed our available working capital, we can utilize our non-current marketable securities, which are classified as “available-for-sale”. We may improve our working capital position during 2009 through the sale of additional ABthrax product, receipt of collaboration fees or financing activities. We will be evaluating our working capital position on a continuing basis.

To minimize our exposure to credit risk, we invest in securities with strong credit ratings and have established guidelines relative to diversification and maturity with the objectives of maintaining safety of principal and

40

Liquidity and Capital Resources (continued)

liquidity. We do not invest in derivative financial instruments or auction rate securities, and we generally hold our investments in debt securities until maturity. However, the deterioration of the credit markets during 2008 had a detrimental effect on our investment portfolio. During 2008, we recorded a charge for impairment of debt securities issued by LBHI of $6.3 million. At December 31, 2008, we have gross unrealized losses on our available for sale investments of approximately $9.9 million. Our unrealized losses substantially relate to corporate debt securities. Our other non-current marketable securities, consisting primarily of government-sponsored enterprise securities, have not experienced any significant unrealized losses at December 31, 2008. The amortized cost and fair value of these other non-current marketable securities are approximately $125.0 million and $127.9 million, respectively, at December 31, 2008. If needed, we could liquidate some or all of these securities in order to meet our working capital needs.

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 are conducting multiple Phase 3 trials and have several ongoing Phase 1 and Phase 2 trials and expect to initiate additional trials in the future. Completion of these trials may extend several years or more, but the length of time generally varies considerably according to the type, complexity, novelty and intended use of the drug candidate. We estimated that the completion periods for our Phase 1, Phase 2, and Phase 3 trials could span one year, one to two years and two to four years, respectively. 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	2008	2007	2006
Albuferon	Hepatitis C	Phase 3(3)	Phase 3	Phase 3
LymphoStat-B	Systemic Lupus Erythematosus	Phase 3	Phase 3	Phase 2(4)
LymphoStat-B	Rheumatoid Arthritis	Phase 2(5)	Phase 2(5)	Phase 2(5)
HGS-ETR1	Cancer	Phase 2	Phase 2	Phase 2
HGS-ETR2	Cancer	Phase 1	Phase 1	Phase 1
ABthrax	Anthrax	(6)	(6)	(6)
HGS1029	Cancer	Phase 1	(7)	—

(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)	Patient dosing completed during in 2008; some patients in follow up as of December 31, 2008.
(4)	Initial Phase 2 trial completed and Phase 3 enrollment initiated in 2006; patient dosing began in 2007.
(5)	Initial Phase 2 trial completed; extension safety study ongoing and further development under review.
(6)	We have begun delivery of ABthrax to the U.S. Strategic National Stockpile. We anticipate filing a Biologics License Application (“BLA”) in 2009.
(7)	IND filed in December 2007 with respect to HGS1029 (formerly AEG40826).

We identify our 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.

41

Liquidity and Capital Resources (continued)

We are advancing a number of drug candidates, including antibodies, an albumin fusion protein and a small molecule, 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 a single drug candidate would increase.

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

Part of our business plan includes collaborating with others. For example, we entered into a collaboration agreement in 2006 with Novartis to co-develop and co-commercialize Albuferon. Under this agreement, we will co-commercialize Albuferon in the United States, and will share U.S. commercialization costs and U.S. profits equally. Novartis will be responsible for commercialization outside the U.S. and will pay us a royalty on those sales. We and Novartis share clinical development costs. Including a non-refundable up-front license fee, we are entitled to payments aggregating approximately $507.5 million upon successful attainment of certain milestones. As of December 31, 2008, we have contractually earned and received milestones aggregating $132.5 million, including the up-front fee. In 2006, we entered into a collaboration agreement with GSK with respect to LymphoStat-B and received a payment of $24.0 million. We and GSK share Phase 3 and 4 development costs, and will share equally in sales and marketing expenses and profits of any product that is commercialized. During 2008, we recorded approximately $87.9 million of reimbursable expenses from Novartis and GSK with respect to our cost sharing agreements as a reduction of research and development expenses. We are recognizing the up-front fees and milestones received from Novartis and GSK as revenue ratably over the estimated remaining development periods.

We have other collaborators who have sole responsibility for product development. For example, GSK is developing other products under separate agreements as part of our overall relationship with them. We have no control over the progress of GSK’s development plans. We cannot forecast with any degree of certainty whether any of our current or future collaborations will affect our drug development.

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, payments received under the ABthrax contract and other agreements 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, the magnitude of our discovery and preclinical development programs and the level of our pre-commercial launch activities. 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. We may undertake financings and may repurchase or restructure some or all of our outstanding convertible debt instruments in the future depending upon market and other conditions. In February 2009 we repurchased approximately $106.2 million of our convertible subordinated debt due in 2011 and 2012 at a cost of approximately $50.0 million plus accrued interest.

We have certain contractual obligations which may have a future effect on our financial condition, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources that are material to investors. Our operating leases, along with our unconditional purchase obligations, are not recorded on our balance sheets. Debt associated with the sale and accompanying leaseback of our LSM facility to BioMed in 2006 is recorded on our balance sheet as of December 31, 2008 and 2007. Under the LSM lease, we have an option to

42

Liquidity and Capital Resources (continued)

purchase the property between 2009 and 2010 at prices ranging between approximately $254.9 million and $269.5 million, depending upon when we exercise this option. We have an option to purchase the Traville facility in 2016 for $303.0 million.

Our contractual obligations as of December 31, 2008 are summarized as follows:

	Payments Due by Period
			One Year		Two to		Four to		After
	Total		or Less		Three Years		Five Years		Five Years
	(dollars in millions)
Contractual Obligations
Long-term debt — convertible notes(1)	$	549.7	$	11.5	$	303.0	$	235.2	$	—
Long term lease commitment — BioMed(2)		495.1		26.1		49.6		51.6		367.8
Operating leases(3)		398.9		21.5		43.8		45.1		288.5
Unconditional purchase obligations(4)		7.1		7.1		—		—		—
ABthrax milestones and royalties(5)		10.3		10.3		—		—		—
Other long-term liabilities reflected on our balance sheets(6)		—		—		—		—		—
Total contractual cash obligations(7)	$	1,461.1	$	76.5	$	396.4	$	331.9	$	656.3

(1)	Contractual interest obligations related to our convertible subordinated notes included above total $39.7 million as of December 31, 2008. Contractual interest obligations of $11.5 million, $23.0 million and $5.2 million are due in one year or less, two to three years and four to five years, respectively. In February 2009, we repurchased a portion of our convertible subordinated notes. This repurchase reduces the principal due in two to three years and four to five years by $82.9 million and $23.3 million, respectively. Contractual interest obligations due in one year or less, two to three years and four to five years are reduced by $2.1 million, $4.5 million and $0.4 million, respectively, as a result of the repurchase.
(2)	Contractual interest obligations related to BioMed are included above and aggregate $442.1 million as of December 31, 2008. Contractual interest obligations of $26.1 million, $49.6 million, $51.6 million and $314.8 million are due in one year or less, two to three years, four to five years and after five years, respectively.
(3)	Includes Traville headquarters operating lease with BioMed with aggregate payments of $360.9 million. Lease payments of $17.5 million, $36.1 million, $37.6 million and $269.7 million are due in one year or less, two to three years, four to five years and after five years, respectively. The operating lease obligations shown above are the gross amounts, not considering sublease income. Contractual sublease income of $4.5 million and $9.0 million is due in one year or less and two to three years, respectively. Certain of our operating leases contain financial covenants with respect to minimum levels of unrestricted cash, cash equivalents and marketable securities and minimum levels of net worth. During 2007, we amended certain of these leases to eliminate the minimum net worth covenant and adjust the minimum levels of unrestricted cash, cash equivalents and marketable securities required under the leases. We also pledged additional collateral of approximately $8.6 million to certain lessors to satisfy the minimum net worth covenant associated with certain other leases. During 2008, approximately $4.9 million of this additional collateral was released, as the lease terms of the related leases expired.
(4)	Our unconditional purchase obligations relate to commitments for capital expenditures.
(5)	Includes milestone payments and royalties associated with the delivery of ABthrax to the U.S. Strategic National Stockpile.
(6)	In the event we reach certain development milestones for Albuferon and LymphoStat-B such as successful completion of Phase 3 trials or regulatory approval, we would be obligated to make payments of up to $11.5 million over the next five years. In the event we reach certain development milestones related to

43

Liquidity and Capital Resources (continued)

HGS1029, we would be obligated to pay up to $204.0 million. Our other products are in either Phase 1 or Phase 2 and would also obligate us to make certain milestone payments should they reach Phase 3 or regulatory approval. These other payments could result in aggregate milestone payments of $21.0 million. Because we cannot forecast with any degree of certainty whether any of these products will reach these milestones, we have excluded these amounts and any royalty payments from the above table.

(7)

For additional discussion of our debt obligations and lease commitments, see Note I, Long-Term Debt and Note J, Commitments and Other Matters, of the Notes to the Consolidated Financial Statements.

As of December 31, 2008, we had net operating loss carry forwards for federal income tax purposes of approximately $2.0 billion, which expire, if unused, through December 31, 2028. We also have available research and development tax credit and other tax credit carry forwards of approximately $33.5 million, the majority of which will expire, if unused, through December 31, 2028.

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

During 1997 and 1999, we entered into two long-term leases with the Maryland Economic Development Corporation (“MEDCO”) expiring January 1, 2019 for a process development and small-scale manufacturing facility aggregating 127,000 square feet and built to our specifications. We have accounted for these leases as operating leases. The facility was financed primarily through a combination of bonds issued by MEDCO (“MEDCO Bonds”) and loans issued to MEDCO by certain State of Maryland agencies. We have no equity interest in MEDCO.

Rent is based upon MEDCO’s debt service obligations and annual base rent under the leases currently is approximately $3.8 million. The MEDCO Bonds are secured by letters of credit issued for the account of MEDCO which expire in December 2009. MEDCO’s debt service obligations may be affected by prevailing interest rate conditions in 2009, which could in turn affect our rent and the level of our restricted investments. We have restricted investments of approximately $15.7 million and $15.0 million as of December 31, 2008 and December 31, 2007, respectively, and are required to maintain restricted investments of $15.0 million which serve as additional security for the MEDCO letters of credit reimbursement obligation. Upon default or early lease termination or in the event the letters of credit will not be renewed, the MEDCO Bond indenture trustee can draw upon the letters of credit to pay the MEDCO Bonds as they are tendered. In such an event, we could lose part or all of our restricted investments and could record a charge to earnings for a corresponding amount. Alternatively, we have an option during or at the end of the lease term to purchase this facility for an aggregate amount that declines from approximately $38.0 million in 2009 to approximately $21.0 million in 2019.

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.

44

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

Certain statements contained in “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 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. In addition, while we have begun shipment of ABthrax to the U.S. Strategic National Stockpile, we continue to face risks related to acceptance of future shipments and FDA’s approval of our Biologics License Application for ABthrax, if and when it is submitted. If we are unable to meet requirements associated with the ABthrax contract, future revenues from the sale of ABthrax to the U.S. Government will not occur. 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.

45

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. We do, however, have certain aspects of our global clinical studies that are subject to risks of foreign currency fluctuations. We do not use derivative financial instruments in our operations or investment portfolio. Our investment portfolio may be comprised of low-risk U.S. Treasuries, government-sponsored enterprise securities, high-grade debt having at least an “A−” rating at time of purchase and various money market instruments. The short-term nature of these securities, which currently have an average term of approximately 12 months, decreases the risk of a material loss caused by a market change related to interest rates.

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 $3.9 million, or approximately 1.04% of the aggregate fair value of $372.9 million, at December 31, 2008. 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, 2008. We believe that any interest rate change related to our investment securities held as of December 31, 2008 is not material to our consolidated financial statements. As of December 31, 2008, the yield on comparable one-year investments was approximately 0.3%, as compared to our current portfolio yield of approximately 4.6%. However, given the short-term nature of these securities, a general decline in interest rates may adversely affect the interest earned from our portfolio as securities mature and may be replaced with securities having a lower interest rate.

To minimize our exposure to credit risk, we invest in securities with strong credit ratings and have established guidelines relative to diversification and maturity with the objectives of maintaining safety of principal and liquidity. We do not invest in derivative financial instruments or auction rate securities, and we generally hold our investments in debt securities until maturity. However, adverse changes in the credit markets relating to credit risks would adversely affect the fair value of our cash, cash equivalents, marketable securities and restricted investments. The deterioration of the credit markets during the year ended December 31, 2008 had a detrimental effect on our investment portfolio. During 2008, we recorded an impairment charge of $6.3 million related to our investment in debt securities issued by LBHI. During the year ended December 31, 2008, the gross unrealized losses in our portfolio increased from $3.3 million to $9.9 million. The majority of these unrealized losses related to our holdings of corporate debt securities. At December 31, 2008, the fair value of our corporate debt securities was approximately $188.0 million, or 53% of our total investment portfolio of $357.7 million. The remaining securities in our portfolio are either U.S. Treasury and agency securities or government-sponsored enterprise securities, which we believe are subject to less credit risk. In the event there is further deterioration in the credit market, the fair value of our corporate debt securities could further decline.

We have an equity investment in Aegera, which is a privately-held entity. We are unable to obtain a quoted market price with respect to the fair value of this investment. We paid $5.0 million for the Aegera investment in December 2007 but recorded the investment at $3.1 million based on the value per share obtained by Aegera through external financing earlier in 2007. Our investment in Aegera is denominated in Canadian dollars and is subject to foreign currency risk. The carrying value is adjusted at each reporting date based on current exchange rates, and was $2.6 million at December 31, 2008. We review the carrying value of the Agera investment on a periodic basis for indicators of impairment, and adjust the value accordingly.

The facility leases we entered into during 2006 require us to maintain minimum level of restricted investments of approximately $46.0 million, or $39.5 million if in the form of cash, as collateral for these facilities. 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, and our additional collateral for one of our operating leases, our overall level of restricted investments is currently required to be approximately $64.5 million. Although the market value for these investments may rise or fall as a result of changes in interest rates, we will be required to maintain this level of restricted investments in either a rising or declining interest rate environment.

Our convertible subordinated notes bear interest at fixed rates. As a result, our interest expense on these notes is not affected by changes in interest rates.

46

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (continued)

During 2002, we established a wholly-owned subsidiary, Human Genome Sciences Europe GmbH (“HGS Europe”) that is assisting in 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 to be immaterial to our operations as a whole. During 2005, we established a wholly-owned subsidiary, Human Genome Sciences Pacific Pty Ltd. (“HGS Pacific”) that is sponsoring some of our clinical trials in the Asia/Pacific 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 with respect to HGS Pacific.

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, 2008. 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, 2008, and has concluded that there was no change that occurred during the year ended December 31, 2008 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

47

ITEM 9A.  CONTROLS AND PROCEDURES (continued)

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.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008. 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, 2008, 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 internal control over financial reporting which follows herein.

ITEM 9B.   OTHER INFORMATION

None.

48

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING

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

We have audited Human Genome Sciences Inc.’s internal control over financial reporting as of December 31, 2008, 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 included in the accompanying “Management Report on Internal Control over Financial Reporting.” Our responsibility is to express an opinion on 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, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, 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, Human Genome Sciences, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, 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, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2008 and our report dated February 26, 2009 expressed an unqualified opinion thereon.

/s/  Ernst & Young LLP

Baltimore, Maryland

February 26, 2009

49

PART III

ITEM 10.   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

We incorporate herein by reference the information concerning directors, executive officers and corporate governance in our Notice of Annual Stockholders’ Meeting and Proxy Statement to be filed within 120 days after the end of our fiscal year (the “2009 Proxy Statement”).

ITEM 11.   EXECUTIVE COMPENSATION

We incorporate herein by reference the information concerning executive compensation to be contained in the 2009 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 2009 Proxy Statement.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

We incorporate herein by reference the information concerning the CoGenesys transaction set forth in Note P to our consolidated financial statements. We incorporate herein by reference the information concerning certain other relationships and related transactions to be contained in the 2009 Proxy Statement.

ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES

We incorporate herein by reference the information concerning principal accounting fees and services to be contained in the 2009 Proxy Statement.

50

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, 2008 and 2007		F-3
Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006		F-4
Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2008, 2007 and 2006		F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006		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, Exhibit 3.1 to the Form 10-Q filed July 31, 2001, and Exhibit 3.1 to the Form 8-K filed on May 8, 2008).
3.2*	By-laws of the Registrant (Filed as Exhibit 3.2 to the Registrant’s Form 8-K filed May 8, 2008).
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*	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).
4.3*	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).
10.1*	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).
10.2*	First Amendment to the Employment Agreement by and between Human Genome Sciences, Inc. and H. Thomas Watkins (Filed as Exhibit 10.1 to the Registrant’s Form 8-K filed December 20, 2007).
10.3*	Form of Executive Agreement (Filed as Exhibit 10.3 to the Registrant’s Form 8-K filed December 20, 2007).
10.4*	Human Genome Sciences, Inc. Discretionary Bonus Policy (Filed as Exhibit 10.4 to the Registrant’s Form 8-K filed December 20, 2007).
10.5*	Form of Stock Unit Grant Agreement under the Non-Employee Director Equity Compensation Plan (Filed as Exhibit 10.5 to the Registrant’s Form 8-K filed December 20, 2007).
10.6*	Second Amended and Restated Key Executive Severance Plan (Filed as Exhibit 10.2 to the Registrant’s Form 8-K filed December 20, 2007).
10.7*	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).
10.8*	Employee Stock Purchase Plan dated January 1, 2009 (Filed as Exhibit 99.1 to the Registrant’s Registration Statement on Form S-8 filed December 19, 2008).

51

Exhibit
No.
10.9*	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).
10.10*	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).
10.11*	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).
10.12*	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).
10.13*	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).
10.14*	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).
10.15*	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).
10.16*	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).
10.17*	Form of Restricted Stock Agreement (Filed as Exhibit 10.20 to the Registrant’s Form 10-Q filed August 1, 2005).
10.18*	Form of Stock Option Agreement (Filed as Exhibit 10.2 to the Registrant’s Form 8-K filed September 20, 2004).
10.19*†	Asset Purchase Agreement dated December 12, 2005 by and between TriGenesys, Inc. and the Registrant (Filed as Exhibit 10.22 to the Registrant’s Form 10-K for the fiscal year ended December 31, 2005).
10.20*†	Co-development and Commercialization Agreement between Novartis International Pharmaceutical Ltd. and Human Genome Sciences, Inc., dated June 5, 2006 (Filed as Exhibit 10.1 to the Registrant’s Form 10-Q filed August 9, 2006).
10.21*	Purchase and Sale Agreement between BioMed Realty, L.P. and Human Genome Sciences, Inc., dated May 2, 2006 (Filed as Exhibit 10.2 to the Registrant’s Form 10-Q filed August 9, 2006).
10.22*	Lease Agreement between BMR-Belward Campus Drive LSM LLC and Human Genome Sciences, Inc., dated May 24, 2006 (Filed as Exhibit 10.3 to the Registrant’s Form 10-Q filed August 9, 2006).
10.23*	Lease Agreement between BMR-Shady Grove Road HQ LLC and Human Genome Sciences, Inc., dated May 24, 2006 (Filed as Exhibit 10.4 to the Registrant’s Form 10-Q filed August 9, 2006).
10.24*†	Solicitation (as amended) and Modification of Contract awarded by the Department of Health and Human Services to Human Genome Sciences, Inc. dated June 24, 2006 (Filed as Exhibit 10.5 to the Registrant’s Amended Form 10-Q filed September 27, 2007).
10.25†	Co-development and Commercialization Agreement between Glaxo Group Limited and Human Genome Sciences, Inc., dated August 1, 2006.
10.26	Second Amendment to the Employment Agreement by and between Human Genome Sciences, Inc. and H. Thomas Watkins.
10.27	Form of First Amendment to Executive Agreement.

52

Exhibit
No.
10.28	Form of First Amendment to the Registrant’s Second Amended and Restated Key Executive Severance Plan.
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.

53

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

President and Chief Executive Officer

Dated: February 26, 2009

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	President, Chief Executive Officer and Director (Principal Executive Officer)	February 26, 2009
/s/  Timothy C. Barabe Timothy C. Barabe	Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	February 26, 2009
/s/  Argeris N. Karabelas, Ph.D. Argeris N. Karabelas, Ph.D.	Chairman of the Board	February 26, 2009
/s/  Richard J. Danzig Richard J. Danzig	Director	February 26, 2009
/s/  Jürgen Drews, M.D. Jürgen Drews, M.D.	Director	February 26, 2009
/s/  Maxine Gowen, Ph.D. Maxine Gowen, Ph.D.	Director	February 26, 2009
/s/  Tuan Ha-Ngoc Tuan Ha-Ngoc	Director	February 26, 2009
/s/  John LaMattina, Ph.D. John LaMattina	Director	February 26, 2009
/s/  Augustine Lawlor Augustine Lawlor	Director	February 26, 2009
/s/  David Southwell David Southwell	Director	February 26, 2009
/s/  Robert C. Young Robert C. Young, M.D.	Director	February 26, 2009

54

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, 2008 and 2007		F-3
Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006		F-4
Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2008, 2007 and 2006		F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006		F-6
Notes to Consolidated Financial Statements		F-8

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders of

Human Genome Sciences, Inc.

Rockville, Maryland

We have audited the accompanying consolidated balance sheets of Human Genome Sciences, Inc. as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2008. 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, 2008 and 2007, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Human Genome Sciences, Inc.’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2009 expressed an unqualified opinion thereon.

/s/  Ernst & Young LLP

Baltimore, Maryland

February 26, 2009

F-2

HUMAN GENOME SCIENCES, INC.

CONSOLIDATED BALANCE SHEETS

	December 31,
	2008			2007
	(dollars in thousands, except share and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	15,248		$	34,815
Short-term investments		22,691			93,952
Collaboration receivables		24,880			38,672
Prepaid expenses and other current assets		5,347			5,687
Total current assets		68,166			173,126
Marketable securities		265,640			404,142
Long-term equity investments		2,606			18,245
Property, plant and equipment (net of accumulated depreciation and amortization)		259,269			268,804
Restricted investments		69,360			70,931
Other assets		9,123			13,857
TOTAL ASSETS	$	674,164		$	949,105
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued expenses	$	55,434		$	62,876
Accrued payroll and related taxes		18,574			14,448
Accrued exit expenses		2,952			3,627
Deferred revenues		43,746			45,219
Total current liabilities		120,706			126,170
Convertible subordinated debt		510,000			510,000
Lease financing		246,477			244,099
Deferred revenues, net of current portion		29,563			73,049
Accrued exit expenses, net of current portion		2,075			3,017
Other liabilities		6,718			4,672
Total liabilities		915,539			961,007
Stockholders’ deficit:
Preferred stock — $0.01 par value; shares authorized — 20,000,000; no shares issued or outstanding		—			—
Common stock — $0.01 par value; shares authorized — 400,000,000; shares issued and outstanding of 135,739,978 and 134,936,512 at December 31, 2008 and 2007, respectively		1,357			1,349
Additional paid-in capital		1,889,502			1,866,426
Accumulated other comprehensive income (loss)		(4,490	)		3,152
Accumulated deficit		(2,127,744	)		(1,882,829	)
Total stockholders’ deficit		(241,375	)		(11,902	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	674,164		$	949,105

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,
	2008			2007			2006
	(dollars in thousands, except share and per share amounts)
Revenue — research and development contracts	$	48,422		$	41,851		$	25,755
Costs and expenses:
Research and development		242,710			245,745			209,242
General and administrative		60,865			55,874			53,101
Lease termination and restructuring charges (credits)		—			(3,673	)		29,510
Total costs and expenses		303,575			297,946			291,853
Income (loss) from operations		(255,153	)		(256,095	)		(266,098	)
Investment income		23,487			32,988			27,131
Interest expense		(39,483	)		(39,341	)		(26,965	)
Charge for impaired investments		(6,284	)		—			—
Gain on sale of long-term equity investment		32,518			—			14,759
Income (loss) before taxes		(244,915	)		(262,448	)		(251,173	)
Provision for income taxes		—			—			—
Net income (loss)	$	(244,915	)	$	(262,448	)	$	(251,173	)
Basic and diluted net income (loss) per share	$	(1.81	)	$	(1.95	)	$	(1.91	)
Weighted average shares of common stock outstanding, basic and diluted		135,406,642			134,333,418			131,815,414

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

F-4

HUMAN GENOME SCIENCES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

							Accumulated
					Additional		Other
	Common Stock				Paid-In		Comprehensive			Accumulated
	Shares		Amount		Capital		Income (Loss)			Deficit			Total
	(dollars in thousands, except share amounts)
Balance — December 31, 2005		131,049,798	$	1,310	$	1,786,549	$	(1,685	)	$	(1,369,208	)	$	416,966
Comprehensive income (loss):
Net loss		—		—		—		—			(251,173	)		(251,173	)
Unrealized loss on investments		—		—		—		(1,927	)		—			(1,927	)
Cumulative translation adjustment		—		—		—		18			—			18
Comprehensive loss														(253,082	)
Shares of common stock issued pursuant to stock-based compensation plans		2,770,255		28		23,405		—			—			23,433
Stock-based compensation expense		—		—		26,606		—			—			26,606
Balance — December 31, 2006		133,820,053		1,338		1,836,560		(3,594	)		(1,620,381	)		213,923
Comprehensive income (loss):
Net loss		—		—		—		—			(262,448	)		(262,448	)
Unrealized gain on investments		—		—		—		6,724			—			6,724
Cumulative translation adjustment		—		—		—		22			—			22
Comprehensive loss														(255,702	)
Shares of common stock issued pursuant to stock-based compensation plans		1,116,459		11		8,175		—			—			8,186
Stock-based compensation expense		—		—		21,691		—			—			21,691
Balance — December 31, 2007		134,936,512		1,349		1,866,426		3,152			(1,882,829	)		(11,902	)
Comprehensive income (loss):
Net loss		—		—		—		—			(244,915	)		(244,915	)
Unrealized loss on investments		—		—		—		(7,052	)		—			(7,052	)
Cumulative translation adjustment		—		—		—		(590	)		—			(590	)
Comprehensive loss														(252,557	)
Shares of common stock issued pursuant to stock-based compensation plans		803,466		8		4,589		—			—			4,597
Stock-based compensation expense		—		—		18,487		—			—			18,487
Balance — December 31, 2008		135,739,978	$	1,357	$	1,889,502	$	(4,490	)	$	(2,127,744	)	$	(241,375	)

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,
	2008			2007			2006
	(dollars in thousands)
Cash flows from operating activities:
Net income (loss)	$	(244,915	)	$	(262,448	)	$	(251,173	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Stock-based compensation		18,593			21,691			26,606
Depreciation and amortization		21,350			22,114			20,105
Gain on sale of long-term equity investment		(32,518	)		—			(14,759	)
Charge for impaired investments		6,284			—			—
Charge (credit) for lease termination and restructuring		—			(1,969	)		28,953
Gain on sale of building		—			(1,704	)		—
Accrued interest on short-term investments, marketable securities and restricted investments		581			(4,631	)		(5,607	)
Non-cash expense and other		1,981			2,995			5,307
Non-cash reimbursement of CoGenesys expenses		—			—			(4,818	)
Changes in operating assets and liabilities:
Collaboration receivables		13,792			25,807			(16,279	)
Prepaid expenses and other assets		2,760			(366	)		5,292
Accounts payable and accrued expenses		(7,247	)		25,770			9,281
Accrued payroll and related taxes		4,126			(930	)		1,539
Accrued exit expenses		(2,083	)		(2,376	)		(5,006	)
Deferred revenues		(44,959	)		(633	)		54,591
Other liabilities		1,992			2,021			(1,162	)
Net cash used in operating activities		(260,263	)		(174,659	)		(147,130	)
Cash flows from investing activities:
Purchase of short-term investments and marketable securities		(15,065	)		(160,379	)		(538,314	)
Proceeds from sale and maturities of short-term investments and marketable securities		211,722			278,031			504,970
Proceeds from sale of long-term equity investments		47,336			—			24,127
Capital expenditures — property, plant and equipment		(9,724	)		(3,042	)		(9,719	)
Release of restricted investments		4,877			—			—
Proceeds from sale of building, net of transaction costs		—			14,824			—
Purchase of building, net of transaction costs		—			(13,120	)		—
Purchase of long-term equity investment		—			(3,148	)		—
Capitalized interest		—			—			(2,527	)
Net cash provided by (used in) investing activities		239,146			113,166			(21,463	)
Cash flows from financing activities:
Payments on long-term debt		—			—			(3,120	)
Proceeds from sale and maturities of restricted investments		26,120			17,857			57,670
Purchase of restricted investments		(28,897	)		(26,642	)		(44,968	)
Proceeds from issuance of common stock		4,432			8,151			23,433
Treasury stock (net of expense)		(105	)		—			—
Proceeds from sale-leaseback of property, plant and equipment		—			—			220,252
Net cash provided by (used in) financing activities		1,550			(634	)		253,267
Net increase (decrease) in cash and cash equivalents		(19,567	)		(62,127	)		84,674
Cash and cash equivalents — beginning of year		34,815			96,942			12,268
Cash and cash equivalents — end of year	$	15,248		$	34,815		$	96,942

F-6

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION, NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIES

	Year Ended December 31,
	2008		2007		2006
	(dollars in thousands)
Cash paid during the year for:
Interest	$	34,729	$	34,319	$	25,540
Income taxes	$	—	$	—	$	—

During the years ended December 31, 2008 and 2007, the Company recorded non-cash accretion of $466 and $653, respectively, related to its exit accrual for certain exited space.

During the years ended December 31, 2008, 2007 and 2006, lease financing increased as a result of non-cash accretion with respect to the Company’s leases with BioMed Realty Trust, Inc. (“BioMed”) by $2,378, $2,573 and $1,526 respectively. Because the lease payments are less than the amount of calculated interest expense for the first nine years of the leases, the lease balance will increase during this period.

During the year ended December 31, 2007, the Company completed a purchase and sale of a laboratory building and has no further obligations with respect to this space. Accordingly, the Company recorded a non-cash reversal of the lease termination liability for this building of $1,969. See Note N, Facility-Related Exit Costs for additional discussion.

During the year ended December 31, 2006, the Company transferred securities with maturities of less than one year from its Restricted investments to Short-term investments with an aggregate market value of approximately $65,115 in exchange for securities from its Marketable securities portfolio having an aggregate market value of approximately $60,857.

During the year ended December 31, 2006, the Company released restricted investments with a cost of $162,121 in connection with reduced collateral requirements arising from the termination of the lease and the execution of a new lease for its headquarters facility.

During the year ended December 31, 2006, the Company obtained equity in CoGenesys, Inc. (“CoGenesys”) with a value of $10,000 in exchange for an intellectual property license, equipment, and assumed liabilities. The Company obtained additional equity in CoGenesys with a value of $4,818 as reimbursement of research and development expenses incurred during 2006.

During the year ended December 31, 2006, the Company recorded a receivable and deferred revenue of $47,500 related to achievement of a milestone. The Company received payment of this receivable during January 2007.

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 commercially focused biopharmaceutical company advancing toward the market with three products in late-stage clinical development. The Company also has a pipeline of novel compounds in earlier stages of clinical development in oncology, immunology and infectious disease. Additional products are in clinical development by companies with which the Company is collaborating.

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 therapeutic protein and antibody drugs for clinical development and for initial commercial activity. The Company completed construction and validation of a large-scale manufacturing facility and placed the facility into operational service in 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 entered into 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 were derived from license fees and milestone payments under collaboration agreements through 2008. The Company generated its first product sales in January 2009 when it began delivery of ABthrax to the U.S. Strategic National Stockpile. The Company, which operates primarily in the United States, 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 of which are wholly-owned. All significant intercompany accounts and transactions have been eliminated.

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

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

The Company classifies its short-term investments, marketable securities and long-term equity investments with readily determinable fair values as “available-for-sale.” Investments in securities that are classified as available- for-sale 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. Investments for which the Company is unable to obtain readily available fair value information are carried at cost. The Company reviews the carrying value of such investments on a periodic basis for indicators of impairment. Additionally, certain of the Company’s investments are held as

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, Long-term Equity Investments and Restricted Investments (continued)

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 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. The Company does not hold auction rate securities, loans held for sale or mortgage-backed securities backed by sub-prime or Alt-A collateral.

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 Financial Accounting Standards Board (“FASB”) Staff Position No. 115-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. 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. In 2008, the Company recorded an impairment charge relating to certain of its investments. See Note C, Investments, 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:

Buildings	30 years
Land improvements	lesser of the lease term or the useful life
Production equipment	5-10 years
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

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable based on the criteria established in Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. In 2006 the Company recorded an impairment charge relating to certain equipment and leasehold improvements. See Note N, Facility-Related Exit Costs, for additional discussion.

Fair Value of Financial Instruments

The fair value of the Company’s collaboration receivables, other assets, accounts payable and accrued expenses approximate their carrying amount due to the relatively short maturity of these items.

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 (continued)

The carrying amounts of the Company’s investments in the consolidated balance sheets at December 31, 2008 and 2007 approximate their respective fair values. The fair value of the Company’s investments is based on quoted market prices, except for privately-held equity investments for which fair value information is not readily available. See Note O, Fair Value Measurements, for additional discussion.

The fair value of the Company’s convertible debt is based on quoted market prices. The fair value of the Company’s lease financing is determined using a discounted cash flow analysis and current rates for corporate debt having similar characteristics and companies with similar credit worthiness. See Note I, Long-Term Debt, for additional discussion.

Leases

The Company accounts for its leases under SFAS No. 13, Accounting for Leases, and other related guidance. The Company has a number of operating leases and has entered into sale-leaseback transactions for equipment, land and facilities. See Note J, Commitments and Other Matters, for additional discussion.

Stock-Based Compensation

The Company has a stock incentive plan (the “Incentive Plan”) under which options to purchase shares of the Company’s common stock may be granted to employees, consultants and directors with an exercise price no less than the quoted market value on the date of grant. The Incentive Plan also provides for the issuance of non-vested common stock (restricted stock) and other share-based compensation. The Company recognizes stock-based compensation expense in accordance with SFAS No. 123(R), Share-Based Payment (“SFAS No. 123(R)”). See Note K, Stockholders’ Equity, for additional discussion.

Revenue Recognition

Collaborative research and development agreements can provide for one or more of up-front license fees, research 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 non-refundable up-front license fees under arrangements where the license fees and research and development activities cannot be accounted for as separate units of accounting are deferred and recognized as revenue on a straight-line basis over the expected term of the Company’s continued involvement in the research and development process. Revenues from the achievement of research and development milestones, if deemed substantive, are recognized as revenue when the milestones are achieved, and the milestone payments are due and collectible. If not deemed substantive, the Company would recognize such milestone as revenue on a straight-line basis over the remaining expected term of continued involvement in the research and development process. Milestones are considered substantive if all of the following conditions are met: (1) the milestone is non-refundable; (2) achievement of the milestone was not reasonably assured at the inception of the arrangement;

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)

Revenue Recognition (continued)

(3) substantive effort is involved to achieve the milestone; and, (4) the amount of the milestone appears reasonable in relation to the effort expended, the other milestones in the arrangement and the related risk associated with the achievement of the milestone and any ongoing research and development or other services are priced at fair value. Payments received in advance of work performed are recorded as deferred revenue.

During 2008, the Company entered into an agreement whereby it began providing contract manufacturing services. Revenue in 2008, which was not significant, was recorded as milestones were met.

Research and Development

Research and development costs are charged to expense as incurred, unless otherwise capitalized pursuant to Emerging Issues Task Force (“EITF”) No. 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities. Research and development costs include salaries and related benefits, outside services, licensing fees or milestones, materials and supplies, building costs and allocations of certain support costs. Research and development direct expenditures were $242,710, $245,745 and $209,242 for 2008, 2007 and 2006, respectively. Reimbursement of research and development expenses received in connection with collaborative cost-sharing agreements is recorded as a reduction of such expenses.

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 on a straight-line basis which approximates the effective interest method.

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. No interest was capitalized in 2008 or 2007. Capitalized interest costs were $2,527 for 2006.

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 income (loss) per share is calculated by dividing the net income (loss) by the weighted average number of shares of common stock outstanding during all periods presented. Options or other awards to acquire stock and shares issuable upon the conversion of the Company’s convertible subordinated debt are excluded from diluted earnings per share calculations for the years ended December 31, 2008, 2007 and 2006 because the effects are anti-dilutive.

Foreign Currency

Assets and liabilities of the Company’s international operations are translated into U.S. dollars at exchange rates that are in effect as of the balance sheet date, and equity accounts are translated at historical rates. Revenue and expenses are translated at average exchange rates that are in effect during the year. Translation adjustments are accumulated in other comprehensive income (loss) as a separate component of stockholders’ equity in the consolidated balance sheet. Transaction gains and losses are included in investment income in the consolidated statement of operations.

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)

Comprehensive Income (Loss)

SFAS No. 130, Reporting Comprehensive Income, requires unrealized gains and 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.

The components of accumulated other comprehensive income (loss) are as follows:

	December 31,
	2008			2007			2006
Net unrealized gains (losses) on:
Short-term investments and marketable securities	$	(4,077	)	$	2,882		$	(3,036	)
Long-term equity investment in VIA Pharmaceuticals		38			279			619
Restricted investments		108			(39	)		(1,185	)
Foreign currency translation		(559	)		30			8
Accumulated other comprehensive income (loss)	$	(4,490	)	$	3,152		$	(3,594	)

Accumulated other comprehensive income (loss) excludes net realized gains included in net loss of $33,619, $55 and $14,121 for the years ended December 31, 2008, 2007 and 2006, respectively. The effect of income taxes on items in other comprehensive income is $0 for all periods presented.

During 2008, the Company recorded an impairment charge relating to its investment in debt securities issued by Lehman Brothers Holdings, Inc. (“LBHI”) of $6,284 due to the significant reduction in the market value of LBHI’s debt securities that the Company believes may not be temporary as a result of LBHI’s bankruptcy. This impairment charge is included in the net loss of $244,915 for the year ended December 31, 2008. See Note C, Investments, for additional discussion.

During 2006, the Company sold its remaining 988,387 shares of Cambridge Antibody Technology (“CAT”), a long-term equity investment, for net proceeds of $24,127, and realized a gain of $14,759.

Recent Accounting Pronouncements

In December 2007, the FASB ratified EITF No. 07-1, Accounting for Collaborative Agreements (“EITF No. 07-1”). EITF No. 07-1 provides guidance regarding financial statement presentation and disclosure of collaborative arrangements, as defined, which includes arrangements the Company has entered into regarding development and commercialization of products. EITF No. 07-1 is effective for the Company as of January 1, 2009. The Company does not believe the adoption of this statement will have a material effect on its consolidated results of operations, financial position or liquidity.

In February 2008, the FASB issued a one-year deferral for non-financial assets and liabilities to comply with SFAS No. 157, Fair Value Measurements (“SFAS No. 157”). The Company adopted SFAS No. 157 for financial assets and liabilities effective January 1, 2008 (see Note O, Fair Value Measurements, for further details). There was no material effect upon adoption of this accounting pronouncement on the Company’s consolidated results of operations, financial position or liquidity. The Company does not expect the adoption of SFAS No. 157 as it pertains to non-financial assets and liabilities to have a material impact on its consolidated results of operations, financial position or liquidity.

In May 2008, the FASB issued Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (“FSP APB 14-1”). FSP APB 14-1 requires that the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) be separately accounted for in a manner that reflects an issuer’s non-convertible debt borrowing rate. The resulting debt discount is amortized over the period the convertible debt is expected to be

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)

Recent Accounting Pronouncements (continued)

outstanding as additional non-cash interest expense. FSP APB 14-1 is effective for the Company as of January 1, 2009 and retroactive application to all periods presented is required. The Company is currently finalizing the impact of the provisions of FSP APB 14-1 on its consolidated statements of operations and consolidated balance sheets. The Company expects to record an increase to stockholders’ equity (deficit) of $169,651 and a non-cash cumulative effect of a change in accounting principle of approximately $18,681 upon adoption of FSP APB 14-1 and will restate its 2007 and 2008 financial statements. The Company expects to record additional non-cash interest expense of approximately $26,400 in 2009 as a result of the adoption of FSP APB 14-1. Additional non-cash interest expense will continue to be recorded each year for the remaining term of the debt.

In June 2008, the FASB ratified EITF Issue No. 07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock (“EITF No. 07-5”). EITF No. 07-5 mandates a two-step process for evaluating whether an equity-linked financial instrument or embedded feature is indexed to the entity’s own stock. It is effective for the Company as of January 1, 2009. The Company is currently evaluating the impact of EITF No. 07-5, and has not yet determined whether the adoption of EITF No. 07-5 will have a material effect on its consolidated results of operations, financial position or liquidity.

Sources of Supply

The Company is currently able to obtain most of its raw materials, supplies and equipment from various sources, and therefore, has no dependence upon a single supplier. Certain raw materials and other supplies required for manufacturing are currently available only from single sources. As the Company prepares for commercialization of its products, it intends to identify alternative sources of supply.

F-13

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(NOTE C) — Investments

Available for sale investments, including accrued interest, at December 31, 2008 and 2007 were as follows:

	December 31, 2008
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
U.S. Treasury and agencies	$	755	$	27	$	—		$	782
Government-sponsored enterprise securities		10,507		271		(22	)		10,756
Corporate debt securities		11,421		29		(297	)		11,153
Subtotal — Short-term investments		22,683		327		(319	)		22,691
U.S. Treasury and agencies		16,150		368		(455	)		16,063
Government-sponsored enterprise securities		108,877		3,229		(262	)		111,844
Corporate debt securities		145,621		263		(8,151	)		137,733
Subtotal — Marketable securities		270,648		3,860		(8,868	)		265,640
Investment in VIA Pharmaceuticals		—		19		—			19
Cash and cash equivalents		5,773		—		—			5,773
U.S. Treasury and agencies		6,044		95		—			6,139
Government-sponsored enterprise securities		18,145		403		(11	)		18,537
Corporate debt securities		39,289		299		(677	)		38,911
Subtotal — Restricted investments		69,251		797		(688	)		69,360
Total	$	362,582	$	5,003	$	(9,875	)	$	357,710

	December 31, 2007
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
U.S. Treasury and agencies	$	2,028	$	12	$	—		$	2,040
Government-sponsored enterprise securities		27,554		1,065		(127	)		28,492
Corporate debt securities		64,072		12		(664	)		63,420
Subtotal — Short-term investments		93,654		1,089		(791	)		93,952
U.S. Treasury and agencies		29,417		689		—			30,106
Government-sponsored enterprise securities		174,937		2,766		(608	)		177,095
Corporate debt securities		197,205		1,381		(1,645	)		196,941
Subtotal — Marketable securities		401,559		4,836		(2,253	)		404,142
Investment in VIA Pharmaceuticals		—		259		—			259
Cash and cash equivalents		10,158		—		—			10,158
U.S. Treasury and agencies		7,049		38		—			7,087
Government-sponsored enterprise securities		19,030		51		(51	)		19,030
Corporate debt securities		34,732		101		(177	)		34,656
Subtotal — Restricted investments		70,969		190		(228	)		70,931
Total	$	566,182	$	6,374	$	(3,272	)	$	569,284

F-14

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 restricted investments with respect to its headquarters (“Traville”) and large-scale manufacturing (“LSM”) leases and for the small-scale manufacturing facility leases will serve as collateral for a security deposit for the duration of the leases, although the Company has the ability to reduce the restricted investments that are in the form of securities for the Traville and LSM facility leases by substituting cash security deposits.

For the Traville and LSM leases, the Company is required to maintain restricted investments of at least $46,000, or $39,500 if in the form of cash, in order to satisfy the security deposit requirements of these leases. In addition, the Company is also required to maintain $15,000 in restricted investments with respect to leases for its small-scale manufacturing facility. During 2007 the Company pledged collateral of $7,585 to another lessor related to equipment leases. During 2008, approximately $4,877 of this collateral was released, as the lease terms of the related leases expired and the Company exercised its purchase option. The Company’s restricted investments were $69,360 and $70,931 as of December 31, 2008 and December 31, 2007, respectively.

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

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

	December 31, 2008
	Loss Position				Loss Position
	for Less Than				for Greater Than
	Twelve Months				Twelve Months				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Government-sponsored enterprise securities	$	—	$	—	$	962	$	22	$	962	$	22
Corporate debt securities		6,543		284		145		13		6,688		297
Subtotal — Short-term investments		6,543		284		1,107		35		7,650		319
U.S. Treasury and agencies		7,540		455		—		—		7,540		455
Government-sponsored enterprise securities		1,714		4		11,259		258		12,973		262
Corporate debt securities		77,637		4,597		39,334		3,554		116,971		8,151
Subtotal — Marketable securities		86,891		5,056		50,593		3,812		137,484		8,868
Government-sponsored enterprise securities		2,975		5		337		6		3,312		11
Corporate debt securities		19,002		637		4,016		40		23,018		677
Subtotal — Restricted investments		21,977		642		4,353		46		26,330		688
Total	$	115,411	$	5,982	$	56,053	$	3,893	$	171,464	$	9,875

F-15

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)

	December 31, 2007
	Loss Position				Loss Position
	for Less Than				for Greater Than
	Twelve Months				Twelve Months				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Government-sponsored enterprise securities	$	—	$	—	$	4,211	$	127	$	4,211	$	127
Corporate debt securities		—		—		57,293		664		57,293		664
Subtotal — Short-term investments		—		—		61,504		791		61,504		791
Government-sponsored enterprise securities		—		—		24,366		608		24,366		608
Corporate debt securities		53,674		1,523		12,498		122		66,172		1,645
Subtotal — Marketable securities		53,674		1,523		36,864		730		90,538		2,253
Government-sponsored enterprise securities		—		—		11,685		51		11,685		51
Corporate debt securities		1,951		29		15,583		148		17,534		177
Subtotal — Restricted investments		1,951		29		27,268		199		29,219		228
Total	$	55,625	$	1,552	$	125,636	$	1,720	$	181,261	$	3,272

The deterioration of the credit markets during 2008 had a detrimental effect on the Company’s investment portfolio. During 2008, LBHI experienced a significant deterioration in its credit worthiness and filed a petition under Chapter 11 of the U.S. Bankruptcy Code. As a result, the Company determined that its investment in LBHI debt securities had incurred an other-than-temporary impairment, and accordingly, recorded an impairment charge of $6,284 which is reflected on the consolidated statements of operations. Further deterioration in the credit markets may have an additional adverse effect on the fair value of the Company’s investment portfolio. The Company has the ability and intent to hold these investments until a recovery of the unrealized losses.

The Company owned 152 available-for-sale U.S Treasury obligations, government-sponsored enterprise securities and corporate debt securities at December 31, 2008. Of these 152 securities, 79 had unrealized losses at December 31, 2008.

The Company’s equity investments in privately-held companies for which no readily available fair value information is available are carried at cost. Long-term equity investments of publicly-traded companies are carried at market value based on quoted market prices and unrealized gains and losses for these investments are reported as a separate component of stockholders’ equity until realized.

F-16

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(NOTE C) — Investments (continued)

Other Information

The following table summarizes maturities of the Company’s short-term investments, marketable securities and restricted investment securities at December 31, 2008:

	Short-term				Marketable				Restricted
	Investments				Securities				Investments
	Amortized		Fair		Amortized		Fair		Amortized		Fair
Maturities	Cost		Value		Cost		Value		Cost		Value
Less than one year	$	22,683	$	22,691	$	—	$	—	$	23,580	$	23,666
Due in year two through year three		—		—		258,119		253,103		38,150		38,058
Due in year four through year five		—		—		7,697		7,671		6,425		6,451
Due after five years		—		—		4,832		4,866		1,096		1,185
Total	$	22,683	$	22,691	$	270,648	$	265,640	$	69,251	$	69,360

The Company’s short-term investments include mortgage-backed securities with an aggregate cost of $6,434 and an aggregate fair value of $6,576 at December 31, 2008. The Company’s marketable securities include mortgage-backed securities with an aggregate cost of $75,321 and an aggregate fair value of $76,983 at December 31, 2008. The Company’s restricted investments include mortgage-backed securities with an aggregate cost of $4,953 and an aggregate fair value of $5,043 at December 31, 2008. 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’s net proceeds, realized gains and realized losses from its investments are as follows:

	Year Ended December 31,
	2008			2007			2006
Net proceeds on sale of investments prior to maturity	$	237,861		$	123,522		$	334,250
Realized gains		34,113			494			14,888
Realized losses		(494	)		(439	)		(767	)

Realized gains and losses related to the Company’s short-term investments, marketable securities and restricted 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. Realized gains shown above also include gains related to the sale of long-term equity investments, which are shown separately on the consolidated statement of operations.

During 2008, 2007 and 2006, the Company recognized interest income of $22,406, $32,983 and $27,316 respectively, in investment income.

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

Principal Agreements

Agreement with Novartis

During 2006, the Company entered into an agreement with Novartis International Pharmaceutical Ltd. (“Novartis”) for the co-development and commercialization of Albuferon^®. Under the agreement, the Company and Novartis will co-commercialize Albuferon in the United States, and will share U.S. commercialization costs and U.S. profits equally. Novartis will be responsible for commercialization outside the U.S. and will pay the Company a royalty on those sales. The Company will have primary responsibility for the bulk manufacture of Albuferon, and Novartis will have primary responsibility for commercial manufacturing of the finished drug product. The Company is entitled to payments aggregating approximately $507,500, including a non-refundable up-front license fee, upon the

F-17

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)

Principal Agreements (continued)

Agreement with Novartis (continued)

successful attainment of certain milestones. The Company and Novartis will share clinical development costs. The Company is recognizing a 2006 up-front license fee of $45,000 as revenue over the clinical development period, estimated to end in 2010. Including the up-front fee, as of December 31, 2008, the Company has contractually earned and received payments aggregating $132,500. The Company is recognizing these payments as revenue ratably over the estimated remaining development period. The Company recognized revenue of $35,408, $28,039 and $7,090 in 2008, 2007 and 2006, respectively, under this agreement.

Agreements with GlaxoSmithKline (formerly SmithKline Beecham Corporation)

During 2006, the Company entered into a license agreement with GlaxoSmithKline (“GSK”) for the co-development and commercialization of LymphoStat-B arising from an option GSK exercised in 2005, relating to an earlier collaboration agreement, described more fully below. The agreement grants GSK a co-development and co-commercialization license, under which both companies will jointly conduct activities related to the development and sale of products in the United States and abroad. The Company and GSK will share Phase 3 and 4 development costs, sales and marketing expenses and profits of any product commercialized under the agreement. The Company is conducting Phase 3 clinical trials with assistance from GSK, and will have primary responsibility for bulk manufacturing. In partial consideration of the rights granted to GSK in this agreement, the Company received a non-refundable payment of $24,000 during 2006 and is recognizing this payment as revenue over the remaining clinical development period, estimated to end in 2010. The Company recognized revenue of $6,545, $6,545 and $2,727 in 2008, 2007 and 2006, respectively, relating to this payment.

The LymphoStat-B agreement arises from a 1993 agreement, as amended, in which the Company entered into a collaboration agreement providing GSK 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”).

With respect to the Company’s rights 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. If the Company were to exercise its option to co-promote any GSK Products, it would be entitled to receive additional amounts from GSK in proportion to its level of co-promotion. 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.

During 2005, GSK exercised its option under an earlier collaboration agreement to develop and commercialize HGS-ETR1 jointly with the Company. During 2008, the Company reacquired GSK’s rights to TRAIL Receptor antibodies (including rights to HGS-ETR1 and HGS-ETR2) from GSK, in exchange for a reduction in potential future royalties due to the Company for a product currently being developed by GSK. The Company determined the fair value of the rights reacquired by estimating a probability-weighted net present value of the future cash stream of such rights. The transaction was accounted for in accordance with Accounting Principles Board Opinion No. 29, Accounting for Nonmonetary Transactions, as amended by SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment to APB Opinion No. 29. Both the rights reacquired and the royalty concessions related to in-process research and development projects. Therefore, no assets or liabilities were recorded as part of this transaction and no gain or loss was recorded.

In 2004, the Company entered into an agreement with GSK under which GSK acquired exclusive worldwide rights to develop and commercialize Syncria^®, a drug that had been in late-stage preclinical development by the Company

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)

Principal Agreements (continued)

Agreements with GlaxoSmithKline (formerly SmithKline Beecham Corporation) (continued)

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 as revenue each year in the three year period ended December 31, 2008. In 2006, the Company received and recognized as revenue $6,000 from GSK in connection with development milestones met by GSK during the year. The Company also received and recognized $1,000 as revenue in 2006 in connection with the sale of clinical material to GSK. Subsequent to December 31, 2008, GSK announced initiation of a Phase 3 trial of Syncria. The Company will receive a $9,000 milestone payment under this agreement related to this milestone.

License Agreement and Manufacturing Services Agreement with Teva Biopharmaceuticals USA, Inc. (formerly CoGenesys)

In 2008, Teva Pharmaceuticals Industries, Ltd. (“Teva”) acquired all of the outstanding stock of CoGenesys and CoGenesys became a wholly-owned subsidiary of Teva called Teva Biopharmaceuticals USA, Inc. (“Teva Bio”). The Company sold its CoGenesys division in 2006 and entered into a license agreement, as amended, that is now with Teva Bio. This agreement provides the Company with various milestone and royalty rights on certain products, the option to reestablish development rights to certain licensed products and the option to have Teva Bio conduct certain drug development activities on the Company’s behalf. Teva Bio can obtain additional product rights by extending the initial seven-year research term upon the payment of additional consideration. In addition, the Company entered into a three-year manufacturing services agreement, as amended, that is now with Teva Bio to provide certain services. The Company allocated, based on estimated fair values, $7,575 of its consideration received upon the initial sale of CoGenesys to the product license and manufacturing services agreement, which is being recognized ratably over the term of the manufacturing services agreement, as amended. The Company recognized license revenue of $2,525, $2,525 and $1,473 during the years ended December 31, 2008, 2007 and 2006, respectively, and manufacturing services revenue of $367, $278 and $437 during the years ended December 31, 2008, 2007 and 2006, respectively, relating to these agreements, which represents related party revenue in 2007 and 2006. See Note P, Teva Biopharmaceuticals USA, Inc. (formerly CoGenesys), for additional discussion.

Collaboration reimbursements with respect to Novartis and GSK

The Company’s research and development expenses in 2008 of $242,710 are net of $36,104 and $51,783 of costs reimbursed by Novartis and GSK, respectively. Research and development expenses of $245,745 in 2007 were net of $46,508 and $39,301 of costs reimbursed by Novartis and GSK, respectively. Research and development expenses of $209,242 in 2006 were net of $22,926 and $10,199 reimbursed by Novartis and GSK, respectively. The Company shares certain research and development costs including personnel costs, outside services, manufacturing, and overhead with Novartis and GSK under cost sharing provisions in the collaboration agreements. See Note E, Collaboration Receivables, for additional discussion.

U.S. Government Agreement

During 2006, the United States Government (“USG”) exercised its option under the second phase of a 2005 contract to purchase 20,001 therapeutic courses of ABthrax for its Strategic National Stockpile. Under this two-phase contract, the Company will supply ABthrax, a human monoclonal antibody developed for use in the treatment of anthrax disease, to the USG. 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. In 2006, the Company received and recognized $308 of revenue relating to the completion of testing of the evaluation material. Along with the cost to manufacture the 20,001 therapeutic courses, the Company has incurred the cost to conduct several animal and human studies as part of this contract. The USG is only required to pay the Company for

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)

Principal Agreements (continued)

U.S. Government Agreement (continued)

this work or to purchase ABthrax if the Company meets the product requirements associated with this contract. In January 2009, the Company began delivery of the product to the U.S. Strategic National Stockpile and expects to complete delivery and recognize over $150,000 in revenue in 2009 and the remainder if the Company obtains licensure by FDA and HHS.

Other Collaborative and License Agreements

During 2007, the Company entered into a collaboration and license agreement with Aegera Therapeutics, Inc. (“Aegera”) of Montreal, Canada under which the Company acquired exclusive worldwide rights (excluding Japan) to develop and commercialize certain oncology molecules and related backup compounds to be chosen during a three-year research period. Under the agreement, the Company paid Aegera an aggregate of $20,000 for the license and for an equity investment in Aegera. The Company allocated $16,852 to the license fee and $3,148 to the investment. The value per share assigned to this investment was equal to the value per share obtained by Aegera through external financing earlier in 2007. Aegera will be entitled to receive up to $295,000 in future development and commercial milestone payments, including a $5,000 milestone payment made by the Company during the year ended December 31, 2008. The Company also paid Aegera $1,875 in 2008 for research services. Aegera will receive royalties on net sales in the Company’s territory. In North America, Aegera will have the option to co-promote with the Company, under which it will share certain expenses and profits in lieu of its royalties. At December 31, 2008 the Company continues to hold its investment in Aegera, valued at $2,587 based on year-end exchange rates.

In 1999, the Company entered into a collaborative agreement with CAT of Melbourn, United Kingdom to jointly pursue the development of fully human monoclonal antibody therapeutics. 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. In the event of the achievement of other milestones or successful product launch, the Company would be obligated to pay CAT additional compensation. Since 1999, the Company has exercised one option and made certain payments. In 2006, the Company incurred and subsequently paid a milestone obligation to CAT of $1,500 pursuant to the development of one product.

In 2000, the Company entered into a second agreement with CAT. The 2000 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 will pay CAT clinical development milestones and royalties based on product sales. Under this same agreement, the Company paid CAT $12,000 for research support and made an equity investment in CAT. Prior to 2006, the Company had sold a portion of its equity investment in CAT and in 2006, sold the remaining portion of its equity investment. Since 2000, the Company has exercised several options and made certain payments. No option or milestone payments were made in 2008, 2007 or 2006. During 2009, the Company expects to pay CAT approximately $8,865 in milestone and royalty payments associated with the sale of ABthrax to the U.S. Government.

F-20

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(NOTE E) — Collaboration Receivables

Collaboration receivables of $24,880 includes $21,233 in unbilled receivables from Novartis and GSK in connection with the Company’s cost-sharing agreements, and other billed and unbilled receivables. The $21,233 in unbilled receivables relates to net cost reimbursements due for the three months ended December 31, 2008.

(NOTE F) — Property, Plant and Equipment

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

	December 31,
	2008			2007
Building (Large-Scale Manufacturing Facility)	$	187,737		$	187,737
Laboratory and production equipment		88,226			82,836
Computer equipment and software		36,249			33,761
Land and improvements		30,521			30,521
Leasehold improvements		23,932			22,589
Furniture and office equipment		6,007			5,908
Construction-in-progress		3,793			3,419
		376,465			366,771
Less: accumulated depreciation and amortization		(117,196	)		(97,967	)
	$	259,269		$	268,804

Depreciation expense was $19,036, $19,800 and $17,825 for the years ended December 31, 2008, 2007 and 2006, respectively.

(NOTE G) — Other Assets

Other assets are comprised of the following:

	December 31,
	2008		2007
Deferred financing costs, net of accumulated amortization of $8,853 and $6,539, as of December 31, 2008 and 2007, respectively	$	8,808	$	11,122
Other assets		315		2,735
	$	9,123	$	13,857

Deferred financing costs were incurred in connection with the Company’s convertible subordinated debt offerings during 2005 and 2004. Debt issuance costs for the $510,000 of convertible subordinated debt outstanding as of December 31, 2008 amounted to approximately $17,661, representing primarily underwriting fees of approximately 3% of the gross amount of the convertible subordinated debt, and are being amortized on a straight-line basis to interest expense which approximates the effective interest method over the life of the convertible subordinated debt. See Note I, Long-Term Debt, for additional discussion of the Company’s convertible subordinated debt.

F-21

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(NOTE H) — Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses are comprised of the following:

	December 31,
	2008		2007
Clinical trial costs	$	40,212	$	46,848
Accrued expenses and fixed asset purchases		6,091		6,844
Professional fees		5,878		5,940
Accrued interest		3,253		3,244
	$	55,434	$	62,876

Accrued clinical trial costs consist primarily of investigator fees, contract research organization (“CRO”) services and laboratory costs, primarily associated with the Company’s Phase 3 studies.

(NOTE I) — Long-Term Debt

The components of long-term debt are as follows:

						December 31,
Debt	Interest Rate			Maturities		2008		2007
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		230,000
							510,000		510,000
BioMed lease financing		11.0	%		May 2026		246,477		244,099
							756,477		754,099
Less current portion							—		—
						$	756,477	$	754,099

Annual maturities of all long-term debt (representing cash to be paid) are as follows:

2009	$	—
2010		—
2011		280,000
2012		230,000
2013		—
2014 and thereafter		52,961
	$	562,961

The difference between the long-term debt of $756,477 and annual maturities of $562,961 is due to the accounting for the sale-leaseback of the LSM facility as a financing transaction. During 2006, the Company entered into a purchase and sale agreement with BioMed in connection with the Company’s Traville headquarters and LSM facilities. As more fully described in Note N, Facility-Related Exit Costs, the Company accounted for the sale-leaseback of certain facilities as a financing transaction. Payments due for the BioMed debt resulting from this financing are based upon an allocation of fair value of the properties included in the transaction. Aggregate lease financing payments, including interest, over the remaining seventeen year period are approximately $495,097, including an annual lease escalation of 2%. Interest expense associated with this debt is being calculated at approximately 11%, which approximated the Company’s incremental borrowing rate at the time of the agreement. For the first nine years of the leases, the payments are less than the amount of calculated interest expense, which

F-22

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(NOTE I) — Long-Term Debt (continued)

results in an increase in the debt balance during this period, reaching $254,699 in 2015. Accordingly, the Company has classified the full amount of the debt outstanding as of December 31, 2008 as long-term. Beginning in 2015, the payments begin to reduce the debt balance and are reflected in the annual maturities shown herein. At the end of the twenty-year leases, the remaining debt will be approximately $201,737. The Company has the option to purchase the LSM facility between 2009 and 2010 at prices ranging between $254,900 and $269,500, depending upon when the Company exercises the option.

During 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. Accumulated amortization of the debt issuance costs is approximately $5,250 and $4,015 as of December 31, 2008 and 2007, 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, 2008, the maximum premium possible is approximately $55,720, or approximately 19.9% of the aggregate face value of 21/4% Notes due 2011 outstanding, in the event a qualified change in control occurs with a stock price of $16.00 per share at such date. If the stock price on the effective date of a change in control is less than $11.105 per share or greater than $55.00 per share, no premium will be paid.

During 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, which are being amortized on a straight-line basis, which approximates the effective interest method, over the life of the 21/4% Notes due 2012. Accumulated amortization of the debt issuance costs is approximately $3,313 and $2,347 as of December 31, 2008 and 2007, respectively. 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 $38,333, or approximately 17% of the aggregate face value of 21/4% Notes due 2012 outstanding, in the event a qualified change in control occurs with a stock price of $14.82 per share at such date. If the stock price on the effective date of a change in control is less than $14.82 per share or greater than $100.00 per share, no premium will be paid.

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

	December 31,
	2008				2007
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
2.25% Convertible Subordinated Notes due 2011	$	280,000	$	86,800	$	280,000	$	266,000
2.25% Convertible Subordinated Notes due 2012		230,000		57,500		230,000		198,950
BioMed lease financing		246,477		306,446		244,099		244,099
	$	756,477	$	450,746	$	754,099	$	709,049

F-23

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(NOTE I) — Long-Term Debt (continued)

In February 2009, the Company repurchased approximately $82,900 of the 21/4% Notes due 2011 and $23,300 of the 21/4% Notes due 2012 at an aggregate cost of approximately $50,000 plus accrued interest.

With respect to 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 Notes are not redeemable prior to maturity, but can be repurchased by the Company on the open market.

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.

The Company is required to maintain restricted investments of at least $46,000, or $39,500 if in the form of cash, in order to satisfy the security deposit requirements of the BioMed lease financing. This lease financing contains no financial covenants or sinking fund requirements.

The fair value of the BioMed lease financing is determined using a discounted cash flow analysis and current rates for corporate debt having similar characteristics and companies with similar credit worthiness. The Company concluded that its incremental borrowing rate has increased, resulting in an increase in the fair value of the debt to $306,446.

(NOTE J) — Commitments and Other Matters

Leases

The Company leases office and laboratory premises and equipment pursuant to operating leases expiring at various dates through 2026. The leases contain various renewal and cancellation options. Minimum annual rentals are as follows:

	Gross					Net
	Operating		Sublease			Operating
Year Ending December 31,	Leases		Income			Leases
2009	$	21,495	$	(4,555	)	$	16,940
2010		21,754		(4,646	)		17,108
2011		22,011		(4,342	)		17,669
2012		22,371		—			22,371
2013		22,739		—			22,739
2014 and thereafter		288,495		—			288,495
	$	398,865	$	(13,543	)	$	385,322

The gross operating lease commitment of $398,865 includes lease payments associated with the Company’s lease with BioMed for its Traville headquarters. As more fully described in Note N, Facility-Related Exit Costs, during 2006 the Company entered into a lease with BioMed for its Traville headquarters following the termination of the Company’s Traville lease with its former lessor. Based upon an allocation of fair value, the initial annual rent for Traville was approximately $16,653. The aggregate rental payments over the remaining lease term are approximately $360,886, including an annual escalation of 2%. The Company has an option to purchase the Traville facility in 2016 for $303,000. There are no financial covenants with respect to the BioMed lease.

As part of its agreement with BioMed, the Company agreed it would exercise purchase options with respect to certain equipment currently used at the Traville facility at the end of the applicable equipment lease terms. The equipment is subject to several operating leases with an unrelated party. During 2008, the Company exercised the purchase option with regard to certain leases at a cost of approximately $4,200, and will exercise the purchase option related to the remaining leases in 2009 at an estimated cost of $5,200. The Company will transfer ownership

F-24

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

Leases (continued)

of this facility-related equipment to BioMed at the earlier of the end of the Traville lease term or certain other pre-specified events.

The Company has entered into two long-term leases with the Maryland Economic Development Corporation (“MEDCO”) expiring January 1, 2019 for a small-scale manufacturing facility aggregating 127,000 square feet and built to the Company’s specifications. The Company has accounted for these leases as operating leases. The facility was financed primarily through a combination of bonds issued by MEDCO (“MEDCO Bonds”) and loans issued to MEDCO by certain State of Maryland agencies. The Company has no equity interest in MEDCO.

Rent is based upon MEDCO’s debt service obligations and annual base rent under the leases currently is approximately $3,765. The MEDCO Bonds are secured by letters of credit issued for the account of MEDCO which expire in December 2009. MEDCO’s debt service obligations may be affected by prevailing interest rate and credit conditions in 2009, which could in turn affect the Company’s rent and the level of the Company’s restricted investments. The Company has restricted investments of approximately $15,700 and $15,000 as of December 31, 2008 and 2007, respectively, associated with these leases which serve as additional security for the MEDCO letters of credit reimbursement obligation. Upon default or early lease termination or in the event the letters of credit will not be renewed, the MEDCO Bond indenture trustee can draw upon the letters of credit to pay the MEDCO Bonds as they are tendered. In such an event, the Company could lose part or all of its restricted investments and could record a charge to earnings for a corresponding amount. Alternatively, the Company has an option during or at the end of the lease term to purchase this facility for an aggregate amount that declines from approximately $38,000 in 2009 to approximately $21,000 in 2019. 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. During 2007 the Company increased its restricted investments to $15,000 as an alternative compliance action with respect to the tangible net worth covenant contained in the lease agreements. The Company has complied with all debt covenants as of December 31, 2008.

See Note C, Investments, for additional discussion of the Company’s restricted investments.

During 2007, the Company entered into an agreement to sublease a portion of its headquarters facility to MedImmune, Inc. (“MedImmune”), now a wholly-owned subsidiary of AstraZeneca, Inc. The terms of the sublease include an initial term ending in 2011 and an option period exercisable by the subtenant to extend the sublease for one, two or three additional years. Sublease income for the remaining initial term is approximately $4,555, $4,646 and $4,342 for 2009, 2010 and 2011, respectively.

The Company’s leases for office and laboratory space provide for certain 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 $6,718 and $4,734 at December 31, 2008 and 2007, respectively.

The Company’s lease agreement with its former Traville lessor, Wachovia Development Corporation (“WDC”), contained a residual value guarantee of 87.75% of the total financed cost at lease termination. Based upon the results of an appraisal conducted in connection with the BioMed transaction, the Company accounted for $15,000 of the $200,000 paid in 2006 by BioMed to the former lessor in connection with the Company’s exercise of its purchase option under the former lease as a residual value guarantee payment, which is included in Lease termination and restructuring charges (credits) on the consolidated statements of operations.

In accordance with the provisions of FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of the Indebtedness of Others, the Company had recorded the estimated fair market value of the maximum residual value guarantee of the Traville lease during 2003. The Company estimated the fair market value of the guarantee as approximately $4,380 and had been amortizing

F-25

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

Leases (continued)

this amount on a straight-line basis over the term of the lease. As of the date of the WDC lease termination in 2006, the Company wrote off the unamortized amount of approximately $2,533.

The Company has entered into various sale-leaseback transactions resulting in equipment leases with rental and buy-out payments, with initial terms ranging from five to seven years. The Company may purchase the equipment at the end of the initial term at the greater of fair market value or 20% of original cost or extend the term of the lease for an additional twelve to nineteen months. The Company has accounted for these leases as operating leases. Under the leases, the Company must maintain minimum levels of unrestricted cash, cash equivalents and marketable securities and minimum levels of net worth. During 2007, the Company amended certain of these leases to eliminate the minimum net worth covenant and adjust the minimum levels of unrestricted cash, cash equivalents and marketable securities required under the leases. The Company also pledged collateral of approximately $7,585 to one of the lessors to satisfy the minimum net worth covenant associated with certain leases. During 2008, approximately $4,877 of this additional collateral was released, as the lease terms of the related leases expired and the Company exercised its purchase option. The remaining collateral is included in restricted investments on the consolidated balance sheets.

Rent expense aggregated $27,588, $29,461 and $29,724 for the years ended December 31, 2008, 2007 and 2006, respectively.

Capital Expenditures

At December 31, 2008 the Company had commitments for capital expenditures, consisting primarily of manufacturing and laboratory equipment, of approximately $7,134.

401(k) Plan

The Company has adopted a 401(k) pension plan available to eligible full-time employees. Participating employees may contribute up to 100% of their total eligible compensation to the plan, subject to Internal Revenue Service limitations. The Company currently matches a portion of the employee contributions. The Company contribution was $1,945, $1,740 and $1,365 for the years ended December 31, 2008, 2007 and 2006, respectively.

Contingent Liabilities

In the normal course of business, the Company is periodically subject to various tax audits. The Company accrued approximately $400 with respect to non-income tax related audits as of December 31, 2007. During 2008, the Company paid approximately $300 to resolve its open audits and has no accrual related to these audits as of December 31, 2008.

The Company is party to various claims and legal proceedings from time to time. The Company is not aware of any legal proceedings that it believes could have, individually or in the aggregate, a material adverse effect on its results of operations, financial condition or liquidity.

During 2008, the Company settled certain patent proceedings which resulted in an aggregate charge of approximately $2,200 to general and administrative expenses.

F-26

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(NOTE K) — Stockholders’ Equity

Stock-based Compensation Plans

The Company has two stock-based compensation plans as described below. The following is a summary of the stock-based compensation expense that has been recorded in the consolidated statements of operations for the years ended December 31, 2008, 2007 and 2006, respectively:

	Year Ended December 31,
	2008		2007		2006
Employee stock option and employee stock purchase plan compensation expense	$	17,630	$	20,691	$	26,095
Restricted stock awards		316		530		511
Restricted stock units		647		470		—
Total	$	18,593	$	21,691	$	26,606

No income tax benefit was recognized in the income statement for stock-based compensation for the years presented as realization of such benefits was not more likely than not.

Stock Incentive Plan

The Company has an Incentive Plan under which options to purchase new shares of the Company’s common stock may be granted to employees, consultants and directors at an exercise price no less than the quoted market value on the date of grant. The Incentive Plan also provides for awards in the form of stock appreciation rights, restricted (non-vested) or unrestricted stock awards, stock-equivalent units or performance-based stock awards. The Company issues both qualified and non-qualified options under the Incentive Plan. The vesting period of the options is determined by the Board of Directors and is generally four years. Upon acquisition by a person, or group of persons, of more than 50% of the Company’s outstanding common stock, outstanding options shall immediately vest in full and be exercisable. The Company recognizes compensation expense for an award with only service conditions that has a graded vesting schedule on a straight-line basis over the requisite service period for the entire award. All options expire after ten years or earlier from the date of grant.

At December 31, 2008, the total authorized number of shares under the Incentive Plan, including prior plans, was 53,228,746. Options available for future grant were 7,106,184 as of December 31, 2008.

F-27

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(NOTE K) — Stockholders’ Equity (continued)

Stock-based Compensation Plans (continued)

Stock Incentive Plan (continued)

A summary of stock option activity for the year ended December 31, 2008 is as follows:

				Weighted-		Weighted-Average
				Average		Remaining		Aggregate
				Exercise		Contractual Term		Intrinsic
	Shares			Price		(Years)		Value(1)
Outstanding at January 1, 2008		28,121,529		$	17.44		5.47
Granted		4,563,966			5.31
Exercised		(364,236	)		9.45			$	720
Forfeited		(477,114	)		9.22
Expired		(3,470,994	)		20.12
Outstanding at December 31, 2008		28,373,151			15.40		5.71		27
Vested or expected to vest at December 31, 2008		27,264,831			15.71		4.18		23
Exercisable at December 31, 2008		20,971,979			18.04		4.69

(1) Aggregate intrinsic value represents only the value for those options in which the exercise price of the option is less than the market value of the Company’s stock on December 31, 2008, or for exercised options, the exercise date.

The following table summarizes information about stock options outstanding at December 31, 2008:

	Options Outstanding						Options Exercisable
			Weighted-
			Average
			Remaining		Weighted-Average				Weighted-Average
	Number		Contractual		Exercise		Number		Exercise
Range of Exercise Price	Outstanding		Life (In Years)		Price		Exercisable		Price
$1.31 to $10.00		7,254,070		7.51	$	6.79		3,092,722	$	8.33
$10.01 to $12.50		10,877,073		6.69		11.07		7,861,521		11.20
$12.51 to $15.00		5,031,623		4.93		12.79		4,809,707		12.78
$15.01 to $20.00		795,165		3.51		17.14		792,809		17.15
$20.01 to $86.19		4,415,220		1.59		42.91		4,415,220		42.91
		28,373,151		5.71		15.40		20,971,979		18.04

During 2004, the Company modified the stock option agreements for certain key officers by extending the standard post-employment exercise period and, for one former key officer, also extending vesting beyond the date of termination. In the event any of the key officers’ employment is terminated under certain circumstances, the key officer could receive the benefit of the modification provision and the Company would record an aggregate compensation charge of up to $729 for any modified options still outstanding as of the date of termination. No compensation charge has been recorded as of December 31, 2008 for the remaining 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.

During the years ended December 31, 2008, 2007 and 2006, the Company issued 364,236, 968,501 and 2,634,029 shares of common stock, respectively, in conjunction with stock option exercises. The Company

F-28

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(NOTE K) — Stockholders’ Equity (continued)

Stock-based Compensation Plans (continued)

Stock Incentive Plan (continued)

received cash proceeds from the exercise of these stock options of approximately $3,443, $7,149 and $22,573, respectively, for the years ended December 31, 2008, 2007 and 2006.

As of December 31, 2008, total unrecognized compensation cost related to stock options amounted to $25,587, which is expected to be recognized over a weighted-average period of 2.5 years as the options vest. There were non-vested stock options outstanding for 7,401,172 shares at December 31, 2008.

The total intrinsic value of stock options exercised during the years ended December 31, 2008, 2007 and 2006 was approximately $720, $3,244 and $9,111 respectively. The total fair value of stock options which vested during the years ended December 31, 2008, 2007 and 2006 was approximately $17,078, $21,420 and $28,419 respectively. The weighted-average grant-date fair value of stock options granted during the years ended December 31, 2008, 2007 and 2006 was $2.25, $4.55 and $4.99 per share, respectively.

The fair values of employee stock options granted during the years ended December 31, 2008, 2007 and 2006 were determined based on the Black-Scholes-Merton option-pricing model using the following range of assumptions:

	Years Ended December 31,
	2008	2007	2006
Expected life:
Stock options	5.4 years	5.0 years	4.9 years
Employee stock purchase plan rights	1.0 years	1.0 years	1.0 years
Interest rate	1.2% - 3.6%	3.4% - 4.9%	4.3% - 5.1%
Volatility	41.9% - 57.3%	40.3% - 48.0%	38.0% - 48.0%
Dividend yield	0%	0%	0%

An explanation of the above assumptions is as follows:

Expected Life of Stock-based Awards — The expected life of stock-based awards is the period of time for which the stock-based award is expected to be outstanding. This estimate is based on historical exercise data.

Interest Rate — The risk-free rate over the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

Volatility — Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (implied volatility) during a period. The Company uses the implied volatility of its traded convertible notes as the sole basis for its expected volatility. The weighted average volatility used was 43.7%, 43.9% and 44.4% for 2008, 2007 and 2006, respectively.

Dividend Yield — The Company has never declared or paid dividends and has no plans to do so in the foreseeable future.

Restricted Stock

Under the Incentive Plan, the Company has granted both restricted stock awards and restricted stock units (“RSUs”). Beginning in 2007, employees of the Company could elect to receive RSUs in lieu of a portion of their stock option grants. RSUs have service conditions and vest ratably on an annual basis over a four-year period. During 2008, the Company awarded 78,608 RSUs at a weighted-average grant date fair value of $4.92 per share. During 2008, 36,500 previously granted restricted stock awards vested and the remaining 48,000 were cancelled. The Company incurred $963, $1,000 and $511 of compensation expense for the years ended December 31, 2008, 2007 and 2006, respectively, related to both RSUs and restricted stock awards.

F-29

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(NOTE K) — Stockholders’ Equity (continued)

Stock-based Compensation Plans (continued)

Stock Incentive Plan (continued)

Restricted Stock (continued)

A summary of the status of the Company’s restricted stock as of December 31, 2008 and changes during the year ended December 31, 2008, is presented below:

				Weighted-Average
				Grant-Date Fair
	Shares			Value
Restricted stock at January 1, 2008		324,987		$	11.21
Granted		78,608			4.92
Vested		(96,204	)		11.61
Forfeited		(69,415	)		11.56
Restricted stock at December 31, 2008		237,976			8.87
Expected to vest at December 31, 2008		207,039			8.87

Stock-based compensation expense under SFAS No. 123(R) for the years ended December 31, 2008, 2007 and 2006 is not necessarily representative of the level of stock-based compensation expense under SFAS No. 123(R) in future years due to, among other things, (1) the vesting period of the stock-based compensation and (2) the number and fair value of additional stock-based grants in future years.

Employee Stock Purchase Plan

In 2000, the Company’s stockholders approved the establishment of an Employee Stock Purchase Plan (the “Purchase Plan”) registering 500,000 shares of $0.01 par value common stock for issuance under this plan. During 2007, the Company’s stockholders approved the adoption of an amended and restated Purchase Plan, under which 500,000 additional shares of common stock were made available for purchase. In December 2008 the Board of Directors approved an amendment to the Purchase Plan to increase the number of shares available by 1,000,000 shares, subject to stockholder approval at the 2009 Annual Meeting. Under the Purchase Plan, eligible employees may purchase shares of common stock on certain dates and at certain prices as set forth in the plan. The common stock is purchased under the Purchase Plan at a discounted rate, currently at 15%, which results in this plan qualifying as compensatory. The first purchase period for the Purchase Plan began January 1, 2001. During the year ended December 31, 2008, the Company issued 356,011 shares of common stock pursuant to the Purchase Plan and recorded compensation cost of approximately $300. The weighted-average fair value of the employee stock purchase plan rights granted during 2008, 2007 and 2006 was $0.84, $2.19 and $1.98 per share, respectively. Common stock reserved for future employee purchase under the Purchase Plan aggregated 44,559 shares as of December 31, 2008. There are no other investment options for participants.

(NOTE L) — 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. The Rights expired on May 20, 2008.

F-30

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(NOTE M) — 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,
	2008			2007			2006
Federal income tax provision at 34%	$	(83,271	)	$	(89,232	)	$	(85,399	)
Change in state income tax rate		—			(15,762	)		—
State taxes, net of federal tax benefit		(12,857	)		(11,638	)		(11,041	)
Tax credits, principally for research and development		(3,500	)		(2,911	)		(7,305	)
Stock option deduction for which no book benefit is available		—			—			—
Other		3,447			3,585			4,146
Increase in valuation allowance on deferred tax asset		96,181			115,958			99,599
	$	—		$	—		$	—

The increase in valuation allowance as reported above excludes the change in valuation allowance associated with the net deferred tax asset recorded in connection with the net unrealized (gains) losses on investments, as such amounts are recorded as a component of other comprehensive loss.

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, 2008
Net operating loss carryforward	$	—		$	768,037
Research and development and other tax credit carryforwards		—			33,469
Capital loss carryforward		—			289
Deferred revenue		17,256			11,661
Facility exit charge		—			4,518
Net unrealized losses on investments		—			1,805
Intangible assets		394			4,996
Equity based compensation		—			11,864
Depreciation		—			8,352
Reserves and accruals		7,964			10,555
Other		—			379
		25,614			855,925
Less valuation allowance		(25,614	)		(855,925	)
	$	—		$	—

F-31

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(NOTE M) — Income Taxes (continued)

	Current			Long-Term
	Asset			Asset/(Liability)
December 31, 2007
Net operating loss carryforward	$	—		$	651,745
Research and development and other tax credit carryforwards		—			30,218
Capital loss carryforward		—			13,528
Deferred revenue		17,837			28,814
Facility exit charge		—			5,067
Net unrealized gains on investments		—			(1,205	)
Intangible assets		394			5,391
Equity based compensation		—			8,700
Depreciation		—			5,189
Reserves and accruals		2,857			11,984
Other		—			2,081
		21,088			761,512
Less valuation allowance		(21,088	)		(761,512	)
	$	—		$	—

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,
	2008		2007		2006
Current:
Federal		$—		$—		$—
State		—		—		—
Foreign taxes		—		—		—
Deferred		—		—		—
		$—		$—		$—

The Company has available tax credit carryforwards of approximately $33,469 which expire, if unused, from the year 2009 through the year 2028. The Company has net operating loss (“NOL”) carryforwards for federal income tax purposes of approximately $1,953,323 which expire, if unused, from the year 2009 through the year 2028. The Company’s ability to utilize these NOLs may be limited under Internal Revenue Code Section 382. The tax benefit of approximately $249,049 of NOLs related to stock options will be credited to equity when the benefit is realized through utilization of the NOL carryforwards.

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109 (“FIN 48”), on January 1, 2007. The Company had no unrecognized tax benefits as of January 1, 2007 and provides a full valuation allowance on the net deferred tax asset recognized in the consolidated financial statements. As a result, the adoption of FIN 48 effective January 1, 2007 had no effect on the Company’s financial position as of such date, or on net operating losses available to offset future taxable income.

F-32

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(NOTE M) — Income Taxes (continued)

The Company recognizes interest and penalties related to uncertain tax positions, if any, in income tax expense. As of December 31, 2008 and 2007, the Company did not accrue any interest related to uncertain tax positions. The Company’s income taxes have not been subject to examination by any tax jurisdictions since its inception. Accordingly, all income tax returns filed by the Company are subject to examination by the taxing jurisdictions.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

	2008			2007
Balance as of January 1	$	29,611		$	28,641
Gross increases (decreases) related to prior year tax positions		(496	)		—
Gross increases related to current year tax positions		1,167			970
Balance as of December 31	$	30,282		$	29,611

The Company believes that any of its uncertain tax positions would not result in adjustments to its effective income tax rate because likely corresponding adjustments to deferred tax assets would be offset by adjustments to recorded valuation allowances.

(NOTE N) — Facility-Related Exit Costs

During 2006, the Company entered into and completed a purchase and sale agreement of its Traville headquarters and related land and LSM facility with BioMed. Under the terms of this agreement, BioMed paid the Company $225,000 for the Traville land, representing developed and undeveloped land, and the LSM facility, and BioMed paid WDC $200,000 for the Traville facility. The Company obtained an appraisal of these assets in order to properly determine the consideration received as well as to allocate the Company’s future lease payments due to BioMed under a sale-leaseback arrangement.

With respect to the Traville facility, the Company exercised its option under its lease with WDC to acquire the Traville facility for a fixed price of $200,000 and the Company assigned that option to BioMed Realty, LP, a wholly-owned BioMed subsidiary. BioMed paid WDC $200,000 to purchase the Traville facility, at which time WDC terminated its lease with the Company, including its residual value guarantee and released the Company’s restricted investments of approximately $204,500 that served as collateral under the lease. The Company recorded a non-cash lease termination expense of $15,000, which represented the difference between the $200,000 obligation BioMed paid to WDC and the facility’s appraised fair value of $185,000. This expense, along with transaction costs of approximately $1,840, aggregating $16,840 is included in the lease termination and restructuring charges (credits) in the consolidated statement of operations for the year ended December 31, 2006.

See Note I, Long-term Debt and Note J, Commitments and Other Matters, for additional discussion.

During 2007, the Company entered into an agreement to sublease a portion of its headquarters facility to MedImmune. The terms of the sublease include an initial term ending in 2011 and an option period exercisable by the subtenant to extend the sublease for one, two or three additional years. The Company exited this space in 2006 and recorded a charge of $9,156, net of estimated sublease income, pursuant to SFAS No. 146, Accounting for Costs Associated with Exit Or Disposal Activities. The charge of $9,156 represented the present value of the excess of future payments for the portion of the facility over estimated sublease income and an impairment charge on certain fixed assets and leasehold improvements. The impairment charge was based on the net book value, which approximated fair value, of the assets and leasehold improvements at the time the Company exited the space. Upon execution of the sublease in 2007, no adjustment to the 2006 estimates of lease termination charges was required as the sublease income approximated the initial estimated sublease income.

In 2006, the Company consolidated certain of its operations from a laboratory building to its Traville headquarters space and the LSM and subleased the laboratory building. In conjunction with this exit, the Company recorded a charge of $3,514 relating to the estimated sublease loss and an impairment charge on certain fixed assets and

F-33

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(NOTE N) — Facility-Related Exit Costs (continued)

leasehold improvements relating to this space. The impairment charge was based on the net book value, which approximated fair value, of the assets and leasehold improvements at the time the Company exited the space. During 2007, the Company purchased the building from the landlord and subsequently sold it to BioMed. In conjunction with this purchase and sale, the Company reversed the remaining accrual related to its exit from the building of $1,969 and recognized a net gain on the purchase and sale of $1,704. The total gain of $3,673 is reflected as Lease termination and restructuring charges (credits) in the consolidated statement of operations.

The Company reviews its estimated exit cost accrual on an ongoing basis.

The following table summarizes the activity related to the liability for exit charges for the year ended December 31, 2008, all of which is facilities-related:

Balance as of January 1, 2008	$	6,644
Accretion recorded		466
Subtotal		7,110
Cash paid		(2,083	)
Balance as of December 31, 2008		5,027
Less current portion		(2,952	)
	$	2,075

(NOTE O) — Fair Value Measurements

Effective January 1, 2008, the Company adopted SFAS No. 157 for financial assets and liabilities. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. This standard does not apply to measurements related to share-based payments.

SFAS No. 157 discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The statement utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

Level 1:	Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2:	Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3:	Unobservable inputs that reflect the reporting entity’s own assumptions.

Active markets are those in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Inactive markets are those in which there are few transactions for the asset, prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly. With regard to the Company’s financial assets subject to fair value measurements, the Company believes that all of the assets it holds are actively traded because there is sufficient frequency and volume to obtain pricing information on an ongoing basis.

F-34

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(NOTE O) — Fair Value Measurements (continued)

The Company’s financial assets subject to fair value measurements and the related fair value hierarchy are as follows:

	Fair Value
	as of		Fair Value Measurements as of December 31, 2008
	December 31,		Using Fair Value Hierarchy
Description	2008		Level 1		Level 2		Level 3
Cash and cash equivalents	$	15,248	$	15,248	$	—	$	—
Short-term investments		22,691		782		21,909		—
Marketable securities		265,640		16,063		249,577		—
Long-term equity investment		19		19		—		—
Restricted investments		69,360		11,912		57,448		—
Total	$	372,958	$	44,024	$	328,934	$	—

The Company evaluates the types of securities in its investment portfolios to determine the proper classification in the fair value hierarchy based on trading activity and the observability of market inputs. The Company’s Level 1 assets include cash, money market instruments and U.S. Treasury securities. Level 2 assets include government-sponsored enterprise securities, commercial paper, corporate bonds, asset-backed securities, and mortgage-backed securities. The Company’s privately-held equity investment in Aegera is carried at cost and is not included in the table above, and is reviewed for impairment at each reporting date.

The Company generally obtains a single quote or price per instrument from independent third parties to help it determine the fair value of securities in Level 1 and Level 2 of the fair value hierarchy. The Company’s Level 1 cash and money market instruments are valued based on quoted prices from third parties, and the Company’s Level 1 U.S. Treasury securities are valued based on broker quotes. The Company’s Level 2 assets are valued using a multi-dimensional pricing model that includes a variety of inputs including actual trade data, benchmark yield data, non-binding broker/dealer quotes, issuer spread data, monthly payment information, collateral performance and other reference information. These are all observable inputs. The Company reviews the values generated by the multi-dimensional pricing model for reasonableness, which could include reviewing other publicly available information.

The Company does not hold auction rate securities, loans held for sale, mortgage-backed securities backed by sub-prime or Alt-A collateral or any other investments which require the Company to determine fair value using a discounted cash flow approach. Therefore, the Company does not need to adjust its analysis or change its assumptions specifically to factor illiquidity in the markets into its fair values.

The fair value of the Company’s convertible debt is based on quoted market prices. The quoted market price of the Company’s convertible debt is approximately $144,000 as of December 31, 2008. The Company evaluated its incremental borrowing rate as of December 31, 2008 based on the current interest rate environment and the Company’s credit risk. The fair value of the BioMed lease financing is $306,446 as of December 31, 2008, based on a discounted cash flow analysis and current rates for corporate debt having similar characteristics and companies with similar credit worthiness.

(NOTE P) — Teva Biopharmaceuticals USA, Inc. (formerly CoGenesys)

In 2008, Teva acquired all of the outstanding stock of CoGenesys, which became Teva Bio. CoGenesys had been a division of the Company until 2006, when the Company completed the sale of assets and concurrently entered into a license agreement and manufacturing services agreement.

As consideration for the assets conveyed, liabilities assumed and intellectual property licensed, the Company obtained equity in CoGenesys valued at $10,000 and additional equity valued at $4,818 as reimbursement for CoGenesys expenditures paid by the Company during the five months ended May 31, 2006. The Company received preferred stock, representing approximately a 14% equity interest (13% on a fully-diluted basis) in CoGenesys. The

F-35

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(NOTE P) — Teva Biopharmaceuticals USA, Inc. (formerly CoGenesys) (continued)

value per share assigned to this investment was equal to the value per share simultaneously obtained by CoGenesys through external funding. The Company sold assets having a net book value which approximated fair value of $3,032 and recorded no gain or loss on the sale, and CoGenesys assumed liabilities totaling $607. The residual consideration of $7,575 was allocated to the intellectual property license and manufacturing services agreement and is being recognized ratably over the term of the manufacturing services agreement, as amended. The Company recorded the CoGenesys cost reimbursement of $4,818 as a reduction of research and development expenses for the year ended December 31, 2006.

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

As a result of Teva’s acquisition of CoGenesys in 2008, the Company received $47,336 as partial payment for its equity investment in CoGenesys. The terms of the agreement between Teva and CoGenesys required an escrow account be established for 10% of the purchase price as security for CoGenesys’ representations, warranties, and covenants. Because the Company had no information concerning the likelihood of the terms of the escrow agreement being satisfied, the Company did not include any potential proceeds from escrow in the calculation of the gain on the sale of its investment in 2008. Subsequent to December 31, 2008, the Company received approximately $5,260 from the escrow account, which will be recorded as a gain in 2009.

(NOTE Q) — Net Loss Per Share

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

	Year Ended December 31,
	2008			2007			2006
Numerator:
Net loss	$	(244,915	)	$	(262,448	)	$	(251,173	)
Denominator:
Denominator for basic and diluted earnings per share — weighted-average shares		135,406,642			134,333,418			131,815,414
Net loss per share, basic and diluted:
Net loss per share	$	(1.81	)	$	(1.95	)	$	(1.91	)

Common stock issued in connection with the Company’s Purchase Plan and through exercised options granted pursuant to the Incentive Plan are included in the Company’s weighted average share balance based upon the issuance date of the related shares. As of December 31, 2008, 2007 and 2006, the Company had 28,373,151, 28,121,529 and 26,836,107, respectively, stock options outstanding. As of December 31, 2008, 2007 and 2006, the Company had 30,942,877 of shares issuable upon the conversion of the Company’s convertible subordinated debt.

(NOTE R) — Related Parties

Prior to the sale of its equity investment, the Company’s 14% equity investment in CoGenesys made it a related party of the Company. For the years ended December 31, 2007 and 2006, the Company recognized revenue of $2,803 and $1,910, respectively, under the 2006 license agreement and manufacturing services agreement with CoGenesys. During the year ended December 31, 2006, the Company recorded a reduction in research and development expenses of $4,818 for expenses reimbursed by CoGenesys. Effective February 2008, CoGenesys is no longer a related party of the Company, as a result of the Teva acquisition of all the outstanding shares of CoGenesys.

F-36

HUMAN GENOME SCIENCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(NOTE R) — Related Parties (continued)

The Company owns approximately one percent of VIA Pharmaceuticals, Inc. (“VIA”). During 2007, the Company and VIA mutually terminated a 1997 License Agreement between the parties. Accordingly, the Company no longer deems VIA to be a related party.

Effective with the sale of the Company’s remaining investment in CAT in 2006, CAT is no longer a related party. While deemed a related party in 2006, the Company expensed $600 for research support costs paid to CAT in connection with a 2000 collaboration agreement.

The Company had no other material related party transactions during 2008, 2007 or 2006.

(NOTE S) — Quarterly Financial Information (unaudited)

Quarterly financial information for 2008 and 2007 is presented in the following tables:

	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter
2008
Revenue	$	12,275		$	11,567		$	11,674		$	12,906
Income (loss) from operations		(76,290	)		(70,220	)		(58,173	)		(50,470	)
Net income (loss)		(46,916	)		(74,190	)		(68,113	)		(55,696	)
Net income (loss) per share, basic and diluted		(0.35	)		(0.55	)		(0.50	)		(0.41	)
2007
Revenue	$	9,262		$	9,007		$	11,056		$	12,526
Income (loss) from operations		(49,886	)		(49,864	)		(65,434	)		(90,911	)
Net income (loss)		(51,029	)		(51,269	)		(67,257	)		(92,893	)
Net income (loss) per share, basic and diluted		(0.38	)		(0.38	)		(0.50	)		(0.69	)

The Company’s results for the first quarter of 2008 include a gain on the sale of an equity investment of $32,518, or $0.24 per share.

The Company’s results for the third quarter of 2008 include a charge for impaired investments of $6,049, or $0.04 per share.

The Company’s results for the second quarter of 2007 include $3,673, or $0.03 per share, for lease termination and restructuring credits.

The Company’s results for the fourth quarter of 2007 include expense of $16,852, or $0.13 per share, for the collaboration and license agreement with Aegera.

F-37

EX-10.25

Exhibit 10.25

CO-DEVELOPMENT AND COMMERCIALIZATION AGREEMENT

BETWEEN

HUMAN GENOME SCIENCES, INC.

AND

GLAXO GROUP LIMITED

     THIS CO-DEVELOPMENT AND COMMERCIALIZATION AGREEMENT is made effective as of the 1st day of August, 2006 (“Effective Date”) by and between Human Genome Sciences, Inc., a Delaware corporation having its principal place of business at 14200 Shady Grove Road, Rockville, Maryland 20850 (“HGS”) and Glaxo Group Limited, a company organized under the laws of England and Wales with its principal place of business at GlaxoWellcome House, Berkeley Avenue, Greenford, Middlesex, UB6 0NN, United Kingdom (“GSK”). HGS and GSK shall be referred to herein collectively as “Parties” and individually as a “Party.”

RECITALS

WHEREAS, pursuant to the SB/HGS License Agreement entered into on June 28, 1996 by and among HGS, SmithKline Beecham Corporation (“SB Corp.”) and SmithKline Beecham p.l.c. (“SB PLC”), SB Corp. and SB PLC retained an option to co-develop and commercialize certain HGS products.

WHEREAS, SB Corp. and SB PLC have assigned its rights related to such option under the SB/HGS License Agreement to GSK.

WHEREAS, HGS has developed a compound know as belimumab, a human monoclonal antibody that neutralizes BLyS, B-lymphocyte stimulator.

WHEREAS, pursuant to the rights under the June 28, 1996 SB/HGS License Agreement which were assigned to GSK, GSK has exercised its option to co-develop and co-promote belimumab.

NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises, terms and conditions hereafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, HGS and GSK hereby agree to be legally bound as follows:

ARTICLE 1

DEFINITIONS

2

The following terms shall have the following meanings as used in this Agreement:

1.1 “Active Period” shall mean the period commencing upon the First Commercial Sale of a Collaboration Product and expiring on the later to occur of (i) the expiration of the last Valid Claim of HGS Existing Patent Rights claiming Collaboration Product sold in the Territory or (ii) ten (10) years after the First Commercial Sale of the Collaboration Product by HGS or GSK in the Territory.

1.2 “Additional Indications” shall mean any indication except the Lead Indication and Minor Indications.

1.3 “Adverse Event” shall mean any untoward medical occurrence in a patient or clinical investigation subject administered Collaboration Product which does not necessarily have to have a causal relationship with this administration. An Adverse Event can therefore be any unfavorable and unintended sign (including an abnormal laboratory finding), symptom or disease temporally associated with the use of Collaboration Product, whether or not considered related to Collaboration Product. Notwithstanding the above, all spontaneously reported Adverse Events involving Collaboration Product sold as a marketed product should be considered Adverse Drug Reactions (implied causal relationship) for regulatory reporting purposes.

1.4 “Affiliate” shall mean any corporation, firm, partnership or other legal entity, which directly or indirectly controls, is controlled by or is under common control with a party to this Agreement. A party shall be deemed to “control” another entity if it (a) owns at least fifty percent (50%) of the equity (or such lesser percentage which is the maximum allowed to be owned by a foreign corporation in a particular jurisdiction) of such other entity or (b) has the power by contract or otherwise to vote on or direct the management and policies of the entity.

1.5 “All Other Countries” shall mean all countries of the world other than the United States, Japan and those countries in the European Union.

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1.6 “Alliance Manager” shall have the meaning set forth in Section 3.7.

1.7 “belimumab” shall mean the human monoclonal antibody that neutralizes BLyS with the sequence listed in Appendix E.

1.8 “BLyS” shall mean B-lymphocyte stimulator.

1.9 “Calendar Quarter” shall mean each of the four successive three calendar month periods in a Calendar Year.

1.10 “Calendar Year” shall mean each successive period of twelve (12) months commencing on January 1 and ending on December 31, for so long as this Agreement is in effect.

1.11 “Call” shall mean a personal visit by a Sales Representative to a member of the Target Audience legally permitted to prescribe prescription drugs during which such Sales Representative Details a Collaboration Product. The Parties may, by mutual agreement, designate additional types of Calls.

1.12 “Claims” shall have the meaning set forth in Section 14.1.

1.13 “Clinical Studies” shall mean Phase I Clinical Studies, Phase II Clinical Studies, and/or Phase III Clinical Studies.

1.14 “Clinical Supplies” shall mean supplies of Collaboration Product for pre-clinical and/or Clinical Studies for the Territory.

1.15 “Collaboration Product” shall mean any product incorporating belimumab, or a derivative, fragment, or modification thereof which retains neutralizing activity against BLyS, for any indication, in all dosage forms, delivery systems, formulations, presentations, line extensions and package configurations thereof. “Collaboration Product” shall include combination products incorporating belimumab as the therapeutically active ingredient.

4

1.16 “Collaboration Technology” shall mean HGS Existing Patent Rights, HGS Existing Know-How, GSK Arising Patent Rights, GSK Arising Know-How, HGS Arising Patent Rights, HGS Arising Know-How, Joint Arising Patent Rights and Joint Arising Know-How.

1.17 “Commercial Supplies” shall mean supplies of Collaboration Product for commercial sale in the Territory.

1.18 “Commercialization” shall mean all activities regarding the sale, distribution, Co-Promotion and Detailing of a Collaboration Product, and any pre-marketing or post-marketing studies (other than Phase I, Phase II or Phase III Clinical Studies) conducted to obtain or maintain all Regulatory Approvals, including market research and pharmaco-economic research. When used as a verb, “Commercialize” shall mean to make, have made, use, sell, offer to sell or import Collaboration Product.

1.19 “Committee” shall mean any of the JSC, JDC, GJMC, RJMC or JMC.

1.20 “Confidential Information” shall mean all technical and scientific know-how and information, pre-clinical and Clinical Studies results, computer programs, knowledge, technology, means, methods, processes, practices, formulas, techniques, procedures, technical assistance, designs, drawings, apparatus, written and oral representations of data, specifications, assembly procedures, schematics and other valuable information of whatever nature and all other scientific, clinical, regulatory, marketing, financial and commercial information or data, whether communicated in writing, verbally or electronically, which is provided by one party to the other party in connection with this Agreement.

1.21 “Control” shall mean possession of the ability to grant licenses or sublicenses to intellectual property as contemplated by this Agreement without violating the terms of any agreement or other arrangement with any Third Party.

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1.22 “Co-Promotion” shall mean those marketing and promotional activities, other than Detailing, undertaken by GSK or HGS to implement the Marketing Plans and strategies with respect to a Collaboration Product under a single Product Trademark, where permitted, wherein only one Party sells the Collaboration Product. When used as a verb, “Co-Promote” shall mean to engage in such activities.

1.23 “Cost of Goods” or “CoGs” shall mean the fully allocated cost of Manufacturing Commercial Supplies of Collaboration Product, as such costs are specifically allocated to such Collaboration Product and as computed in accordance with U.S. generally accepted accounting principles (“GAAP”), including, without limitation, the following:

     (a) Materials cost, which means the price paid for raw material, intermediates, components and finished goods which are purchased from outside vendors as well as any freight and duty where applicable;

     (b) Direct labor costs, which means the allocable employment cost of all personnel engaged in the Manufacture of the Collaboration Product including, without limitation, salary and employee benefits within the relevant manufacturing operating unit wherein allocable employment costs shall mean only those direct labor costs applied to the actual Manufacture of the Collaboration Product;

     (c) Direct costs and factory overhead costs, which means the cost of specific activities that are provided by support functions either on or off-site, provided they are directly related to the Manufacture or packaging of Collaboration Product and not a general overhead allocation or charge. Overhead costs include, but are not limited to, expenses associated with quality assurance testing, quality compliance, stability testing, batch review, equipment maintenance costs, manufacturing utilities, waste removal, storage, transportation, insurance for the factory, its contents or other directly related items, factory management and factory administrative expenses, factory facilities costs which shall include lease payments made by HGS, environmental engineering and property taxes. These expenses shall be reasonably allocated to the Manufacture of Collaboration Product on a pro rata basis based on the allocation methodology appropriate at the Manufacturing site. Such expenses shall exclude costs relating to available capacity which is not used in or reserved for the Manufacture of the Collaboration Product.

6

     (d) Depreciation costs, which represent the annual amortization of original purchase costs reasonably allocated to the Manufacture of Collaboration Product on a pro rata basis based on the allocation methodology appropriate at the Manufacturing site over the useful life of the asset, and

     (e) the out-of-pocket costs of freight and tariffs and other expenses associated with transporting Collaboration Product from the source of manufacture to a distribution center, inclusive of any interim points of delivery, but excluding (i) any such costs which are separately invoiced to a customer, and (ii) FTEs involved in the management of supply chain logistics.

     For the sake of clarity, if a cost is an addition to the COGs calculation herein, such cost shall not also be accounted for as a deduction in the Net Sales calculation and vice versa. Notwithstanding the foregoing, HGS shall not be entitled to include as COGS those overhead and depreciation costs referenced in (c) and (d) above that were incurred prior to the Effective Date and that are solely attributable to reserved capacity. After the Effective Date, HGS shall use reasonable efforts to mitigate costs attributable to reserved capacity by utilizing such reserved capacity until such time as it is needed.

1.24 “Costs” shall have the meaning set forth in Section 14.1.

1.25 “CTA” shall mean a clinical trial application filed in accordance with ICH guidelines.

1.26 “Current Good Manufacturing Practices” or “cGMPs” shall mean all applicable standards relating to manufacturing practices for fine chemicals, intermediates, bulk products or finished pharmaceutical products. For purposes of this Agreement, cGMPs shall mean the principles (i) detailed in the U.S. Current Good Manufacturing Practices, 21 CFR Parts 210 and The Rules Governing Medicinal Products in the European Community, Volume IV Good Manufacturing Practice for Medicinal Products as each may be amended from time to time or (ii) promulgated by any Governmental Authority having jurisdiction over the manufacture of the Collaboration Product, in the form of Laws, (iii) promulgated by any Governmental Authority having jurisdiction over the manufacture of the Collaboration Product, in the form of guidance documents (including but not limited to advisory opinions, compliance policy guides and guidelines) which guidance documents are being implemented within the pharmaceutical

7

manufacturing industry for such products and subject to any arrangements, additions or clarifications agreed to from time to time by the Parties in the Quality Agreement to be negotiated pursuant to Article 9.

1.27 “Detail” or “Detailing” shall mean, a Primary Detail or a Secondary Detail. When used as a verb, Detail shall mean to engage in the activities set forth herein. For the avoidance of doubt, discussions at conventions shall not constitute “Details” or “Detailing”.

1.28 “Detail Requirements” shall have the meaning set forth in Section 5.5.2.

1.29 “Development” shall mean all activities relating to the research and development of a Collaboration Product as approved by the JDC, including, but not limited to, the conduct of all pre-clinical and Clinical Studies and the submission of all Regulatory Applications for all Regulatory Approvals necessary for the manufacture, sale, marketing, and distribution of a Collaboration Product. When used as a verb, “Develop” shall mean to engage in such activities.

1.30 “Development Expenses” shall mean, the FTE costs and direct out-of-pocket cash costs recorded as an expense in accordance with GAAP by or on behalf of a Party or any of its Affiliates after June 30, 2006, related to the Development of the Lead Indication, Minor Indications and Additional Indications that are specifically identifiable or reasonably allocable to the Development of a Collaboration Product, which Development activities are set forth in the approved Development Plan or otherwise approved in advance by the Joint Development Committee or Joint Steering Committee in accordance with Section 3.2.5. Subject to the foregoing, Development Expenses shall include such costs in connection with the following activities:

     (a) pre-clinical activity costs such as toxicology and formulation development, test method development, stability testing, quality assurance, quality control development and statistical analysis;

     (b) clinical costs, except for costs associated with Phase IV Clinical Studies;

     (c) regulatory expenses relating to the conduct of Clinical Studies, wherever performed, for a Collaboration Product;

8

     (d) Manufacturing Clinical Supplies of Collaboration Product for use in Clinical Studies and any pre-clinical activities in support thereof;

     (e) The Manufacture, purchase or packaging of comparators or placebo for use in Clinical Studies (with the Manufacturing costs for comparators or placebo to be determined in the same manner as Manufacturing costs are determined for Clinical Supplies of any Collaboration Product);

     (f) Direct costs and expenses of disposal of Clinical Supplies of Collaboration Product and other supplies used in such Clinical Studies and pre-clinical activities, and

     (g) Development of the Manufacturing process for Commercial Supplies of a Collaboration Product, scale-up, Manufacturing process validation, Manufacturing improvements and qualification and validation of Third Party contract manufacturers..

1.31 “Development Plan” shall mean the plan for the Collaboration Product designed to achieve the Development for such Collaboration Product for the Lead Indication as well as Minor Indications and Additional Indications, including, without limitation, the budget and nature, number and schedule of Development activities.

1.32 “Diligent Efforts” shall mean, with respect to the research, development, manufacture or commercialization of a Collaboration Product, efforts and resources that would be used by a Party consistent with its normal business practices for a similar product, which in no event shall be less than the level of efforts and resources standard in the pharmaceutical industries for a company similar in size and scope to that Party with respect to such activity, subject always to the requirement to take into account, without limitation, matters such as efficacy and safety profile of any such product, the development stage of the product, the commercial potential of the product, the degree of technical complexity and the scientific characteristics of the product, the competitiveness of alternative products that are in the marketplace or under development, and the patent and other intellectual property and proprietary position of any product. Diligent Efforts requires that: (i) each Party promptly assigns responsibility for such obligations to specific employees who are held accountable for progress and monitor such progress on an on-going basis, (ii) each Party sets and consistently seeks to achieve the objectives assigned to such party as set forth in the Development Plan, and (iii) each Party consistently makes and

9

implements decisions and allocates resources designed to meet such objectives. For avoidance of doubt, Diligent Efforts as applied through this Agreement is to be applied to a Party with respect to how that Party would progress a similar product in that Party’s own pipeline.

1.33 “Dispute Detailing Audit Data” shall mean the absolute number of Details performed by a Party’s Sales Representatives for a given Calendar Year, as reflected in the Personal Selling Audit and Hospital Personal Selling Audit of Scott-Levin Associated or IMS America. In the event the Personal Selling Audit or Hospital Personal Selling Audit for any given period or periods does not report details for the physician specialties which correspond to the Target Audience, the Parties shall mutually agree upon an alternative methodology to verify the internal Detailing records of a Party.

1.34 “Distribution Costs” shall mean the supply price paid by GSK to HGS for supplies of Collaboration Product to be distributed by GSK as set forth in Article 9 herein and the supply and distribution agreement and quality agreement to be negotiated pursuant to Article 9, as well as all costs associated with order entry, billing, credit, collection, handling, storage, importation and distribution of the Collaboration Product in the Territory while in GSK’s possession (such costs to be calculated as a percentage of Net Sales, such percentage to be agreed by the GJMC pursuant to Section 3.3.1(ii) and to be reconciled and adjusted periodically thereafter), whether Collaboration Product is owned by GSK or HGS, including without limitation costs of the vials necessary for quality control testing, brokerage costs, and transportation costs.

1.35 “FDA” means the United States Food and Drug Administration or any successor agency thereto.

1.36 “Field” shall mean all human therapeutic, diagnostic, palliative and prophylactic indications.

1.37 “First Commercial Sale” shall mean the date on which Collaboration Product is first shipped to wholesalers and retailers by GSK in commercial quantities from its distribution centers for commercial sale to a Third Party in any country after receipt of Marketing

10

Authorization Approval for such Collaboration Product in such country. Sales for test marketing, sampling and promotional uses or Clinical Studies or research purposes or compassionate uses will not be considered a First Commercial Sale.

1.38 “FTE” shall mean full-time equivalent employment.

1.39 “FTE Cost” shall mean, unless otherwise agreed to by the Parties, the specific dollar amount agreed upon by the Parties hereto for each FTE, where the number of and rate for the FTEs shall be determined by the appropriate Committee.

1.40 “GJMC” shall mean the Global Joint Marketing Committee, as further defined in Section 3.3.1.

1.41 “Governmental Authority” shall mean any court, tribunal, arbitrator, agency, commission, official or other instrumentality of any government or of any federal, state, county, city or other political subdivision, domestic or foreign, including Regulatory Authorities.

1.42 “GSK Arising Know-How” shall mean any inventions, discoveries, information, data and know-how, whether or not patentable, pertaining to improvements, modifications, and adaptations to any part of the Collaboration Technology which is developed during the term of and pursuant to this Agreement by or on behalf of GSK.

1.43 “GSK Arising Patent Rights” shall mean rights under any patents or patent applications which are owned or Controlled by GSK, and any and all substitutions, continuations, divisionals, continuations-in-part, reissues, renewals, registrations, confirmations, reexaminations, extensions including supplementary protection certificates, foreign equivalents or counterparts, and other filings thereof, containing claims that specifically cover patentable GSK Arising Know-How.

1.44 “GSK Indemnitee” shall have the meaning set forth in Section 14.2.

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1.45 “HGS Arising Know-How” shall mean any inventions, discoveries, information, data or know-how, whether or not patentable, pertaining to improvements, modifications, and adaptations to any part of the Collaboration Technology which is developed during the term of this Agreement by or on behalf of HGS pursuant to this Agreement.

1.46 “HGS Arising Patent Rights” shall mean rights under any patent or patent applications owned or Controlled by HGS, and any and all substitutions, continuations, divisions, continuations-in-part, reissues, renewals, registrations, confirmations, reexaminations, extensions including supplementary protection certificates, foreign equivalents or counterparts, and other filings thereof, containing claims that specifically cover patentable HGS Arising Know-How.

1.47 “HGS Existing Know-How” shall mean any inventions, discoveries, information, data or know-how, whether or not patentable, specifically relating to the research, development, registration, marketing, use, sale or Commercialization of Collaboration Product, which were developed by or on behalf of HGS or were in HGS’ possession or Control through a license or otherwise prior to the Effective Date.

1.48 “HGS Existing Patent Rights” shall mean rights under any patents or patent applications specifically related to belimumab or Collaboration Product which are owned or Controlled by HGS as of the Effective Date and which are listed in Appendix A attached hereto and incorporated herein by reference. Collaboration Patent Rights shall also include all United States and foreign patents with claims entitled to the priorities of any of the patent applications and patents listed in Appendix A, including any continuation, continuation-in-part or divisional applications thereof.

1.49 “HGS Indemnitee” shall have the meaning set forth in Section 14.1.

1.50 “Housemarks” shall mean the names of a Party or its Affiliate, or variations of the names, and all related logotypes and symbols used by a Party in connection with its products.

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1.51 “Internal Detailing Report” shall have the meaning set forth in Section 5.5.3.

1.52 “JDC” shall mean the Joint Development Committee, as further defined in Section 3.2.

1.53 “JMC” shall mean the Joint Manufacturing Committee, as further defined in Section 3.4.

1.54 “JSC” shall mean the Joint Steering Committee, as further defined in Section 3.1.

1.55 “Joint Arising Know-How” shall mean any inventions, discoveries, information, data and know-how, whether or not patentable, pertaining to improvements, modifications, and adaptations to any part of the Collaboration Technology which is developed during the term of this Agreement by or on behalf of HGS and GSK jointly.

1.56 “Joint Arising Patent Rights” shall mean rights under any patents or patent applications owned or Controlled jointly by the Parties, and any and all substitutions, continuations, divisionals, continuations-in-part, reissues, renewals, registrations, confirmations, reexaminations, extensions including supplementary protection certificates, foreign equivalents or counterparts, and other filings thereof, containing claims that specifically cover patentable Joint Arising Know-How.

1.57 “Laws” shall mean all laws, statutes, rules, regulations, ordinance, guidances and other pronouncements having the effect of law of any government or Governmental Authority.

1.58 “Lead Indication” shall mean the indication of SLE.

1.59 “Losses” shall mean any and all damages, fines, fees, penalties, judgments, deficiencies, losses and expenses (including without limitation interest, court costs, reasonable fees of attorneys, accountants and other experts or other expenses of litigation or other proceedings or of any claim, default or assessment).

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1.60 “Manufacture” or “Manufacturing” shall mean all activities directly related to the manufacture of Clinical Supplies and Commercial Supplies of the Collaboration Product, including, without limitation, the planning, purchasing, manufacture, transportation, processing, compounding, quality assurance testing, quality control, regulatory compliance, storage and maintenance of cell banks, manufacture and testing of future cell banks, waste disposal, sample retention, formulation, stability testing, storage, filling, packaging, labeling, leafleting, release and dispatch and such other matters in each case as specifically applicable to the relevant Collaboration Product.

1.61 “Marketing Approval Application” or “MAA” shall mean, with respect to any country outside the United States, any application submitted to the relevant Regulatory Authorities seeking authorization to market a Collaboration Product in the Territory.

1.62 “Marketing Expenses” shall mean, excluding any Development Expenses, all external costs and expenses incurred (i.e., paid or accrued) by a Party, whether incurred by HGS or its Affiliates, or GSK or its Affiliates, to the extent provided for in an approved Marketing Plan or otherwise approved in advance by the RJMC or the Joint Steering Committee, and solely to the extent related to Collaboration Products, for Commercialization in connection with: marketing, advertising, sampling and promoting a Collaboration Product, including without limitation costs associated with Phase IV Clinical Studies, development of training plans, educational expenses, programs in any format that are related to patient education, physician education and disease management, including speakers’ programs and symposia, and joint marketing and sales meetings; primary and secondary market research; and Promotional Materials; and Samples. For clarity, Marketing Expenses shall include sales force FTE Costs. For the sake of clarity, internal marketing personnel expenses shall not be included in this definition.

1.63 “Marketing Plan” shall mean for the Collaboration Product a plan and budget for the promotion and marketing of the Collaboration Products as developed by the RJMC and approved by the GJMC.

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1.64 “Minor Indications” shall mean those minor indications [***] that are agreed by the JDC to be supportive of and/or incremental to the Development and Commercialization of the Lead Indication, [***].

1.65 “NDA” shall mean, with respect to the United States, a New Drug Application or Biologics License Application (or their equivalent) filed with the United States Food and Drug Administration seeking authorization to market a Collaboration Product in the United States.

1.66 “Net Profit” shall mean Net Sales in a given country or region minus the Cost of Goods (except for Cost of Goods for which GSK reimburses HGS pursuant to Section 9.2.2) and Distribution Costs of Collaboration Product in such country minus any Third Party royalties paid by either HGS or GSK on such Net Sales in such country.

1.67 “Net Sales” shall mean the gross amount invoiced by a Party, its Affiliates, or sublicensees for sales, transfer or disposition to independent, unrelated Third Parties of a Collaboration Product (such Collaboration Product being in the final form intended for use by the end user), during such time period (including the fair market value of all other consideration received for the sale, transfer or other disposition of a Collaboration Product by a Party, its Affiliates, or sublicensees, whether such consideration is in cash, payments in kind, exchange or other forms), exclusive of (i) inter-company transfers or sales to or from its Affiliates or sublicensees, (ii) transfers of samples of the Collaboration Product such as for physician samples and indigent patient and similar programs (including registration samples), and (iii) transfers of the Collaboration Product for use in post-launch Clinical Studies, less the Permitted Deductions. The Permitted Deductions shall include only the following, to the extent each is actually incurred and is not otherwise recovered by or reimbursed to GSK or HGS, its Affiliates, or sublicensees (which are to be determined under generally accepted accounting principles (“GAAP”) in the United States) and does not exceed the reasonable and customary amount for such item in the market in which the sale occurred:

     (a) trade, cash and quantity discounts or rebates on any Collaboration Products;

     (b) credits, allowances, rebates or chargebacks given or made to a customer for retroactive price reductions (including rebates similar to Medicaid);

[***] 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.

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     (c) sales taxes, excise taxes and duties or other governmental charges levied on or measured by the billing amount, as adjusted for rebates or refunds, imposed upon the importation, use or sale of a Collaboration Product;

     (d) charges for freight and insurance directly related to the distribution of the Collaboration Products (to the extent not paid by the Third Party customer); and

     (e) The lesser of (i) [***] of the aggregate gross amount billed or invoiced on sales of Collaboration Product in the relevant country or (ii) the actual amount of any write-offs for bad debt relating to such sales.

The provisions of (a) through (e) above shall be adjusted periodically as necessary to reflect amounts actually incurred.

1.68 “PDMA” shall mean the U.S. Federal Food, Drug and Cosmetics Act of 1938, as amended, and the Prescription Drug Marketing Act of 1987, as amended.

1.69 “Phase I Clinical Study” shall mean a human clinical study in any country conducted in accordance with good clinical practices (“GCPs”) in a small number of healthy volunteers or patients designed or intended to establish an initial safety profile, pharmacodynamics or pharmacokinetics of product, or that would otherwise satisfy the requirements of 21 CFR §312.21(a) or any successor regulation thereto or foreign equivalents.

1.70 “Phase II Clinical Study” shall mean a human clinical study in any country that is conducted in accordance with GCPs and is intended to initially evaluate the effectiveness of a product for a particular indication or indications in patients with the disease or indication under study, or that would otherwise satisfy the requirements of 21 CFR §312.21(b) or any successor regulation thereto or foreign equivalents.

1.71 “Phase III Clinical Study” shall mean a human clinical study in any country that is conducted in accordance with GCPs and the results of which could be used as pivotal to establish safety and efficacy of a product as a basis for a marketing approval application submitted to the FDA or the appropriate regulatory authority of such other country, or that would otherwise

[***] 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.

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satisfy the requirements of 21 CFR §312.21(c), or any successor regulation thereto or foreign equivalents.

1.72 “Phase IV Clinical Study” shall mean human clinical studies that are supportive of post-launch activities, including Commercialization and Co-Promotion of Collaboration Product.

1.73 “Primary Detail” shall mean a face-to-face presentation by a Sales Representative with the Target Audience in which Collaboration Product is either the only pharmaceutical product which is presented or is given a majority of the emphasis during the presentation in which other pharmaceutical products are also discussed.

1.74 “Product Labeling” shall mean all labels and other written, printed, or graphic matter upon (a) any container or wrapper utilized with Collaboration Product during the Active Period and Tail Period in the Territory or (b) any written material accompanying any container or wrapper utilized with the Collaboration Product during the Active Period and Tail Period, including, package inserts.

1.75 “Product Trademarks” shall mean all trademarks, other than Housemarks, used or intended for use on or in connection with a Collaboration Product in the Territory.

1.76 “Promotional Materials” shall mean all written, printed, video or graphic advertising, promotional, educational and communication materials (other than Collaboration Product Labeling) for marketing, advertising and promotion of the Collaboration Products for use by (a) a Sales Representative or (b) advertisements or direct mail pieces, in accordance with the terms of the applicable Marketing Plan.

1.77 “RJMC” shall mean the Regional Joint Marketing Committee as further defined in Section 3.3.2.

1.78 “Region” means any of the United States, the European Union, Japan or All Other Countries.

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1.79 “Regulatory Application” shall mean any application or request necessary for the development, manufacture, distribution, marketing, promotion, offer for sale, use, import, export, sale, reimbursement or pricing of a Collaboration Product, including but not limited to any applications or requests for (i) approval of Collaboration Product, including NDAs and MAAs, abbreviated new drug applications or supplemental new drug applications or any supplements or amendments thereto (as defined in 21 C.F.R. § 314.50 et. seq.) submitted to the FDA or foreign equivalent; (ii) pre- and post-approval marketing applications for prerequisite manufacturing approval or authorization related thereto); (iii) labeling approval; (iv) technical, medical and scientific licenses; and (v) registrations or authorizations from any national, regional, state or local regulatory agency, department, bureau, commission, council or other governmental entity necessary for the development, manufacture, distribution, marketing, promotion, offer for sale, use, import, export or sale of Collaboration Product.

1.80 “Regulatory Approval” shall mean all official approvals by a Regulatory Authority in a country or region which are required for the use and/or sale of a Collaboration Product in that country or region including applicable development, manufacture, distribution, marketing, promotion, offer for sale, use, importation, exportation, sale, pricing and reimbursement approvals.

1.81 “Regulatory Authority” shall mean any applicable government regulatory authority involved in granting Regulatory Approvals for the development, manufacture, distribution, marketing, promotion, offer for sale, use, import, export, sale, reimbursement or pricing of any Collaboration Product, including, in the United States, the FDA.

1.82 “SLE” shall mean Systemic Lupus Erythematosus.

1.83 “Sales Representative” shall mean a professional pharmaceutical sales representative engaged or employed by either Party to conduct, among other sales responsibilities, Detailing and other promotional efforts with respect to the Collaboration Products and who has been trained by either Party in accordance with a training protocol to be agreed upon by the GJMC.

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1.84 “Samples” shall mean Collaboration Product packaged and distributed to members of the Target Audience as a complimentary trial for use with patients.

1.85 “Secondary Detail” shall mean a face-to-face presentation by a Sales Representative with the Target Audience in which Collaboration Product is not presented as a Primary Detail but is given an important emphasis during the presentation, but not less than that given to other pharmaceutical products discussed during the presentation; provided, however, that a Detail during a sales call in which greater emphasis is placed upon two or more other products than the emphasis placed upon Collaboration Product shall not be considered a Secondary Detail.

1.86 “Senior Officers” shall have the meaning set forth in Section 3.1.3.

1.87 “Tail Period” shall mean the period commencing on the expiration date of the Active Period and continuing for three (3) years thereafter.

1.88 “Target Audience” shall mean the physician specialties with authority to prescribe a pharmaceutical product or issue hospital orders for a pharmaceutical product, as may be amended from time to time by the RJMC.

1.89 “Target Product Profile” shall mean the description of the commercially relevant range of acceptable product performance of a compound against key characteristics used to shape the progressions and development decisions and attached hereto as Appendix C and hereby incorporated by reference.

1.90 “Term” shall have the meaning set forth in Section 12.1.

1.91 “Territory” shall mean all of the countries and territories of the world.

1.92 “Third Party” shall mean any person or entity other than HGS, GSK, their respective Affiliates, or their employees.

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1.93 “United States” shall mean the fifty states and District of Columbia that comprise the United States of America.

1.94 “Valid Claim” shall mean a claim of an issued, unexpired patent owned or Controlled by HGS, which claim has not lapsed, been abandoned, been revoked or been held to be invalid or unenforceable by a final judgment of a court or other governmental agency or competent jurisdiction from which no appeal can be or is taken within the time allowed for appeal and which has not been admitted to be invalid or unenforceable through reissue, re-examination, disclaimer or otherwise.

ARTICLE 2

LICENSES

2.1 License Grants to HGS Existing Patent Rights and HGS Existing Know-How.

          2.1.1 Co-Development License. Subject to the terms of this Agreement, HGS hereby grants to GSK an exclusive (except as to HGS and its Affiliates and permitted sublicensees), sublicensable (only in accordance with Section 2.3) license under the HGS Existing Patent Rights and HGS Existing Know-How to Develop Collaboration Products for Commercialization in the Territory during the Active Period, pursuant to the terms of this Agreement.

          2.1.2 Commercialization License. HGS hereby grants to GSK an exclusive (except as to HGS and its Affiliates and permitted sublicensees), sublicensable (only in accordance with Section 2.3) license under the HGS Existing Patent Rights and HGS Existing Know-How to Commercialize Collaboration Products with HGS in the Territory during the Active Period, pursuant to the terms of this Agreement and further subject to HGS’ right to Manufacture Collaboration Product in Article 9 herein, provided, however, that if HGS does not Manufacture Collaboration Product as contemplated in Article 9, GSK’s license under this Section 2.1.2 shall remain unchanged during the Active Period.

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2.2 License Grants for Arising Patent Rights and Arising Know-How.

          2.2.1 Subject to the terms of this Agreement, GSK hereby grants to HGS, an exclusive (except as to GSK and its Affiliates and permitted sublicensees), sublicensable (only in accordance with Section 2.3) license under the GSK Arising Patent Rights, GSK Arising Know-How and GSK’s rights in the Joint Arising Patent Rights and Joint Arising Know-How to Develop and Commercialize Collaboration Products in the Territory, pursuant to the terms of this Agreement.

          2.2.2 Subject to the terms of this Agreement, HGS hereby grants to GSK, an exclusive (except as to HGS and its Affiliates and permitted sublicensees), sublicensable (only in accordance with Section 2.3) license under the HGS Arising Patent Rights, HGS Arising Know-How and HGS’ rights in the Joint Arising Patent Rights and Joint Arising Know-How to Develop and Commercialize Collaboration Products in the Territory during the Active Period, pursuant to the terms of this Agreement.

2.3 Sublicensing.

          2.3.1 GSK Sublicensing or Subcontracting to Affiliates and Contract Research Organizations. GSK may sublicense or subcontract its rights to use the Collaboration Technology or Product Trademarks to Develop or Commercialize Collaboration Products in whole or in part to one or more of its Affiliates or a contract research organization performing work for GSK under this Agreement on a fee-for-service basis, provided that the rights sublicensed or subcontracted to any Affiliate shall automatically terminate upon a change of control of such Affiliate in connection with which such Affiliate ceases to be an Affiliate of GSK.

          2.3.2 GSK Sublicensing or Subcontracting to Third Parties. GSK shall have the right to sublicense or subcontract its rights to use the Collaboration Technology and Product Trademarks to Commercialize Collaboration Products to any Third Party, provided GSK obtains

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the prior written consent of HGS, such consent not to be unreasonably withheld. Upon notification by GSK of its desire to sublicense its rights hereunder, HGS shall have [***] to review such proposal. If HGS fails to notify GSK in writing of its decision within such [***] period, HGS shall be deemed to have consented to such sublicense.

          2.3.3 HGS Sublicensing or Subcontracting to Affiliates and Contract Research Organizations. HGS shall have the right to sublicense or subcontract its rights to use the Collaboration Technology to Develop and Commercialize Collaboration Products in whole or in part to one or more of its Affiliates or to a contract research organization performing work for HGS under this Agreement on a fee-for-service basis, provided that the rights sublicensed or subcontracted to any Affiliate shall automatically terminate upon a change of control of such Affiliate in connection with which such Affiliate ceases to be an Affiliate of HGS.

          2.3.4 HGS Sublicensing or Subcontracting to Third Parties. HGS shall have the right to sublicense or subcontract its rights to use the Collaboration Technology to Commercialize Collaboration Products to any Third Party, provided HGS obtains the prior written consent of GSK, such consent not to be unreasonably withheld. Upon notification by HGS of its desire to sublicense its rights hereunder, GSK shall have [***] to review such proposal. If GSK fails to notify HGS in writing of its decision within such [***] period, GSK shall be deemed to have consented to such sublicense.

          2.3.5 Liability for Affiliates, Sublicensees and Subcontractors. Each Party shall ensure that each of its Affiliates and sublicensees or subcontractors accepts and complies with all of the terms and conditions of this Agreement as if such Affiliates or sublicensees or subcontractors were a party to this Agreement and each Party shall be primarily liable for its Affiliates’ and sublicensees’ or subcontractors’ performance under this Agreement.

2.4 Product Trademarks for Collaboration Products. The Parties shall agree on the Product Trademarks to be used for the Collaboration Product through the GJMC, as set forth in Section 3.3.1. Unless otherwise agreed by the Parties, HGS shall exclusively own all Product Trademarks approved by the GJMC. Subject to the terms of this Agreement, HGS hereby grants

[***] 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.

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to GSK, an exclusive (except as to HGS and its Affiliates and permitted sublicensees), sublicensable (in accordance with Section 2.3) license under the Product Trademarks to Commercialize Collaboration Products in the Territory, pursuant to the terms of this Agreement. Upon the Parties agreement on the Product Trademarks to be used for the Collaboration Product and prior to using such Product Trademarks in the Commercialization of the Collaboration Product, the Parties shall enter into a formal trademark license agreement which shall set forth the license grant in this Section 2.4 and quality control provisions. Such formal trademark license agreement shall be used for recordation purposes of such trademark licenses in countries in the Territory where such recordation is required. Such separate formal trademark license agreement shall also include a license to use each Party’s Housemarks in Commercializing Collaboration Products.

2.5 In the event of any bankruptcy or insolvency of a Party hereto, or in the event of any default or material breach by a Party of the terms of any agreement granting rights to the other Party under the HGS Existing Know-How, HGS Existing Patent Rights, HGS Arising Know-How, HGS Arising Patent Rights, GSK Arising Know-How or GSK Arising Patent Rights, and in order to preserve the non-defaulting Party’s rights to practice the licenses granted to such Party under this Article 2, the defaulting Party hereby agrees to provide reasonable assistance in the event that the non-defaulting party and/or its Affiliate desires to obtain contractual privity directly with any Third Party licensor to establish the non-defaulting Party and/or its Affiliate as a stand-in licensee under any agreement granting the defaulting Party rights under the HGS Existing Patent Rights, HGS Existing Know-How, HGS Arising Patent Rights, HGS Arising Know-How, GSK Arising Know-How or GSK Arising Patent Rights, such that the non-defaulting Party and/or its Affiliate may continue to practice as a licensee under the HGS Existing Patent Rights, HGS Existing Know-How, HGS Arising Patent Rights, HGS Arising Know-How, GSK Arising Know-How or GSK Arising Patent Rights.

2.6 HGS and GSK hereby hold each other harmless and covenant not to sue for any use of intellectual property by the other Party during the term of this Agreement and in furtherance of this Agreement, whether or not such use is specifically included in this Agreement.

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ARTICLE 3

GOVERNANCE OF DEVELOPMENT AND COMMERCIALIZATION OF

COLLABORATION PRODUCTS

3.1 Joint Steering Committee.

          3.1.1 Members. As soon as reasonably practicable following the Effective Date, HGS and GSK will establish a joint steering committee (the “JSC”) made up of six (6) representatives (three (3) representatives to be appointed by GSK and three (3) representatives to be appointed by HGS). HGS and GSK will co-chair the JSC and the chairpersons shall be members of the JSC. HGS’ representatives on the JSC will include HGS’ [***] and GSK’s representatives on the JSC will include GSK’s [***]. Representatives from both Parties must be at the vice president level or above, unless otherwise mutually agreed by the Parties. Each of GSK and HGS may replace any or all of its representatives on the JSC at any time upon written notice to the other Party, provided such new representatives are at the vice president level or above and further provided that such representatives have the requisite experience and expertise in pharmaceutical drug development and commercialization.

          3.1.2 Responsibilities. The JSC shall perform the following functions: (a) review and resolve any issues presented to it by the JDC, the GJMC, the RJMCs or the JMC; (b) establish the GJMC at a time deemed appropriate by the JSC; (c) resolve disputes, disagreements and deadlocks unresolved by the JDC, the GJMC, or the JMC; (d) review and approve, when necessary or appropriate, the Development Plans and Marketing Plans for Collaboration Products and any material amendments to the Development Plans and Marketing Plans; and (e) have such other responsibilities as may be assigned to the Joint Steering Committee pursuant to this Agreement or as may be mutually agreed upon by the Parties from time to time.

               (i) Meetings. The Joint Steering Committee shall meet in person at least one (1) time during every Calendar Year and at least two (2) times in person or by telephone or videoconference during every Calendar Year, and more frequently as GSK and HGS deem appropriate or as required to resolve disputes, disagreements or deadlocks in the other committees, on such dates, and at such places and times, as such Parties shall agree;

[***] 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.

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provided that the Parties shall endeavor to have the first meeting of the Joint Steering Committee within thirty (30) days after the establishment of the Joint Steering Committee. Meetings of the Joint Steering Committee that are held in person shall alternate between offices of GSK and HGS, or such other place as such Parties may agree. The members of the Joint Steering Committee also may convene or be polled or consulted from time to time by means of telecommunications, video conferences, electronic mail or correspondence, as deemed necessary or appropriate. Meetings of the JSC may be held in person or by teleconference, as may be determined by the JSC.

          3.1.3 Decision Making. All decisions of the JSC shall be made by unanimous vote, with each Party having one vote. Reasonable efforts will be made to come to a consensus decision. With respect to any issue, if the Joint Steering Committee cannot reach consensus within [***] after the matter has been brought to the Joint Steering Committee’s attention, then all Development issues shall be referred to the Chief Executive Officer of HGS and the Chairman , Research & Development of GSK for resolution and all Commercialization issues shall be referred to the Chief Executive Officer of HGS and the President of Pharmaceutical Operations of GSK for resolution (in each case, the “Senior Officers”).

3.2 Joint Development Committee.

          3.2.1 Members. Within thirty (30) days after the Effective Date, the Parties shall establish a joint development committee (the “JDC”), and GSK and HGS shall designate representatives, up to a maximum total of eight (8) members on such Joint Development Committee. HGS and GSK will co-chair the JDC. The chairpersons shall be members of the JDC. The representation of the Parties on the JDC shall be determined by the Parties. Functional areas required to participate at JDC meetings will be determined by the Parties based on topics and agendas scheduled for such meeting. Each of GSK and HGS may replace any or all of its representatives on the Joint Development Committee at any time upon written notice to the other Party. Such functional-area representatives shall include individuals who have experience in Clinical Studies, clinical operations, regulatory activities, Commercialization, and expertise in pharmaceutical drug development. GSK and HGS each may, on advance written

[***] 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.

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notice to the other Party, invite non-voting, ad hoc representatives of such Party to attend meetings of the Joint Development Committee.

          3.2.2 Responsibilities. The JDC will perform the following functions: (i) evaluate the scientific and commercial feasibility for, and direct, any Development of Collaboration Product for all indications being jointly Developed by the Parties pursuant to Section 4.2 below and/or additional dosage forms in the Territory, and recommend and approve the budget for the Development Expenses for related Development of the Lead Indication, Minor Indications and Additional Indications; (ii) manage and oversee the preparation and implementation of Development Plans including agreeing to any future Development work required, including but not limited to clinical protocol design and endpoint measures for Phase III Clinical Studies and Phase IV Clinical Studies on the Collaboration Product for the Lead Indication in the Territory (including all post-approval studies and activities required to obtain desired Collaboration Product Labeling), and recommend the budget for any such Phase III Clinical Studies and Phase IV Clinical Studies for Minor Indications and Additional Indications; (iii) approve the Target Product Profile for the Collaboration Product, which will include clinical and commercial attributes, for the Lead Indication and each Additional Indication approved by the JDC in accordance with Section 3.2.5; (iv) each year beginning with the first full Calendar Year after the Effective Date, update and amend the initial Development Plans for the following Calendar Year; (v) determine whether the Collaboration Product achieved the mutually agreed Target Product Profile for the relevant indication; (vi) make any material amendments or modifications to the Development Plans; (vii) coordinate and monitor regulatory strategy and activities for the Collaboration Products in accordance with Article 8; (viii) at each meeting of the Joint Development Committee, review a comparison of actual Development Expenses for the Lead Indication as well as Development Expenses for Minor Indications and Additional Indications to the budgeted Development Expenses for such indications for the United States in the Development Plan for the year-to-date, as current as practicable to a date immediately prior to the date of the meeting; (ix) review and approve decisions to either move forward or abandon the Development of Collaboration Products; (x) establish FTE rates for tracking and reimbursement of internal costs that form part of the Development Expenses for the Lead Indication, Minor Indications and Additional Indications; and (xi) have such other responsibilities as may be assigned to the Joint

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Development Committee pursuant to this Agreement or as may be mutually agreed upon by the Parties from time to time.

          3.2.3 Meetings. The Joint Development Committee shall meet in person at least once during every Calendar Quarter, and more frequently as GSK and HGS deem appropriate or as reasonably requested by either such Party, on such dates, and at such places and times, as such Parties shall agree; provided that the Parties shall endeavor to have the first meeting of the Joint Development Committee within thirty (30) days after the establishment of the Joint Development Committee. Meetings of the Joint Development Committee shall alternate between the offices of GSK and HGS, or such other place as the Parties may agree. The members of the Joint Development Committee also may convene or be polled or consulted from time to time by means of telecommunications, video conferences, electronic mail or correspondence, as deemed necessary or appropriate.

          3.2.4 Development Budget. The Joint Development Committee shall review on a quarterly basis the actual Development Expenses against the budget for such expenses in the applicable Calendar Year. If in the course of its quarterly review of Development Expenses, the Joint Development Committee should determine that for any study or activity the actual amounts incurred are likely to be higher than budgeted, the Joint Development Committee shall review the reasons for such potential overrun and determine whether such overrun is appropriate. If the Joint Development Committee determines that such overrun is appropriate, the Joint Development Committee will assess whether such overrun is likely to result in an overrun of the budget for Development Expenses and if required, will agree on a revised budget for such Development Expenses for subsequent approval by the Joint Steering Committee.

          3.2.5 Decision Making. All decisions of the JDC shall be made by unanimous vote, with each Party having one vote. Reasonable efforts will be made to come to a consensus decision, but any matters that cannot be resolved by the JDC will be presented to the JSC for resolution, in accordance with Section 3.1 above.

3.3 Global and Regional Joint Marketing Committees.

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          3.3.1 Global Joint Marketing Committee.

               (i) Members. At a time agreed upon by the JSC, the Parties shall form a global joint marketing committee (“GJMC”). The Parties shall each designate up to eight (8) representatives for membership on the GJMC. Membership shall include representation from among each Party’s commercial development and finance departments. The GJMC shall be co-chaired by GSK and HGS and each chairperson shall be a member of the GJMC. Each Party shall have one (1) vote on each matter brought before the GJMC, regardless of the number of representatives present from each Party. At least two (2) representatives from each Party shall be present to represent a quorum for voting purposes. In addition, the GJMC may from time to time include additional non-voting ad-hoc representatives from either Party on specific issues as the need arises.

               (ii) Responsibilities. The purpose of the initial meeting shall be to review the current status of the Commercialization of Collaboration Product in the Territory, prepare the Marketing Plan, and agree on an operational charter that shall set forth the principles and guidelines for the governance of the GJMC. Furthermore, the GJMC shall (a) determine and establish, and as required from time to time to modify, the Marketing Plan for Collaboration Product for each Region, including the establishment of the Regional Joint Marketing Committees (“RJMCs”) for each Region in the Territory; (b) approve the budget for the Marketing Expenses for Commercialization of the Collaboration Product; (c) oversee the Commercialization of Collaboration Product, as managed and implemented by the applicable Regional Joint Marketing Committee, including approving the pricing in all markets and Third Party commercial partners in all countries in the Territory; (d) approve the Product Trademarks for the Collaboration Product (e) establish sales force FTE rates for tracking and reimbursement of costs that form part of the Marketing Expenses, including sales force FTE Costs, (f) upon determining the price for the Collaboration Product, agree on Distribution Costs as percentage of Net Sales, to be reconciled and adjusted periodically thereafter, and (g) unless as otherwise set forth in this Agreement, settle unresolved disputes or disagreements of a RJMC.

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               (iii) Meetings. The first meeting of the GJMC shall occur within thirty (30) days after the formation of the GJMC. Thereafter, meetings shall be held once each Calendar Quarter. The location of such meetings shall alternate between sites selected by GSK and HGS, unless otherwise agreed upon between the Parties. GJMC meetings need not necessarily be face-to-face meetings but, upon the agreement of both Parties, can be via other methods of communication such as teleconferences and/or videoconference.

               (iv) Decision Making. All decisions of the GJMC shall be made by unanimous vote of the Parties, with each Party getting one (1) vote. All such decisions shall be final and binding upon both Parties; provided that if a dispute cannot be settled by the GJMC after good faith attempts, then such matter shall be presented to the JSC for resolution in accordance with Section 3.1 above.

          3.3.2 Regional Joint Marketing Committees.

               (i) Members. At a time agreed on by the GJMC, the Parties shall form teams of appropriate personnel from both GSK and HGS to manage and implement the Marketing Plan for Collaboration Product in each Region. The RJMCs shall each consist of representatives from GSK and HGS. HGS and GSK will co-chair the RJMC for the United States and GSK shall chair the RJMCs for the remaining Regions. The timing of the first meeting of each RJMC shall be determined by the GJMC.

               (ii) Responsibilities. The RJMCs shall oversee aspects of the Co-Promotion and Commercialization of a Collaboration Product for the relevant Region, including but not limited to: (a) determining the budget for Marketing Expenses and reviewing and approving the strategy and tactics for Co-Promoting Collaboration Product in the respective Regions; (b) developing the regional Marketing Plan for approval by the GJMC, (c) recommending to the GJMC in which countries in the respective Regions the Collaboration Product will be Co-Promoted and sold; (d) recommending to the GJMC pricing for the Collaboration Product; (e) determining the respective number of Sales Representatives from each Party that will Co-Promote the Collaboration Product to deliver the agreed number of Details for

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the desired coverage, and (f) creating, reviewing and approving the content of Promotional Materials, and level of promotional spend, based on market potential and best commercial judgment, all in conformance with applicable Laws.

               (iii) Meetings. Meetings of each RJMC shall be held on a quarterly basis. The location of each RJMC’s meetings shall alternate between sites selected by GSK and HGS, unless otherwise agreed upon between the Parties, with the first meeting to be held at GSK’s offices. RJMC meetings need not necessarily be face-to-face meetings, but upon the agreement of both Parties can be via other methods of communication such as teleconferences and/or videoconferences.

               (iv) Decision Making. All decisions of the RJMC shall be made by unanimous vote of the Parties, with each Party getting one (1) vote. All such decisions shall be final and binding upon both Parties, provided that, if any dispute cannot be settled by a RJMC after good faith attempts, then such decision shall be presented to the head of each Party’s pharmaceutical division for such country, or their designee. If the dispute remains unresolved after [***] following such presentation, then such dispute shall be referred to the GJMC for resolution in accordance with Section 3.3.1(iv) above.

          3.3.3 Marketing Budget. The Global Joint Marketing Committee shall review each Calendar Quarter the actual Marketing Expenses against the budgeted Marketing Expenses as developed by the RJMC in the applicable Calendar Year. If in the course of its quarterly review of Marketing Expenses, the GJMC should determine for any Collaboration Product that for any study or activity the actual amounts incurred are likely to be higher than those budgeted, the GJMC shall review the reasons for such potential overrun and determine whether such overrun is appropriate. If the GJMC determines that such overrun is appropriate, the GJMC will assess whether such overrun is likely to result in an overrun of the budget for Marketing Expenses for such Collaboration Product on an annual basis and if required, will agree on a revised budget for such Marketing Expenses for such Collaboration Product for subsequent approval by the GJMC. If the GJMC determines that such overrun is not appropriate, the GJMC will take such actions as required to remedy the situation.

[***] 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.

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3.4 Joint Manufacturing Committee. As soon as reasonably practicable after the execution by the Parties of a separate manufacture, supply and quality agreement in accordance with Article 9 herein, the Parties shall form a joint manufacturing committee (“JMC”). The separate manufacture, supply and quality agreement entered into by the Parties in accordance with Article 9 shall govern the structure of the JMC, including the JMC’s membership, responsibilities, and decision-making authority, provided that the JMC shall be responsible, at a minimum, for reviewing and approving the Development Expenses that are associated with the Manufacture of Clinical Supplies of Collaboration Product and Cost of Goods and further provided that all unresolved disputes shall be referred to the JSC for resolution.

3.5 Minutes of Committee Meetings. Definitive minutes of all Committee meetings shall be finalized no later than thirty (30) days after the meeting to which the minutes pertain as follows:

          3.5.1 Distribution of Minutes. Within ten (10) days after a Committee meeting, the secretary of such Committee shall prepare and distribute to all members of such Committee draft minutes of the meeting. Such minutes shall provide a list of any issues yet to be resolved, either within such Committee or through the relevant resolution process.

          3.5.2 Review of Minutes. The members of each Committee shall have ten (10) days after receiving such draft minutes to collect comments thereon and provide them to the secretary of such Committee.

          3.5.3 Discussion of Comments. Upon the expiration of such second ten (10) day period, the Parties shall have an additional ten (10) days to discuss each other’s comments and finalize the minutes.

          3.5.4 The secretary from each RJMC shall provide the GJMC with a copy of the minutes no later than thirty (30) days after they have been approved by the RJMC.

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3.6 Expenses. Each Party shall be responsible for all travel and related costs and expenses for its members and other representatives to attend meetings of, and otherwise participate on, a Committee. All travel and related costs and expenses to attend Committee meetings shall not be considered part of the Development Expenses or the Promotional Expenses.

3.7 Alliance Managers. Promptly after the Effective Date, each Party shall appoint an individual(s) to act as the alliance manager for such Party (“Alliance Manager”) during the term of this Agreement. Each Alliance Manager shall thereafter be permitted to attend any Committee meeting as a non-voting observer. The Alliance Managers shall be the primary point of contact for the Parties regarding activities contemplated by this Agreement and shall facilitate all such activities hereunder, including, but not limited to, the exchange of information between the Parties. The Alliance Managers shall be responsible for assisting the Committees in performing their oversight responsibilities. The name and contact information for such Alliance Managers, as well as any replacements chosen by HGS or GSK, in their sole discretion, from time to time, shall be promptly provided to the other Party in accordance with Section 16.3 of this Agreement.

ARTICLE 4

DEVELOPMENT OF COLLABORATION PRODUCTS

4.1 Responsibilities of the Parties. Subject to the general oversight of the JDC, and subject in all instances to the specific provisions relating to regulatory matters referred to in Article 8, the Parties shall use Diligent Efforts to Develop the Collaboration Products for Commercialization. Each Party shall perform the Development activities assigned to it pursuant to the Development Plan, all in accordance with the Development Plan for a Collaboration Product. Additionally, GSK shall provide three (3) expert clinical operations personnel to assist HGS with the enrollment and monitoring of the Phase III Clinical Studies, particularly outside the United States and western European countries.

4.2 Development Expenses. The Parties agree that all JDC-approved Development Expenses for the Lead Indication arising after June 30, 2006 and all Development Expenses for Minor

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Indications will be shared equally by GSK and HGS, through reimbursement of such Development Expenses as set forth in Section 6.6.1 below, if necessary.

4.3 Development Expenses for Additional Indications. At any time after the Effective Date, either Party may make a written proposal to the Joint Development Committee regarding the Development of a Collaboration Product in an Additional Indication. Such proposal shall include (i) any data and other information in its possession which may be relevant to the use of the Collaboration Product in the proposed Additional Indication, (ii) a reasonably detailed outline of the major Development activities required to obtain Regulatory Approval for the Collaboration Product for such proposed Additional Indication in the Territory, including a timeline for performing such activities, (iii) an estimated budget for the expected Development Expenses to be incurred in Developing the Collaboration Product for such proposed Additional Indication, (iv) an appropriate market analysis of the for the Collaboration Product for the proposed Additional Indication (including market size and competitive analysis), and (v) preliminary sales forecasts for the sale of the Collaboration Product for the proposed Additional Indication. Thereafter, the JDC shall meet in order to review such proposal.

          4.3.1 Co-Development of Additional Indication. With respect to a proposal pursuant to Section 4.3, if the JDC unanimously accepts, or if the JDC cannot agree and the JSC unanimously accepts, such proposal, the Joint Development Committee shall prepare a Development Plan for Development of the Collaboration Product for such Additional Indication and all JDC-approved Development Expenses for the Development of the Collaboration Product for the Additional Indication shall be shared equally by the Parties.

          4.3.2 Independent Development and Commercialization of Additional Indications. If the JDC or the JSC, as applicable, cannot agree to jointly Develop the Collaboration Product in an Additional Indication pursuant to the procedure set forth in Sections 4.3 and 4.3.1 above due to a Party deciding in good faith, using its normal decision making practices for a similar product, that such Party does not wish to pursue such Additional Indication, and if one Party still desires to Develop and Commercialize the Collaboration Product for such Additional Indication (“Developing Party”), the Developing Party may do so on its own,

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at its sole cost and expense and without the oversight of the JDC, provided that: (i) the Development or Commercialization of such Additional Indication does not adversely impact the Development and Commercialization of the Collaboration Product in the Lead Indication; and (ii) the Developing Party takes into account the goal of optimizing the best overall commercial potential of the Collaboration Products in the Lead Indication. The other Party (“Non-Developing Party”) retains the right to opt-in to further Develop and Commercialize the Collaboration Product for the Additional Indication in concert with the Developing Party [***]. In the event the Non-Developing Party exercises its right to opt in to the Development of the Collaboration Product for the Additional Indication, the Parties shall thereafter share equally in the Development Expenses for such Additional Indication, subject to Section 4.3.3 below, and all terms and conditions of this Agreement shall apply to the further Development of the Collaboration Product for such Additional Indication. Furthermore, upon opting in to the Development of the Collaboration Product for such Additional Indication, the Non-Developing Party shall reimburse the Developing Party [***] of all Development Expenses actually incurred prior to the exercise by the Non-Developing Party of its right to opt-in to the Development of the Collaboration Product for such Additional Indication, provided all such Development Expenses to be reimbursed will be reviewed and approved prior to such payment by the JDC. If the Non-Developing Party elects not to exercise its opt-in right [***], the Non-Developing Party shall have no further rights or obligations with respect to the Development and Commercialization of the Collaboration Product for such Additional Indication. For clarity, the Developing Party shall not enter into any agreement with any Third Party which would in any way limit the rights of the Non-Developing Party to opt-in to the Development of the Additional Indication.

          4.3.3 Right to Reduce Level of Funding of Development of Collaboration Product for Additional Indications Only. On an Additional Indication-by-Additional Indication basis, each Party shall have the right to bear less than fifty percent (50%) of the Development Expenses for Phase III Clinical Studies incurred in the Development of the Collaboration Product for an Additional Indication, and thereby receive [***]. In order for a Party to receive any share of the Net Profits on the sale of the Collaboration Product for a specific indication, a Party must bear at least [***] of the Development Expenses for Phase III Clinical Trials incurred in the Development of the Collaboration Product for such indication.

[***] 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.

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               (i) In the event a Party bears at least [***] of such Development Expenses, that Party shall have the right to actively participate in the Development and Commercialization of the Collaboration Product for such Additional Indication, through either conducting Development activities pursuant to the Development Plan or through its participation on the JDC and receive [***].

               (ii) In the event one Party elects not to bear at least [***] of the Development Expenses for Phase III Clinical Studies incurred in the Development of the Collaboration Product for a specific Additional Indication, then the other Party has the right to control all Development and Commercialization activities associated with the Collaboration Product for such Additional Indication and shall assume one hundred percent (100%) of the Development Expenses and Marketing Expenses incurred in the Development and Commercialization of the Collaboration Product for such Additional Indication and thereby receive one hundred percent (100%) of the Net Profits on the sale of such Collaboration Product for such Additional Indication.

               (iii) If a Party’s election to bear less than fifty percent (50%) of all Development Expenses incurred in the Development of the Collaboration Product for an Additional Indication in any country will affect that Party’s level of effort and personnel involved in the Development of the Collaboration Product in such country, the Parties will work together, through the appropriate Committee, to amend the Development Plan to properly reflect each Party’s responsibilities for Development of the Collaboration Product for such Additional Indication in such country.

4.4 Costs Incurred Prior to July 1, 2006. HGS will be solely responsible for all costs associated with the Collaboration Product and incurred prior to July 1, 2006.

4.5 Capital Expenditures. Any capital expenditures incurred by either Party after the Effective Date of the Agreement which a Party seeks to include as Development Expenses must be approved in advance by the JDC. The JDC will determine the percentage of such capital expenditures that

[***] 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.

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were incurred in order to enable the Development of the Collaboration Product for the Lead Indication and Additional Indications that are being Developed by both Parties and such percentage will [***].

4.6 Payment of Expenses; Development Expense Account. Subject to each Party’s [***] to fund Development Expenses for Additional Indications as set forth in Section 4.3 above and Reconciliation as provided in Article 6, each Party shall be responsible to pay for all Development Expenses incurred in performing its obligations in connection with any Development activities under a Development Plan. Each Party shall charge all such Development Expenses so incurred to a separate account created by it on its books and records solely for the purpose of tracking Development Expenses, and identifying all Development Expenses by Collaboration Product and indication being Developed on an indication-by-indication basis.

4.7 Other Development Expenses. Neither Party shall have the right to obligate the other Party to finance any Development Expenses or conduct any Development activities to which it has not agreed, through the JDC.

4.8 Development Plans. The Development Plan for the Collaboration Product for the Lead Indication, which the Parties hereby approve, is attached to this Agreement as Appendix B. Prior to the end of each Calendar Year beginning with the first full Calendar Year after the Effective Date, the Joint Development Committee shall review and approve any proposed Development Plan for the Development of the Lead Indication and for Minor Indications and Additional Indications and, prior to the end of each Calendar Year, the Joint Development Committee shall update and amend any Development Plan in order to prepare for the Development of the Collaboration Product for such indication for the following Calendar Year.

          4.8.1 Criteria for Development Plans. The Development Plan shall contain at a minimum a list and description of preclinical and clinical activities, timelines for the performance of studies in support of the Development activities for such Collaboration Product and a budget for the Development Expenses to complete such Development activities.

[***] 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.

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          4.8.2 Implementation of Development Plans. Each Party will inform the Joint Development Committee of ongoing implementation of the Development Plan and consider timely recommendations for improving Development activities assigned to such Party under the Development Plan. In connection with the preparation and implementation of the Development Plan, HGS and GSK will make available to the Joint Development Committee any information then in their possession pertaining to the Collaboration Products useful for such Development activities.

          4.8.3 Budget for Development Expenses. The budget for proposed Development Expenses for the Lead Indication and for Additional Indications of the Collaboration Product to be Developed and Commercialized shall be set forth in the Development Plan. Such budget shall be sufficient to fund all necessary Clinical Studies and related activities necessary to obtain Regulatory Approval for such Collaboration Product in the relevant indication and generate data otherwise necessary for Commercialization as agreed by the JSC.

ARTICLE 5

CO-PROMOTION, DETAILING AND COMMERCIALIZATION

5.1 Co-Promotion.

          5.1.1 The Parties shall Commercialize and Co-Promote Collaboration Products in each country in the Territory in which the Parties, through the GJMC, mutually agree that Commercialization and Co-Promotion is desirable. The Parties shall attempt to coordinate their Co-Promotion efforts in the Territory to the extent legally permissible.

          5.1.2 The Parties agree that all JDC-approved Marketing Expenses incurred for Phase IV Clinical Studies for the Lead Indication for the Collaboration Product shall be shared equally by the Parties, through reimbursement of such Marketing Expenses as set forth in Section 6.6.1 below. With respect to all other Marketing Expenses, [***]. Each Party shall charge all such Marketing Expenses so incurred to a separate account created by it on its books

[***] 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.

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and records solely for the purpose of tracking Marketing Expenses, and identifying all Marketing Expenses by Collaboration Product being Commercialized on an indication-by-indication basis.

          5.1.3 During the Active Period, each Party shall Detail and Co-Promote Collaboration Product in the Territory in accordance with the Marketing Plan, as amended from time to time and maximize sales and market share of Collaboration Product in the Territory. HGS shall Develop and Commercialize Collaboration Product in the Territory during the Tail Period. During the Active Period, each Party shall provide the number of Details in the Territory as set forth in the Marketing Plan.

5.2 Marketing Plans. The RJMC shall be responsible for preparing and implementing a Marketing Plan for the each Region for each Collaboration Product, subject to the approval of the Marketing Plan by the GJMC. Each Marketing Plan shall define the goals and objectives for Commercializing the Collaboration Products in the pertinent Calendar Year consistent with the applicable Development Plan and the Laws of the respective Regions.

          5.2.1 Updating Marketing Plan. Each year beginning with the first full Calendar Year after the establishment of the GJMC, each RJMC shall review and propose any amendments to the Marketing Plan for submission of such proposed amendments to the Global Joint Steering Committee no later than October 1 of such year for review and approval. The Parties shall obtain final corporate approval for the final budgets for the amendments to the Marketing Plan prior to the end of each Calendar Year.

          5.2.2 Contents of Each Marketing Plan. Each Marketing Plan shall encompass Commercialization activities for one (1) Calendar Year, or as otherwise agreed by the Parties. The Marketing Plan shall contain at a minimum: (a) minimum Detail Requirements for each Party, including a firm indication of the number of Sales Representatives and Details to be provided by each party in such period; (b) the rate for sales force FTE Costs for each Party; (c) market research and strategy, including market size, dynamics, growth, customer segmentation, competitive analysis and Collaboration Product positioning; (d) annual sales forecasts; (e) advertising and promotion programs and strategies, including sales literature, promotional

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premiums, media plans, symposia and speaker programs; (f) sales plans and activity, including sales force training, and for each Party, development of appropriate sales training materials, and strategy and budget for Samples, and (g) the budgeted Marketing Expenses for the Collaboration Product for each indication.

          5.2.3 Budget for Marketing Expenses. Each Marketing Plan shall set forth the total budget for Marketing Expenses for such Collaboration Product. Such Marketing Expense budget shall be sufficient to fund all necessary pre-launch, launch and related activities necessary to optimize Commercialization of each Collaboration Product for each indication approved by the JDC or JSC, as applicable, including sales force FTE Costs for each Party. In the event that Marketing Expenses incurred by a Party exceed the budgeted Marketing Expenses, the Party incurring such excess Marketing Expenses shall be solely responsible for such expenses unless otherwise mutually agreed in writing by the Parties through the GJMC.

5.3 Funding of Marketing Expenses for Commercialization Activities. Except as otherwise provided in Section 5.3.1 below, each Party will bear fifty percent (50%) of the Marketing Expenses, through reimbursement of the other Party’s Marketing Expenses as set forth in Section 6.6.1 below, if necessary, for the Commercialization of Collaboration Product in the Territory.

          5.3.1 Party’s Right to Reduce Level of Funding of Commercialization of Collaboration Product. On a country-by-country and indication-by-indication basis, either Party shall have the right to bear less than fifty percent (50%) of the Marketing Expenses incurred for the Commercialization of Collaboration Product for the Lead Indication or Additional Indications, and thereby receive [***]. In order for a Party to receive any share of the Net Profits on the sale of the Collaboration Product for such indication in a country, a Party must bear at least [***] of the Marketing Expenses incurred in the Commercialization, including Co-Promotion, of the Collaboration Product for such indication. A Party shall have the right to elect to bear less than fifty percent (50%) of the Marketing Expenses incurred for the Commercialization of Collaboration Product [***] prior written notice; provided, however, that during such [***], the Party electing such right shall continue to use Diligent Efforts to perform its obligations under the Agreement and shall not unreasonably withhold consent on issues

[***] 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.

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related to Commercialization of the Collaboration Product for such indication, such as spending. For clarity, if a Party elects to bear less than fifty percent (50%) of the Marketing Expenses incurred for the Commercialization of Collaboration Product for an indication, that Party shall not have the right to thereafter increase its share of the Marketing Expenses in order to receive a greater share of the Net Profits.

               (i) In the event a Party bears at least [***] of such Marketing Expenses involved in Commercializing the Collaboration Product for such indication in a country, that Party shall have the right to actively participate in the promotional activities associated with the Collaboration Product for such indication in such country, including the right to Commercialize and Co-Promote the Collaboration Product for such indication in such country, and receive [***].

               (ii) In the event one Party elects not to bear at least [***] of the Marketing Expenses incurred in the Commercialization of the Collaboration Product for a specific indication in a country, then the other Party has the right to control all Commercialization activities associated with the Collaboration Product for such indication in such country and shall assume one hundred percent (100%) of the Marketing Expenses incurred in the Commercialization of the Collaboration Product for such indication and thereby receive a greater percentage of the Net Profits on the sale of such Collaboration Product in such country.

               (iii) Notwithstanding anything to the contrary contained in this Article 5, in the event that GSK elects to bear less than [***] of all Marketing Expenses incurred in the Commercialization of the Collaboration Product in any country in the European Union, GSK will continue to own all Regulatory Approvals applicable to Collaboration Product in such country and GSK will have no obligation to assign and/or surrender such Regulatory Approvals and Regulatory Applications to HGS; however, GSK will promptly designate HGS or HGS’ designee as GSK’s local representative in such country with respect to the Development and Commercialization of Collaboration Product and GSK will take all actions reasonably necessary to effectuate such designation, including, without limitation, by making such filings as may be

[***] 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.

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required with Regulatory Authorities and other Governmental Authorities in such country that may be necessary to record such designation.

               (iv) If a Party’s election to bear less than fifty percent (50%) of all Marketing Expenses incurred in the Commercialization of the Collaboration Product for an indication in any country will affect that Party’s level of effort and personnel involved in the Commercialization of the Collaboration Product in such country, the Parties will work together, through the appropriate Committee, to amend the Marketing Plan to properly reflect each Party’s responsibilities for Commercialization of the Collaboration Product in such country.

          5.3.2 Neither Party shall have the right to obligate the other Party to finance any Commercialization activities or pay any Marketing Expenses to which it has not agreed, through the GJMC or the RJMC, as applicable.

5.4 Commercialization Responsibilities.

          5.4.1 HGS Responsibilities. HGS shall have the sole right and responsibility to record all payments for sales of Collaboration Products throughout the United States and GSK shall have the sole right and responsibility to [***]. HGS shall use Diligent Efforts to employ an appropriate management infrastructure to supervise the Sales Representatives required to oversee HGS obligations to perform Detail Requirements and marketing staff of sufficient size to establish, maintain and implement the Marketing Plan for the Collaboration Products; and HGS shall also be responsible for all medical inquiries in the Territory as set forth in Section 8.2.4 and Regional medical scientists relating to Collaboration Product, unless otherwise agreed upon by the Parties.

          5.4.2 GSK Responsibilities. GSK shall have the sole right and responsibility to [***]. With respect to sales of Collaboration Product in the United States, GSK shall [***], in accordance with Section 5.4.1 above. Furthermore, GSK shall be solely responsible for the distribution of Collaboration Product in the Territory during the term of the Agreement in accordance with Article 9.

[***] 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.

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5.5 Detailing Efforts.

          5.5.1 Any Co-Promotion and Detailing activities conducted by the Parties shall be conducted in accordance with the terms of this Agreement and the Marketing Plan and as directed by the GJMC and the applicable RJMC. The Parties shall only use Promotional Materials approved by the applicable RJMC. No Party shall be required to undertake any activity under this Agreement which it believes, in good faith, would violate any Laws. In the event of a conflict between the policies of each Party with respect to Promotional Materials or Co-Promotion and Detailing activities, the GJMC or the relevant RJMC shall determine which policy will be followed.

          5.5.2 Detailing and Marketing Requirements. The RJMC shall determine the targeted number of total Details, Primary Details and Secondary Details to be performed by each Party during each Calendar Year and the Target Audience for such Details (the “Detail Requirements”). Such Detailing Requirements shall be set forth in the Marketing Plan.

          5.5.3 Detailing Reports. Within thirty (30) days following the end of each Calendar Quarter, each Party shall provide the RJMC with a report setting forth, in such detail and form as the RJMC shall require, an internal detailing report, which shall be based upon each Party’s internal Call reporting and Detailing auditing system and which shall include the total number of Details, including Primary Details and Secondary Details, actually performed by such Party, segmented by health care professional specialty of the Target Audience during the immediately preceding Calendar Quarter (“Internal Detailing Report”).

          5.5.4 Records and Audits Pertaining to Details. At any time during the Term of this Agreement, but not more than twice every Calendar Quarter, each Party agrees to make available to the other Party, upon reasonable advance notice, such books and records necessary to verify the accuracy of such Internal Detailing Report with respect to any Calendar Quarter ending not more than twelve (12) Calendar Quarters prior to the date of such request. Unless the auditing Party has notified the other party of an issue relating to verifying an Internal Detailing

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Report for a particular Calendar Quarter, such other Party shall be released from any liability or accountability to the auditing Party for Detailing in any Calendar Quarter ending more than twelve (12) Calendar Quarters prior to the initiation of such verification process by the auditing Party. In the event of an unresolved dispute regarding the number of Details actually performed by a Party based on such Party’s internal Call reporting and Detail auditing system, the Parties hereby agree that such Party’s internal Call reporting and Detail auditing system may be correlated (on a trend basis only) with the Dispute Detailing Audit Data. Such correlation may be used by the auditing Party in any arbitration proceeding with respect to any dispute regarding Detailing under this Agreement.

5.6 Training.

          5.6.1 Training Plans. The RJMC shall develop training plans for Sales Representatives of each Party responsible for Co-Promoting Collaboration Product and shall determine which Party shall own such training plans. Such training plans shall be incorporated into the Marketing Plan for the Collaboration Product. The Party that owns such training plans shall grant the other Party the right to use such training plans for use with Commercializing the Collaboration Product, and GSK and HGS shall, each at each Party’s own expense, comply with the training plan contained in any Marketing Plan which is otherwise consistent with provisions of this Agreement. Each Party will be responsible for supervising, training and maintaining its Sales Representatives as may be required to Detail the Collaboration Products as provided herein or in the applicable Marketing Plan, such training to include a reasonable proficiency examination relevant to the Collaboration Products for all Sales Representatives who will be engaged in Detailing on an as-needed basis as determined by the GJMC, at such Party’s own cost and expense. HGS shall have the right to participate in the training programs of GSK, and GSK shall have the right to participate in the training programs of HGS, for the purpose of ensuring overall consistency in the training programs for the Collaboration Products. All costs and expenses incurred by each Party for supervising, training and maintaining its Sales Representatives pursuant to the Marketing Plan shall not be considered Marketing Expenses or sales force FTE Costs and shall not be reimbursable under Article 6.

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          5.6.2 Assistance. During the Active Period, each Party shall make available to the other for use in connection with Co-Promoting the Collaboration Products, to the extent reasonable, assistance and services relating to such Co-Promotion, including, but not limited to, providing the other Party, free of charge and in a timely manner, with a master copy of such training materials relating to Collaboration Products as such Party has used and/or intends to use in connection with the training of its Sales Representatives, including but not limited to learning units and any other printed, audio and video training materials. To the extent the other Party wishes to use such training materials in the training of its own Sales Representatives, it will be responsible for obtaining all necessary licenses and for reproducing such training materials, at its own cost and expense.

          5.6.3 Training of Sales Representatives. All Sales Representatives of a Party have received, or will receive in a timely manner, appropriate training on proper marketing and sales techniques to be used in promoting pharmaceutical products in accordance with applicable Laws.

          5.6.4 Joint Marketing and Sales Meetings. The Parties shall plan and implement periodic joint sales and marketing meeting, including a national launch meeting, for the Collaboration Product in each country in the Territory where the Collaboration Product will be Co-Promoted. Each Party shall be solely responsible for the travel costs and expenses incurred by its own Sales Representatives for attending such meetings.

5.7 Compliance.

          5.7.1 Each Party shall cause its Sales Representatives responsible for Detailing and Co-Promoting the Collaboration Product in the Territory to comply with all Laws and industry standards applicable to the Commercialization of Collaboration Product, including, without limitation, with respect to the U.S., the PDMA.

          5.7.2 Each Party warrants and represents that its Sales Representatives responsible for Co-Promoting Collaboration Product in the Territory under this Agreement shall:

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               (i) limit claims of efficacy and safety for Collaboration Product in the relevant country of the Territory to those that are (A) consistent with the approved promotional claims in the Marketing Plan and (B) consistent with the FDA-approved (or relevant regulatory authority-approved, whichever is applicable) prescribing information for Collaboration Product in such country;

               (ii) not add, delete or modify claims of efficacy and safety in the promotion of Collaboration Product under this Agreement from those claims of efficacy and safety that are contained in the Marketing Plan and that are consistent with the FDA-approved (or relevant regulatory authority-approved, whichever is applicable) prescribing information and with applicable Law;

               (iii) use only, and not make any changes in Promotional Materials and literature approved by the RJMC;

               (iv) not make any statement, representation or warranty, oral or written, to any Third Party concerning the use of the Collaboration Product that is inconsistent with, or contrary to, the Product Labeling or Promotional Material, and

               (v) Detail Collaboration Product under this Agreement in adherence to the Marketing Plan and to applicable legal requirements, as well as the American Medical Association Gifts to Physicians From Industry Guidelines.

          5.7.3 Samples.

               (i) Sample Records. Each Party shall cause, and shall maintain written procedures to ensure that all of its Sales Representatives comply with all applicable Laws relating to the storage and distribution of, and accountability for, Samples of Collaboration Product. Each Party shall notify the other within forty-eight (48) hours of learning of any instances of theft or significant loss, or upon such Party having reason to believe there has been a

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diversion or falsification of a Sample record, or other instances of non-compliance with any Laws regarding Samples of Collaboration Product. Any and all records, reports or other documentation with respect to Samples of Collaboration Product for distribution in the Territory shall be maintained by each Party for as long as required by the PDMA, but in no event less than three (3) years. Each Party shall fully cooperate with the other in production and delivery of any such documentation as may be requested or required by any other Governmental Authority.

               (ii) Reports. At the end of each month during the Active Period that the Parties are Co-Promoting Collaboration Product, each Party shall provide the other Party with a report, on a country-by-country basis, which summarizes the manner in which Collaboration Product Samples were distributed by its Sales Representatives during such month, which report shall include, without limitation, data on the health care professionals and entities to whom or which Collaboration Product Samples were distributed and the quantity and type of Collaboration Product Samples distributed to such health care professionals and entities.

               (iii) Auditing. Upon reasonable (but not less than five (5) business days) advance written notice, a Party shall be entitled, at such Party’s sole expense, to conduct an inspection and audit of the other Party’s compliance with this Section 5.7.3 at any of the other Party’s owned or controlled facilities where Samples of Collaboration Product are stored. The purpose of such inspection and audit shall be solely to ensure reasonable compliance by such Party with respect to the applicable provisions of the PDMA as the same apply to each Party’s duties and obligations under this Agreement, as well as to copy records relating to Collaboration Product Sample receipt, storage and distribution. The auditing Party shall bear the costs of such audit.

          5.7.4 Compliance with Industry Standards. Each Party shall cause its Sales Representatives to act in accordance with the highest standards of the industry and in a professional, ethical and lawful manner and consistent with the same diligence used with regard to other products marketed by either Party.

          5.7.5 Details.

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               (i) Recording of Details. Each Party shall keep complete and accurate records of all Details performed by its Sales Representatives in Co-Promoting in each applicable country of the Territory during the Active Period. Such records shall include, without limitation, actual health care professional data, the number of Details, the date or week in which the Detail was performed and, if available, the location of the Detail. Records of such Details performed pursuant to this Agreement, whether generated by the Party or by a Third Party, shall be provided, on a country-by-country basis, by each Party to the other Party no later than forty (40) days after the end of each Calendar Quarter during the Active Period.

               (ii) Auditing of Detail Records. Not more than once per Calendar Year during the Active Period, each Party or its authorized independent public accountant shall have the right to engage the other Party’s independent public accountant, at reasonable times and upon providing reasonable notice, to audit the Detail records of the other Party relating to Co-Promotion of Collaboration Product pursuant to this Agreement. The Party requesting the audit shall bear the cost of such audit, unless such audit indicates an overestimate of the number of Details by the other Party in any country in the Territory by [***]or more, in which event the other Party shall bear the costs of such audit. The auditing Party shall make the results of any such examination available to the other Party.

     5.8 Product Trademarks.

     5.8.1 Procurement and Maintenance of Product Trademarks. GSK shall be responsible for procurement and maintenance of trademark registrations for such Product Trademarks and for obtaining acceptance of the Product Trademarks by the appropriate Regulatory Authority. All costs associated with procuring and maintaining the trademark registrations for Product Trademarks during the Term of the Agreement shall be considered part of the Marketing Expenses.

     5.8.2 Use of Product Trademarks. All Collaboration Products Developed and Commercialized by both HGS and GSK in a country in the Territory shall be sold in such

[***] 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.

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country under the Product Trademarks. The Parties shall not use the Product Trademarks, except in connection with Detailing and Co-Promoting in the Territory, as provided under this Agreement.

ARTICLE 6

PAYMENTS AND REPORTS

6.1 Initial Payment. In partial consideration for the rights granted to GSK hereunder, GSK shall pay to HGS Twenty-Four Million U.S. Dollars (US $24,000,000) within fifteen (15) days (exclusive of bank holidays) of receipt by GSK of an invoice therefor, such invoice to be sent by HGS on or after the Effective Date of this Agreement.

6.2 Calculation of Each Party’s Portion of Net Profits.

          6.2.1 When Parties Share Equally in Commercialization of Collaboration Product.

               (i) Active Period Payments. In countries where the Parties have invested equally (50/50) in the Marketing Expenses associated with the Commercialization of the Collaboration Product for an indication, GSK and HGS will share equally (50/50) in the Net Profits from sales of Collaboration Product for such indication in that country during the Active Period.

               (ii) Tail Period Payments.

                         (1) In countries where the Parties have invested equally (50/50) in the Marketing Expenses associated with the Commercialization of the Collaboration Product for an indication, HGS shall pay to GSK [***].

                         (2) In countries where the Parties have invested equally (50/50) in the Marketing Expenses associated with the Commercialization of Collaboration Product for an indication, HGS shall pay to GSK [***].

[***] 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.

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                         (3) In countries where the Parties have invested equally (50/50) in the Marketing Expenses associated with the Commercialization of Collaboration Product for an indication, HGS shall pay to GSK [***].

          6.2.2 When Parties Do Not Share Equally in Marketing Expenses. In countries where the Parties have not invested equally in the Marketing Expenses associated with the Commercialization of the Collaboration Product for an indication, as permitted pursuant to Sections 4.3 and 5.3, including the limitations included in Section 5.3.1, each Party shall receive a share of the Net Profits on the sale of the Collaboration Product in such country [***].

6.3 Mechanism to Track Sales. Prior to commercial launch of the Product for the first Additional Indication, the Parties shall work together to determine a methodology for tracking and separating sales of the Collaboration Product for the different indications. Such mechanism shall be reviewed and approved by the GJMC.

6.4 No Other Payments. Notwithstanding anything to the contrary contained in this Agreement, neither Party shall have any obligation to make any milestone payments, license fees/payments, or any other type of payments or fees which are not expressly stated hereunder to the other Party under this Agreement. In addition, neither Party shall have any obligation to pay royalties to the other Party on Net Sales of any Collaboration Product.

6.5 Reports.

          6.5.1 GSK Report. Within sixty (60) days after the end of each Calendar Quarter, GSK shall submit to HGS a written report (each, a “GSK Report”) setting forth in reasonable detail the following items during such Calendar Quarter:

               (i) All JDC-approved Development Expenses incurred by GSK;

               (ii) All GJMC-approved Marketing Expenses (including sales force FTE Costs) incurred by GSK;

               (iii) Distribution Costs for Collaboration Product;

               (iv) Royalties, if any, paid by GSK to Third Parties, and

[***] 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.

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               (v) Net Sales of Collaboration Products.

          6.5.2 HGS Report. Within sixty (60) days after the end of each Calendar Quarter, HGS shall submit to GSK a written report (each, an “HGS Report”) setting forth in reasonable detail the following items during such Calendar Quarter:

               (i) All JDC-approved Development Expenses incurred by HGS;

               (ii) All GJMC-approved Marketing Expenses (including sales force FTE Costs) incurred by HGS;

               (iii) Cost of Goods for the Collaboration Product (except for any Cost of Goods separately reimbursed under a supply and distribution agreement between the Parties or Section 9.2.2 of this Agreement);

               (iv) Royalties, if any, paid by HGS to Third Parties, and

               (v) Net Sales of Collaboration Product.

          6.5.3 Estimated Marketing Expenses. After commercial launch of the Collaboration Product, the Parties will work together to refine the estimated Marketing Expenses in order to enable the Parties to use the estimated Marketing Expenses in preparing the GSK Report and HGS Report to facilitate the reconciliation process outlined in Section 6.6 below.

6.6 Financial Reconciliation.

          6.6.1 Development Expenses and Marketing Expenses. Within twenty (20) days after the receipt of each Party’s Report in accordance with Section 6.5 above, commencing with first Calendar Quarter during which the Effective Date occurs, HGS shall, using the GSK Report and the HGS Report, prepare a reconciliation report for the Collaboration Product (the “Reconciliation Report”) which shall show the Development Expenses and/or Marketing Expenses either Party may owe the other and the resulting net amount owed by HGS to GSK or by GSK to HGS, as the case may be. Such Reconciliation Report will be provided to the JDC or GJMC, as applicable, for approval. The JDC or GJMC shall approve or disapprove the Reconciliation Report with ten (10) business days of receipt. Within thirty (30) days after approval of the Reconciliation Report by the appropriate Committee, GSK or HGS, as the case

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may be, shall pay the net amount shown therein to the other Party. If the Reconciliation Report is disapproved by the JDC or GJMC, HGS shall have ten (10) days to revise such report and resubmit to the JDC or GJMC. If the report is subsequently disapproved by the JDC or GJMC again, the matter will be submitted to the JSC, in accordance with Section 3.1.3.

          6.6.2 Net Profits. In addition to that set forth in Section 6.6.1 above, within twenty (20) days after the receipt of each Party’s Report in accordance with Section 6.5 above, beginning with the first Calendar Quarter in which the First Commercial Sale occurs, HGS shall include in the Reconciliation Report the Net Profits either Party may be entitled to receive. Such Reconciliation Report will be provided to the JDC or GJMC, as applicable, for approval. The JDC or GJMC shall approve or disapprove the Reconciliation Report within seven (7) days of receipt. Within forty-five (45) days of approval of the Reconciliation Report by the appropriate Committee, GSK or HGS, as the case may be, shall pay the net amount of Net Profits due to the other Party, as shown in such Reconciliation Report. If the Reconciliation Report is disapproved by the JDC or GJMC, HGS shall have ten (10) days to revise such report and resubmit to the JDC or GJMC.

6.7 Late Payments. If a party does not make any payments due hereunder at the times that they are due, then the non-paying party shall pay interest on each late payment, to the extent permitted by applicable law, at a rate of [***] over the annual prime rate of interest, as published in the Federal Reserve Bulletin H.15 or successor thereto, for the date on which such payment becomes delinquent, calculated daily on the basis of a three hundred sixty (360) day year.

6.8 Currency. All payments due under Section 6.1. Section 6.2 and Section 6.6 shall be made in U.S. dollars. The method of currency conversion from the local currency into U.S. dollars upon the calculation of Net Profits shall be consistent with GSK’ consolidated group reporting systems. The currency conversion effected through the use of such consolidated reporting systems shall be calculated using the average exchange rate calculation used by GSK in its group reporting system and in the preparation of its public accounts.

[***] 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.

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6.9 Records. Each Party shall keep complete, true and accurate records of the Net Sales and Development Expenses and Marketing Expenses for not less than three (3) years following the end of the Calendar Quarter in which such sales were made. A Party (“Non-Auditing Party”) shall make such records available to an independent certified public accountant representing the Party requesting the audit (“Auditing Party”), who will not be unreasonably rejected by the Non-Auditing Party, provided that such representative has entered into a confidentiality agreement with the Auditing Party limiting the use of such records to verification of the accuracy of payments due hereunder and prohibiting the disclosure of information in such records to the Auditing Party or to any Third Party for any purpose. Audits of such records shall be conducted no more frequently than annually and upon at least thirty (30) days prior written notice during reasonable business hours. Audits shall be limited to results in the twelve (12) Calendar Quarters prior to audit notification. In the event that a Non-Auditing Party makes a change that impacts the Development Expenses, Marketing Expenses or Net Profits or discovers any errors that result in any change in the Development Expenses, Marketing Expenses or Net Profits for any period(s) within the previous twelve (12) Calendar Quarters, then the Auditing Party reserves that right to re-audit the affected time period(s) solely with respect to verifying the effect, if any, such change or error has on Development Expenses, Marketing Expenses, or Net Profits with respect to such period(s). In the event that a Non-Auditing Party or the auditors discover during one audit period a material discrepancy that they reasonably believe would also exist in prior periods and would materially adversely (with respect to the Auditing Party) affect the Development Expenses, Marketing Expenses or Net Profits in such prior periods, then the Auditing Party reserves the right to re-audit records from such prior periods solely with respect to verifying whether or not such same discrepancy exists and has a material effect on Development Expenses, Marketing Expenses or Net Profits with respect to such prior periods provided such time period(s) fall within the twelve (12) Calendar Quarters preceding the audit period in which the material discrepancy was first discovered. Such accountant shall provide the Non-Auditing Party with a copy of any written report prepared or given to the Auditing Party in connection with such audits. Any claims of underpayment or overpayment will be submitted to the Non-Auditing Party within thirty (30) days of the final written report. All such audits shall be conducted at the Auditing Party’s cost and expenses; provided, however, that if the audit

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reveals an underpayment to the Auditing Party of more than [***], the Non-Auditing Party shall pay for the cost and expense of the audit.

6.10 Taxes. Each Party shall be responsible for any and all taxes levied on account of amounts it receives under this Agreement. No part of any amount payable to a Party under this Agreement may be reduced due to any counterclaim, set-off, adjustment or other right which the other Party might have against such Party, any other Party or otherwise, except as expressly permitted hereunder. Any tax paid or required to be withheld by the payor for the benefit of the receiving Party under this Agreement shall be deducted from the amount of those payments otherwise due. The payor shall secure and send to the receiving Party proof of any such taxes withheld and paid by the payor for the benefit of the receiving Party, and shall, at the receiving Party’s request, provide reasonable assistance to the receiving Party in recovering such taxes.

ARTICLE 7

DILIGENCE

7.1 The Parties acknowledge that failure to use their respective Diligent Efforts in Development and/or Commercialization of a Collaboration Product will diminish the value of this Agreement to both HGS and GSK. Accordingly, HGS and GSK shall each use its respective Diligent Efforts to perform the obligations assigned to each Party under the Agreement.

7.2 Each Party shall perform, or cause to be performed, any and all of its obligations as set forth in this Agreement, including, without limitation, those obligations identified in this Article 7, in good scientific manner and in compliance in all material respects with all applicable laws.

7.3 The Parties will work together, through either the JDC, the RJMC, the GMJC or the JMC, as applicable, to reduce costs associated with the Development, Manufacturing, and Commercialization of a Collaboration Product, where possible, consistent with the terms of this Agreement and applicable Law, in order to maximize Net Profits.

[***] 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.

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7.4 Should a Party materially fail to apply its respective Diligent Efforts as required under this Section 7, then such failure to use Diligent Efforts shall be considered a material breach of this Agreement and the non-breaching Party shall have the right to terminate the rights granted to the breaching Party under Article 2 in accordance with Article 12.

7.5 In addition to other diligence requirements in this Article 7, a Party shall use Diligent Efforts to Commercialize the Collaboration Product in [***] to the extent the Collaboration Product is being Commercialized by both Parties in such country. Should a Party not exercise its obligations under this Section 7.5 with respect to [***], the other Party shall have the right to terminate the other Party’s rights with respect to the Collaboration Product under this Agreement in that respective country or in the case of the country in the European Union, that Region, in accordance with Section 12.3.

ARTICLE 8

REGULATORY MATTERS

8.1 Regulatory Applications/Activities.

          8.1.1 Regulatory Applications/Approvals in the United States. Unless otherwise agreed upon by the Parties or required by applicable Law, HGS shall be responsible for obtaining, registering and maintaining all Regulatory Applications and Regulatory Approvals necessary to Develop, register and Commercialize a Collaboration Product in the United States, including, without limitation, NDAs. HGS shall obtain, register and maintain such Regulatory Applications and Regulatory Approvals in accordance with the Development Plan and as directed by the JDC, using Diligent Efforts.

               (i) HGS shall provide GSK with reasonable prior written notice of all material meetings and teleconferences between representatives of HGS and Regulatory Authorities regarding any Collaboration Product. Consistent with all applicable Laws, GSK shall have the right to have one (1) or more representatives attend material meetings and

[***] 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.

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conferences and participate in material telephone discussions with any Regulatory Authority concerning Collaboration Product.

               (ii) HGS shall promptly provide to GSK copies of any material documents or other correspondence received from the FDA or other Regulatory Authorities (including without limitation any minutes of material meetings or teleconferences) pertaining to the Development or Commercialization of Collaboration Product being Co-Promoted by the Parties in the United States.

               (iii) HGS shall promptly provide GSK’s representatives to the JDC with copies of all proposed material correspondence between HGS and a Regulatory Authority regarding Collaboration Product being Co-Promoted by the Parties in the United States at least ten (10) days before the submission of such correspondence. HGS shall seriously consider all reasonable material suggestions and recommendations of GSK concerning such correspondence, to the extent feasible.

               (iv) If GSK reasonably concludes that GSK must communicate with a Regulatory Authority regarding GSK’s activities in the United States under this Agreement, then GSK shall promptly advise HGS. If HGS reasonably disagrees with GSK’s conclusion, the matter will be provided to the JDC for determination. If the JDC determined that GSK may communicate with a Regulatory Authority hereunder, GSK shall do so as follows:

                    (1) GSK shall provide HGS with reasonable prior notice of all material meetings and teleconferences between representatives of GSK and the Regulatory Authority regarding any Collaboration Product. Consistent with all applicable Laws, HGS shall have the right to have one (1) or more representatives attend material meetings and conferences and participate in material telephone discussions with any Regulatory Authority concerning the Development or Commercialization of Collaboration Product in the United States;

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                    (2) GSK shall promptly provide to HGS copies of any material documents or other correspondence received from the Regulatory Authorities (including without limitation any minutes of material meetings or teleconferences) pertaining to the Development or Commercialization of Collaboration Product being Co-Promoted by the Parties in the United States;

                    (3) GSK shall promptly provide HGS’ representatives to the JDC with copies of all proposed material correspondence between GSK and a Regulatory Authority concerning the Collaboration Product being Co-Promoted by the Parties in the United States at least ten (10) days before the submission of such correspondence. GSK shall seriously consider all reasonable material suggestions and recommendations of HGS concerning such correspondence, to the extent feasible.

          8.1.2 CTAs in the European Union, Japan and All Other Countries. Unless otherwise agreed upon by the Parties or required by applicable Law, HGS or an Affiliate of HGS shall be responsible for obtaining and maintaining all CTAs necessary to Develop a Collaboration Product in European Union, Japan and All Other Countries. HGS or its Affiliate shall obtain and maintain such CTAs in accordance with the Development Plan and as directed by the JDC, using Diligent Efforts.

               (i) HGS or its Affiliate shall provide GSK with reasonable prior written notice of all material meetings and teleconferences between representatives of HGS and Regulatory Authorities regarding any CTAs for the Collaboration Product. Consistent with all applicable Laws, GSK shall have the right to have one (1) or more representatives attend material meetings and conferences and participate in material telephone discussions with any Regulatory Authority concerning the CTA for the Collaboration Product.

               (ii) HGS or its Affiliate shall promptly provide to GSK copies of any material documents or other correspondence received from the Regulatory Authorities (including without limitation any minutes of material meetings or teleconferences) pertaining to the CTA

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for the Collaboration Product being Co-Promoted by the Parties in the European Union, Japan and All Other Countries.

               (iii) HGS or its Affiliate shall promptly provide GSK’s representatives to the JDC with copies of all proposed material correspondence between HGS or its Affiliate and a Regulatory Authority regarding the CTA for the Collaboration Product being Developed by the Parties in the European Union, Japan and All Other Countries at least ten (10) days before the submission of such correspondence. HGS or its Affiliate shall seriously consider all reasonable material suggestions and recommendations of GSK concerning such correspondence, to the extent feasible.

               (iv) If GSK reasonably concludes that GSK must communicate with a Regulatory Authority regarding the CTA for the Collaboration Product in the European Union, Japan and All Other Countries under this Agreement, then GSK shall promptly advise HGS. If HGS reasonably disagrees with GSK’s conclusion, the matter will be provided to the JDC for determination. If the JDC determined that GSK may communicate with a Regulatory Authority hereunder, GSK shall do so as follows:

                         (1) GSK shall provide HGS or its Affiliate with reasonable prior notice of all material meetings and teleconferences between representatives of GSK and the Regulatory Authority regarding the CTA for any Collaboration Product. Consistent with all applicable Laws, HGS or its Affiliate shall have the right to have one (1) or more representatives attend material meetings and conferences and participate in material telephone discussions with any Regulatory Authority concerning the Development of Collaboration Product in the European Union, Japan or All Other Countries;

                         (2) GSK shall promptly provide to HGS or its Affiliate copies of any material documents or other correspondence received from the Regulatory Authorities (including without limitation any minutes of material meetings or teleconferences) pertaining to the CTA for the Collaboration Product being Developed by the Parties in the European Union, Japan or All Other Countries, and any Development issues related thereto;

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                         (3) GSK shall promptly provide HGS’ representatives to the JDC with copies of all proposed material correspondence between GSK and a Regulatory Authority concerning the CTA for the Collaboration Product being Developed by the Parties in the European Union, Japan and All Other Countries at least ten (10) days before the submission of such correspondence. GSK shall seriously consider all reasonable material suggestions and recommendations of HGS concerning such correspondence, to the extent feasible.

          8.1.3 MAAs and Regulatory Approvals in the European Union, Japan and All Other Countries. Unless otherwise agreed upon by the Parties or required by applicable Law, GSK or an Affiliate of GSK shall be responsible for obtaining, registering and maintaining all MAAs and Regulatory Approvals necessary to register and Commercialize a Collaboration Product in the European Union, Japan and All Other Countries. GSK or its Affiliate shall obtain, register and maintain such MAAs and Regulatory Approvals in accordance with the Development Plan and/or Marketing Plan and as directed by the JDC or GJMC using Diligent Efforts.

               (i) GSK or its Affiliate shall provide HGS with reasonable prior written notice of all material meetings and teleconferences between representatives of GSK and Regulatory Authorities regarding any MAA or Regulatory Approval for Collaboration Product. Consistent with all applicable Laws, HGS shall have the right to have one (1) or more representatives attend material meetings and conferences and participate in material telephone discussions with any Regulatory Authority concerning the MAA or Regulatory Approval for the Collaboration Product.

               (ii) GSK or its Affiliate shall promptly provide to HGS copies of any material documents or other correspondence received from the Regulatory Authorities (including without limitation any minutes of material meetings or teleconferences) pertaining to the MAA or Regulatory Approval for Collaboration Product being Co-Promoted by the Parties in the European Union, Japan and All Other Countries.

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               (iii) GSK or its Affiliate shall promptly provide HGS’ representatives to the JDC with copies of all proposed material correspondence between GSK or its Affiliate and a Regulatory Authority regarding the MAA or Regulatory Approval for such Collaboration Product being Co-Promoted by the Parties in the European Union, Japan and All Other Countries at least ten (10) days before the submission of such correspondence. GSK or its Affiliate shall seriously consider all reasonable material suggestions and recommendations of HGS concerning such correspondence, to the extent feasible.

               (iv) If HGS reasonably concludes that HGS must communicate with a Regulatory Authority regarding the MAA or Regulatory Approval for the Collaboration Product in the European Union, Japan and All Other Countries under this Agreement, then HGS shall promptly advise GSK. If GSK reasonably disagrees with HGS’ conclusion, the matter will be provided to the JDC for determination. If the JDC determined that HGS may communicate with a Regulatory Authority hereunder, HGS shall do so as follows:

                         (1) HGS shall provide GSK or its Affiliate with reasonable prior notice of all material meetings and teleconferences between representatives of HGS and the Regulatory Authority regarding any MAA or Regulatory Approval for the Collaboration Product. Consistent with all applicable Laws, GSK or its Affiliate shall have the right to have one (1) or more representatives attend material meetings and conferences and participate in material telephone discussions with any Regulatory Authority concerning the Development or Commercialization of Collaboration Product in the European Union, Japan or All Other Countries;

                         (2) HGS shall promptly provide to GSK or its Affiliate copies of any material documents or other correspondence received from the Regulatory Authorities (including without limitation any minutes of material meetings or teleconferences) pertaining to the MAA or Regulatory Approval for Collaboration Product being Co-Promoted by the Parties in the European Union, Japan or All Other Countries, and any Development or Commercialization issues related thereto;

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                         (3) HGS shall promptly provide GSK’s representatives to the JDC with copies of all proposed material correspondence between HGS and a Regulatory Authority concerning the MAA or Regulatory Approval for Collaboration Product being Co-Promoted by the Parties in the European Union, Japan and All Other Countries at least ten (10) days before the submission of such correspondence. HGS shall seriously consider all reasonable material suggestions and recommendations of GSK concerning such correspondence, to the extent feasible.

8.2 HGS Responsibilities. HGS shall fulfill and discharge all obligations under applicable Law, as well as procedures ensuring timely compliance with all Laws as are reasonable in accordance with accepted business practices and legal requirements to maintain the authorization and/or ability to Manufacture Collaboration Product in the Territory, and to Commercialize Collaboration Product in the Territory, including, without limitation, the following:

          8.2.1 The maintenance of all Regulatory Approvals necessary for the Manufacture of Collaboration Product in the Territory in accordance with cGMP, and for the use and Commercialization of Collaboration Product for all approved indications in the United States, including, without limitation, maintaining such records and filing such reports as may be required under the provisions of the U.S. Federal Food, Drug and Cosmetic Act, as well as all other Laws, including, without limitation, all advertising and promotional literature and labeling in the United States relating to Collaboration Product.

          8.2.2 Timely filing with appropriate Regulatory Authorities of all Adverse Event reports related to Collaboration Product in the United States. The procedures for sharing and reporting of Adverse Events encountered by each Party for Collaboration Product in the Territory shall be as set forth in a Safety Data Exchange Agreement, which shall be entered into by the Parties in accordance with the terms of Section 8.4 below.

          8.2.3 Creation of a master safety database which shall cross-reference any Adverse Events relating to Collaboration Product in the United States, in accordance with the

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Safety Data Exchange Agreement to be entered into by the Parties pursuant to Section 8.4.2 below.

          8.2.4 Medical Inquiries. Responsibility for responding to all medical inquiries in the Territory relating to Collaboration Product, including inquiries from the medical profession and inquiries for medical information relating to the Collaboration product, including, without limitation, prescription, sampling, and safety information, in accordance with procedures set forth in the Safety Data Exchange Agreement. GSK shall promptly communicate to HGS all comments, requests and inquiries of the medical profession or any other Third Parties for information relating to Collaboration Product of which it becomes aware. All responses to the medical profession or such other Third Parties shall be handled by HGS and all such responses made shall be communicated to the GJMC, except as otherwise mutually agreed. GSK shall provide reasonable cooperation to HGS to the extent deemed necessary by HGS to fully respond to such communications.

8.3 GSK Responsibilities. GSK shall fulfill and discharge all obligations under applicable Law, as well as procedures ensuring timely compliance with all Laws as are reasonable in accordance with accepted business practices and legal requirements to maintain the authorization and/or ability to Commercialize to Commercialize Collaboration Product in the Territory, including, without limitation, the following:

          8.3.1 The maintenance of all Regulatory Approvals either by GSK or its Affiliate(s) necessary for the use and Commercialization of Collaboration Product for all approved indications in the European Union, Japan and All Other Countries, including, without limitation, maintaining such records and filing such reports as may be required under the provisions of the U.S. Federal Food, Drug and Cosmetic Act, as well as all other Laws, including, without limitation, all advertising and promotional literature and labeling in the European Union, Japan and All Other Countries relating to Collaboration Product.

          8.3.2 Timely filing with appropriate Regulatory Authorities of all Adverse Event reports related to Collaboration Product in the European Union, Japan and All Other

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Countries. The procedures for sharing and reporting of Adverse Events encountered by each Party for Collaboration Product in the Territory shall be as set forth in the Safety Data Exchange Agreement to be entered into by the Parties in accordance with Section 8.4.2 below.

          8.3.3 Creation of a master safety database which shall cross-reference any Adverse Events relating to Collaboration Product in the European Union, Japan and All Other Countries, in accordance with procedures set forth in the Safety Data Exchange Agreement to be entered into by the Parties in accordance with Section 8.4 below.

8.4 Exchange of Safety Data.

          8.4.1 Clinical Studies Safety Data. During the conduct of clinical studies for the Collaboration Product, the Parties shall form a Product Safety Committee which shall manage the clinical studies safety data in ongoing clinical studies. All available blinded safety data and other safety issues will be reviewed by the Product Safety Committee every four (4) months, or more or less frequently, as determined and agreed by the members of the Product Safety Committee. The Product Safety Committee will consist of members from both GSK and HGS in accordance with HGS’ charter governing the formation and conduct of such committees. The Product Safety Committee will also have responsibility for (i) maintaining the benefit risk management plan for the Collaboration Product; and (ii) communication of safety issues with the JDC and JSC.

               (i) Resolution of Disputes. All decisions of the Product Safety Committee shall be made by unanimous vote, with each Party having one (1) vote. In the event the Parties are unable to reach agreement on a safety issue through the Product Safety Committee, for disputes concerning non-emergent safety issues, such disputes shall be elected to the Joint Development Committee and, if necessary, the Joint Steering Committee, for resolution. In the event the JDC and JSC are unable to resolve such issue, the matter will be submitted for resolution by arbitration, pursuant to Article 15. Notwithstanding the above, Section 3.1 or Article 15 below, in the event the Product Safety Committee cannot reach agreement on a particular issue, and such dispute relates to a safety issue where a rapid decision

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must be reached, the dispute shall be raised to the senior safety physician for each Party for immediate resolution.

          8.4.2 Safety Data Exchange Agreement. At least [***] before the submission of the first MAA in the Territory, the Parties will agree to the terms of a Safety Data Exchange Agreement to facilitate the management of safety for the product in accordance with the standards which are no less stringent than in the ICH Guidelines. The agreed terms of such Safety Data Exchange Agreement will ensure that:

               (i) The Parties will be able to comply with regulatory requirements for the reporting of safety data in accordance with standards stipulated in the ICH Guidelines, and all applicable Laws regarding the management of safety data, and

               (ii) The Parties will exchange relevant safety data within appropriate timeframes and in an appropriate format to enable them to meet both expedited and periodic regulatory reporting requirements.

     Furthermore, HGS will commit to establishment of mutually acceptable pharmacovigilance systems to the satisfaction of GSK in advance of safety data exchange commencing under this Agreement, and shall demonstrate those systems comprehensively to GSK prior to safety data exchange commencing.

8.5 Managed Care Contracts and Relationships. During the Term of the Agreement, GSK shall be responsible for all dealings related to Collaboration Product in the Territory with Managed Care Customers (as defined below), and shall manage the relationships with such customers with respect to the Collaboration Product. “Managed Care Customers” in this context shall mean health insurers, health maintenance organizations, pharmacy benefit management companies, any other organization, public or private, that pays or insures health or medical expenses on behalf of beneficiaries or recipients, retail pharmacies, hospitals, hospitals GPOs, long term care institutions or pharmacies, nursing homes, and other non-wholesaler purchase of Collaboration Product that are typically called on by GSK as potential contracted customers.

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GSK shall develop a strategic plan for approaching and dealing with Managed Care Customer accounts in order to enable GSK to carry out its obligations under this Section 8.5 in a manner which is consistent with both Parties’ objectives for the Product, which plan shall be reviewed and approved by the GJMC. [***]. To the extent possible and subject to GSK’s own requirements of confidentiality in relation to the same, GSK shall use Diligent Efforts to (i) identify Managed Care Customers, (ii) maximize geographic coverage in the Territory with such customers, (iii) enhance penetration of the managed care market and (iv) maximize Product sales to such customers, provided however, that, in no event will GSK be required to administer the Collaboration Product using systems, policies and procedures that are different from those systems, policies or procedures which GSK uses for other products in the GSK portfolio. [***].

8.6 Recalls, Market Withdrawals and Corrective Actions.

          8.6.1 United States. Prior to making a decision to implement any recall, market withdrawal or corrective action in the United States, the Parties will work together through the GJMC to determine the appropriate course of action. HGS shall have the responsibility for implementing any recall, market withdrawals or any other corrective action related to the Collaboration Product in the United States. At HGS’ request, GSK shall provide reasonable assistance to HGS in conducting such recall, market withdrawal or other corrective action in the United States, including handling recall communications, health hazard evaluations and recall classifications. The amount of any expenses incurred by either Party with respect to the conduct of any such recall, market withdrawal or other corrective action in the United States shall [***]. GSK shall notify HGS as soon as practicable of any recall information received by it with respect to the Collaboration Product in the United States to allow HGS to comply with any and all Laws imposed upon it in the United States. The Parties shall be jointly responsible for the expenses of recall, unless such recall is due to GSK’s [***] in which case GSK shall indemnify and hold HGS harmless for the cost of Collaboration Product recalled in accordance with Section 14.1. For the purposes of this Section 8.6.1, the expenses of recall shall be limited to the expenses of notification, initial shipment of the recalled Collaboration Product incurred by HGS to its customers, and destruction or return of the recalled Collaboration Product, the costs of

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Collaboration Product or any costs directly associated with the Manufacture of replacement Collaboration Product.

          8.6.2 European Union, Japan and All Other Countries. Prior to making a decision to implement any recall, market withdrawal or corrective action in the European Union, Japan or All Other Countries, the Parties will work together through the GJMC to determine the appropriate course of action. GSK shall have the responsibility for implementing any recall, market withdrawals or any other corrective action in the European Union, Japan and All Other Countries. Prior to making a decision to implement any such recall, market withdrawal or corrective action, GSK will consult with HGS as to same. At GSK’s request, HGS shall provide reasonable assistance to GSK in conducting such recall, market withdrawal or other corrective action in the European Union, Japan and All Other Countries, including handling recall communications, health hazard evaluations and recall classifications. The amount of any expenses incurred by either Party with respect to the conduct of any such recall, market withdrawal or other corrective action in the European Union, Japan and All Other Countries shall [***]. HGS shall notify GSK as soon as practicable of any recall information received by it with respect to the Collaboration Product in the European Union, Japan and All Other Countries to allow GSK to comply with any and all Laws imposed upon it in the European Union, Japan and All Other Countries. The Parties shall jointly be responsible for the expenses of recall, unless [***] in which case HGS shall indemnify and hold GSK harmless for the cost of Collaboration Product recalled in accordance with Section 14.2, including reasonable, documented out-of-pocket expenses related to implementation of a recall of any batch of Collaboration Product supplied by HGS due to breach of the warranties set forth in Sections 13.2.4 and 13.2.5 hereof. For the purposes of this Section 8.6.2, the expenses of recall shall be limited to the expenses of notification, initial shipment of the recalled Collaboration Product incurred by GSK to its customers, and destruction or return of the recalled Collaboration Product, the costs of Collaboration Product or any costs directly associated with the Manufacture of replacement Collaboration Product.

          8.6.3 Records. Each Party shall maintain complete and accurate records for such periods, but in no event for less than three (3) years for the Collaboration Product, including

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to the extent available to such Party distribution data related to sales of the Collaboration Product to end users by lot number.

          8.6.4 Mutual Cooperation. During the Term of the Agreement, the Parties shall notify each other as soon as practicable of any circumstances of which they are aware which arise whereby the integrity and reputation of the Collaboration Product or of the Parties are threatened by the unlawful activity of any Third Party in relation to the Collaboration Product, which circumstances shall include, by way of illustration, deliberate tampering with or contamination of Collaboration Product by any Third Party as a means of extorting payment from the Parties or another Third Party. In any such circumstances, the Parties shall, to a reasonable extent, cooperate fully to limit any Loss to the Parties.

8.7 Reasonable Assistance. GSK shall provide reasonable assistance to HGS with respect to communications from Governmental Authorities (as requested by HGS) in the Territory. Except as otherwise set forth in Section 8.1, all communications with Governmental Authorities in the United States concerning Collaboration Product shall be the sole responsibility of HGS and all communications with Governmental Authorities in the European Union, Japan and All Other Countries concerning Collaboration Product shall be the sole responsibility of GSK. Each Party shall provide reasonable cooperation to the other Party to the extent deemed necessary to fully respond to such communications.

8.8 Clinical Studies in the Territory.

          8.8.1 Unless otherwise agreed by the Parties or required by applicable Law, HGS shall own all data and reports related to Clinical Studies for Collaboration Product in the Territory. All data, database information and safety reports from such Clinical Studies for Collaboration Product in the Territory shall be centralized and held by HGS with copies of such data, information or reports provided to GSK.

          8.8.2 Clinical Trial Registry. Both Parties shall be permitted to publish on its Clinical Studies register summaries of results of all Clinical Studies conducted by either Party

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with respect to the Collaboration Product after the Effective Date of this Agreement without being required to obtain the other Party’s approval. Each Party shall inform the other Party in writing prior to publishing such Clinical Studies summaries of results on its Clinical Studies register.

8.9 Product Labeling. Upon direction of the GJMC, each Party shall include the other Party’s Housemark(s) on the labeling of the Collaboration Product and on all Promotional Materials, to the extent permissible by applicable Law, provided such does not create logistical, importation, quality, regulatory, tax or similar issues. Each Party’s Housemark(s) shall be included with equal prominence to the other Party’s Housemark(s), except to the extent prohibited by Law. Each Party shall conform to the guidelines provided by the other Party with respect to the manner of use of such Party’s Housemark(s) on Product Labeling.

8.10 Regulatory Affairs and Safety Monitoring Audit Right.

          8.10.1 During the Term of the Agreement, GSK shall have the right to audit compliance with the procedures set forth in this Article 8, including compliance with the Safety Data Exchange Agreement, at the offices of HGS on reasonable notice and no more than [***]. HGS’ drug safety and quality assurance personnel will be informed about the audit process in advance. Adequate time will be given for the preparation, conduct and evaluation of the audit process essential to gain reliable results. The results of such audit may be raised by GSK for discussion at the JDC and an appropriate plan for addressing any deficiency, or deficiencies, drawn up and it is hereby contemplated that such plan may involve GSK more actively assisting HGS in the fulfillment and discharge of its regulatory and safety reporting responsibilities as the Regulatory Approval holder for Collaboration Product in the European Union beyond that GSK assistance and activity already contemplated under this Agreement and assuming from HGS certain responsibilities itself in respect of such activities, as the Parties deem appropriate.

          8.10.2 During the Term of the Agreement, HGS shall have the right to audit compliance with the procedures with the procedures set forth in this Article 8, including compliance with the Safety Data Exchange Agreement, at the offices of GSK or the appropriate

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Affiliate on reasonable notice and no more than [***]. GSK’s (or its Affiliate’s) drug safety and quality personnel will be informed about the audit process in advance. Adequate time will be given for the preparation, conduct and evaluation of the audit process essential to gain reliable results. The results of such audit may be raised by HGS for discussion in the applicable Committee and an appropriate plan for addressing any deficiency, or deficiencies, drawn up and it is hereby contemplated that such plan may involve HGS more actively assisting GSK in the fulfillment and discharge of its regulatory and safety reporting responsibilities as the Regulatory Application and Regulatory Approval holder for Collaboration Product in the United States and Regulatory Application holder of the Collaboration Product the European Union beyond that HGS assistance and activity already contemplated under this Agreement and assuming from GSK certain responsibilities itself in respect of such activities, as the Parties deem appropriate.

ARTICLE 9

SUPPLY; MANUFACTURE AND DISTRIBUTION OF COLLABORATION PRODUCT

9.1 Supply of Collaboration Product for Commercialization in the United States.

          9.1.1 Subject to the terms and conditions of this Agreement, HGS shall supply, or obtain supply, for requirements of Collaboration Product in the United States to enable the Parties to fulfill their obligations to Commercialize Collaboration Products in the United States under this Agreement.

          9.1.2 With respect to Commercial Supplies of Collaboration Product supplied by HGS to GSK in the United States, HGS shall:

               (i) Supply to GSK on a consignment basis Collaboration Product in finished form ready for sale;

               (ii) Retain title and risk of loss to the Collaboration Product until such time as GSK ships Collaboration Product to a Third Party on HGS’ behalf, and

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               (iii) Assume responsibility for all shipping, insurance and other related expenses, provided that such expenses shall be allocated among the Parties.

9.2 Supply of Collaboration Product for Commercialization in the European Union, Japan and All Other Countries.

          9.2.1 Subject to the terms and conditions of this Agreement, HGS shall supply or obtains supply, of Collaboration Product in the European Union, Japan and All Other Countries to enable the Parties to fulfill their obligations to Commercialize Collaboration Product in the European Union, Japan and All Other Countries under this Agreement.

          9.2.2 With respect to Commercial Supplies of Collaboration Product supplied by HGS to GSK in the European Union, Japan and All Other Countries:

               (i) HGS shall supply Commercial Supplies of Collaboration Product to GSK [***] and GSK shall purchase its requirements of Commercial Supplies of Collaboration Product from HGS; and

               (ii) GSK shall be responsible for shipping, insurance and other related expenses, provided such expenses shall be allocated between the Parties.

9.3 Shelf Life. All Commercial Supplies of Collaboration Product shipped to GSK shall have expiration dating of no less than [***] of the shelf life of the Collaboration Product.

9.4 Safety Stock. HGS and GSK shall agree and implement an acceptable level of safety stock of Collaboration Product to be set forth in the Supply Agreement, which level shall be based on a formula that takes into account the average demand for Collaboration Product, the lead time necessary to Manufacture Collaboration Product and certain safety factors as determined by the JMC. The JMC may review and update the safety stock levels from time to time.

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9.5 Clinical and Commercial Supplies of Collaboration Product. With respect to all Clinical Supplies and Commercial Supplies of Collaboration Product provided by HGS, HGS will use reasonable efforts to ensure compliance with the relevant specifications and all Regulatory Approvals. All Clinical Supplies and Commercial Supplies of Collaboration Product will be fit for purpose and will have been Manufactured in compliance with applicable Laws, including cGMP.

9.6 Right to Review and Inspect. HGS shall grant GSK the right to review and inspect HGS’ Manufacturing and supply operations (including those of any subcontractor being used by HGS in the Manufacture and testing of Collaboration Product) to the extent that such operations relate to or may impact the Manufacture and supply of Collaboration Product. Such rights will be granted [***], upon reasonable prior notice, or at any time for cause. HGS will notify GSK of any regulatory inspection in relation to the Manufacture and sale of Collaboration Product, and provide copies of inspection findings (e.g., Form 483) and their responses. HGS shall consult with GSK before providing any such responses to any Regulatory Authority. GSK may attend such inspections to the extent that they relate to or may affect the Manufacture and supply of Collaboration Product.

9.7 Changes to Collaboration Product. HGS will consult with GSK, through the JMC and pursuant to the procedures outlined in Section 9.10, prior to making any change which may impact the characteristics, quality or performance of Collaboration Product.

9.8 Legal and Regulatory Responsibilities of HGS and GSK. HGS will provide GSK with all such information relating to the supplies of Collaboration Product as GSK may require in order to fulfill legal or regulatory responsibilities, and to fulfill its obligations under this Agreement.

9.9 Shortage of Supply; Failure to Supply. In the event of any supply shortage of Collaboration Product resulting in a conflict in any country or countries in the Territory, the Parties shall allocate priority for supply of Collaboration Product consistent with the respective sales and/or volume of Collaboration Product in each country affected. In the event that a material issue arises while HGS is Manufacturing supplies of Collaboration Product which

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would significantly impact HGS’ ability to deliver the mutually agreed amount of Collaboration Product to the mutually agreed quality specifications, including but not limited to issues relating to capacity, safety or quality, then the JMC must meet to consider and determine what reasonable Manufacturing alternatives are available to the Parties, including but not limited to: (i) granting GSK the right to step in and manage the existing supply chain; (ii) in the event of an extended supply interruption, granting GSK or a mutually acceptable Third Party the right to Manufacture the Collaboration Product; and (iii) providing technical transfer or such other assistance as necessary to effect the grant of rights in items (i) or (ii) above; provided, however, that the right of GSK to step in and manage the existing supply chain in such event shall be subject to review and approval by the JSC; and further provided, that in the event that the JSC cannot reach consensus on this issue, the Parties shall submit the issue for resolution in accordance with Article 15.

9.10 Supply and Distribution Agreement; Quality Agreement. The manufacture and supply of Collaboration Product to be provided by HGS hereunder shall be subject to a separate supply and distribution agreement and a quality agreement to be negotiated between the Parties hereto within [***] after the Effective Date, or such later date as shall be mutually agreed upon by the Parties, but in no event later than [***] prior to the Commercialization of Collaboration Product. For the avoidance of doubt, no Commercial Supplies of Collaboration Product shall be distributed unless and until the Parties enter the supply and distribution agreement and quality agreement. Such supply and distribution agreement and quality agreement shall reflect the terms and conditions agreed to herein and shall include any and all standard and customary terms addressing all aspects of the manufacturing process for the Collaboration Product and the responsibilities of each Party with respect thereto including without limitation:

          9.10.1 the establishment of a Joint Manufacturing Committee;

          9.10.2 full visibility of costs to supply Collaboration Product, Distribution Costs and agreed yields;

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          9.10.3 the establishment of an acceptable maximum number of failed Collaboration Product batches, which maximum number shall be determined by the Joint Manufacturing Committee based on a number of factors, including, but not limited to, the following: final specifications, a number of batches in a certain time frame (not in excess of a twelve (12) month period), process capability, and which actual acceptable number shall be included in the Cost of Goods calculation;

          9.10.4 the establishment of process yields based on a statistical assessment; and

          9.10.5 continuous improvement commitments designed to drive down the Cost of Goods for the mutual benefit of both Parties.

9.11 Forecasts. A forecast for Development and Commercialization of the Collaboration Products shall be prepared and periodically updated by the JMC and coordinated with the applicable Development and Marketing Plans for Collaboration Products through the appropriate Committee for Commercialization.

ARTICLE 10

PATENTS AND TRADEMARKS

10.1 Ownership. Subject to the license grants in Article 2 herein, HGS owns or controls the HGS Existing Know-How and HGS Existing Patent Rights and all HGS Arising Patent Rights and HGS Arising Know-How as well as all Product Trademarks and GSK owns or controls the GSK Arising Patent Rights and GSK Arising Know-How. Joint Arising Know-How and Joint Arising Patent Rights shall be jointly owned by HGS and GSK.

10.2 Filing, Prosecution and Maintenance of Patents.

          10.2.1 GSK will prepare, file, prosecute and maintain, GSK Arising Patent Rights. In the event that GSK intends to abandon or decline responsibility for any or all of GSK Arising Patent Rights, GSK shall provide reasonable prior written notice to HGS of such

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intention to abandon or decline responsibility, and HGS shall have the right to file, prosecute and maintain such GSK Arising Patent Rights         .

          10.2.2 HGS will prepare, file, prosecute and maintain all HGS Existing Patent Rights, Joint Arising Patent Rights and HGS Arising Patent Rights. HGS shall keep GSK advised on a quarterly basis, through the JDC, on the status of pending patent applications, including without limitation, the grant of any HGS Existing Patent Rights, Joint Arising Patent Rights and HGS Arising Patent Rights. HGS shall at all times during its filing, prosecution, and maintenance of the HGS Existing Patent Rights, Joint Arising Patent Rights and HGS Arising Patent Rights, use Diligent Efforts to protect the commercial value of and maintain the HGS Existing Patent Rights, Joint Arising Patent Rights and the HGS Arising Patent Rights.

          10.2.3 The Parties hereto shall share equally all costs and expenses relating to the preparation, filing, prosecution and maintenance of the HGS Existing Patent Rights, the Joint Arising Patent Rights, the GSK Arising Patent Rights and the HGS Arising Patent Rights relating to Collaboration Product.

10.3 Filing and Maintenance of Product Trademarks. Unless otherwise agreed by the Parties through the GJMC, GSK will prepare, file, register and maintain all Product Trademarks which are approved by the GJMC. GSK shall keep HGS advised on a quarterly basis, through the GJMC, on the status of pending Product Trademarks. GSK shall at all times during its filing, registration and maintenance of the Product Trademarks use Diligent Efforts to protect the commercial value and maintain the Product Trademarks.

10.4 Enforcement of Patents.

          10.4.1 In the event that either GSK or HGS becomes aware of any infringement of any issued patent with the Collaboration Technology which infringement involves the Collaboration Product, it will notify the other Party in writing to that effect within thirty (30) days. Any such notice shall include evidence to support an allegation of infringement by such Third Party.

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          10.4.2 HGS shall have the first right (but not the obligation), using counsel approved by both Parties, to bring suit to abate any infringement or misappropriation of the HGS Existing Patent Rights, Joint Arising Patent Rights and HGS Arising Patent Rights. HGS and GSK shall work together to determine strategies with regard to any such suit and HGS shall provide to GSK copies of all draft filings and take into account GSK’s comments on such filings. Both Parties will share the costs and expenses of any suit initiated by HGS pursuant to this Section 10.4.2 [***]. Any recovery or damages derived from such an action or suit shall be deemed Net Profits and will be shared by the Parties in accordance with Section 6.2.

          10.4.3 If HGS does not initiate a suit to abate any infringement or misappropriation in accordance with Section 10.4.2 within [***] after receiving notice thereof, GSK shall have the right, but not the obligation, using counsel of its choice, to bring suit to abate any infringement or misappropriation of the HGS Existing Patent Rights, the Joint Arising Patent Rights or the HGS Arising Patent Rights. The Parties will share the costs and expenses of any suit initiated by GSK pursuant to this Section 10.4.3 [***]. Any recovery or damages derived from such an action or suit shall be deemed Net Profits and shall be shared by the Parties in accordance with Section 6.2.

          10.4.4 GSK shall have the right (but not the obligation) to bring suit to abate any infringement or misappropriation of the GSK Arising Patent Rights. HGS will reasonably cooperate with GSK in preparing and presenting any such action or suit. Both parties will share the costs and expenses of any suit brought by GSK pursuant to this Section 10.4.4 [***]. Any recovery or damages derived from such an action or suit shall be deemed Net Profits and will be shared by the Parties in accordance with Section 6.2.

          10.4.5 If GSK does not initiate a suit to abate any infringement in accordance with Section 10.4.4 above within [***] after receiving notice thereof, HGS shall have the right, but not the obligation, using counsel of its choice, to bring suit to abate any infringement or misappropriation of the GSK Arising Patent Rights. GSK will reasonably cooperate with HGS in preparing and presenting any such suit or action. The Parties will share the costs and expenses

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of any suit initiated by HGS pursuant to this Section 10.4.5 [***]. Any recovery or damages derived from such an action or suit shall be deemed Net Profits and will be shared by the Parties in accordance with Section 6.2.

          10.4.6 Neither Party may enter into any settlement without the prior consent of the other Party, which shall not be unreasonably withheld, and may not make any statement, which admits that any of the Collaboration Technology licensed hereunder is invalid or unenforceable.

10.5 Enforcement of Product Trademarks.

          10.5.1 In the event that either GSK or HGS becomes aware of any infringement of any issued Product Trademark, it will notify the other Party in writing to that effect within thirty (30) days. Any such notice shall include evidence to support an allegation of infringement of such Product Trademark.

          10.5.2 GSK shall have the obligation, using counsel of its choice, to bring suit to abate any infringement or misappropriation of the Product Trademark. HGS will reasonably cooperate with GSK in preparing and presenting any such suit or action. Both Parties will share the costs and expenses of any suit or initiated by GSK pursuant to this Section 10.5.2 [***]. Any recovery of damages derived from such an action or suit shall be deemed Net Profits and will be shared by the Parties in accordance with Section 6.2.

10.6 Defense of Patents. In the event of the institution of any suit, opposition, revocation, nullity or interference proceeding by a Third Party against HGS or GSK related to the Patent Rights or Product Trademarks, the Party being sued shall promptly notify the other Party in writing within fifteen (15) business days. The Parties shall work together and cooperate with each other to determine strategies for defending , settling, and/or responding to, such suit, and the Parties shall choose counsel acceptable to both Parties. Neither Party may enter into any settlement without the prior consent of the other Party. Such consent shall not be unreasonably

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withheld. The Party being sued may seek partial indemnification from the other Party pursuant to Section 14.3.

ARTICLE 11

CONFIDENTIALITY

11.1 During the Term of this Agreement and for a period of [***] following the expiration or earlier termination hereof, each Party shall maintain in confidence the Confidential Information of the other Party, and shall not disclose, use or grant the use of the Confidential Information of the other Party except on a need-to-know basis to such Party’s Affiliates, directors, officers and employees, and such Party’s professional consultants and collaborators, to the extent such disclosure is reasonably necessary in connection with such Party’s activities as expressly authorized by this Agreement. To the extent that disclosure to any person is authorized by this Agreement, prior to disclosure, a Party shall obtain written agreement of such person to hold in confidence and not disclose, use or grant the use of the Confidential Information of the other Party except as expressly permitted under this Agreement. Each Party shall notify the other Party promptly upon discovery of any unauthorized use or disclosure of the other Party’s Confidential Information. Upon the expiration or earlier termination of this Agreement, each Party shall return to the other Party all tangible items regarding the Confidential Information of the other Party and all copies thereof; provided, however, that each Party shall have the right to retain one (1) copy for its legal files for the sole purpose of determining its obligations hereunder.

11.2 No public announcement or scientific publication relating to this Agreement and/or the Development, Manufacture or Commercialization of Collaboration Products, shall be made, either directly or indirectly, by any Party to this Agreement without first obtaining the approval of the other Party and agreement upon the nature and text of such announcement, such agreement and/or approval not to be unreasonably withheld. The Party desiring to make any such public announcement shall inform the other Party of the proposed announcement or disclosure at least ten (10) business days prior to public release, and shall provide the other Party with a written

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copy thereof, in order to allow such other Party to comment upon such announcement or disclosure, subject to the provisions of the previous sentence.

11.3 Notwithstanding the foregoing, the confidentiality obligations of Section 11.1 shall not include any information that: (a) is or hereafter becomes part of the public domain by public use, publication, general knowledge or the like through no wrongful act, fault or negligence on the part of receiving party; (b) can be demonstrated by documentation or other competent proof to have been in the receiving party’s possession prior to disclosure by the disclosing party; (c) is subsequently received by the receiving party from a Third Party who is not bound by any obligation of confidentiality with respect to said information; (d) is generally made available to Third Parties by disclosing party without restriction on disclosure; or (e) is independently developed by or for the receiving party without reference to the disclosing party’s Confidential Information.

11.4 The confidentiality obligations under this Article 11 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; 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.

11.5 Neither Party shall mention or otherwise use the name, Housemark, Trademark or trade name of the other party (or any abbreviation or adaptation thereof) in any publication, press release, promotional material or other form of publicity without the prior written approval of such other party in each instance. The restrictions imposed by this Section 11.5 shall not prohibit either Party from making any disclosure identifying the other Party that is required by applicable law or from making any disclosure where the information being disclosed has already been made publicly available.

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ARTICLE 12

TERM AND TERMINATION

12.1 Term. This Agreement will begin as of the Effective Date and will remain in effect until the expiration of the Tail Period (“Term”), unless earlier terminated in accordance with this Article 12.

12.2 GSK Right to Terminate. GSK may terminate this Agreement and all of GSK’s obligations with respect to Collaboration Product under this Agreement(s) in the event that GSK determines, in good-faith, and upon the basis of competent scientific or medical evidence, safety data, or data regarding commercial potential, that the Collaboration Product does not merit incurring further Development Expenses or Marketing Expenses, applying standards that GSK would normally apply to any of its own pipeline products having similar scientific characteristics, degree of technical complexity and hurdles, therapeutic value and projected market potential. In such case, GSK may terminate this Agreement upon [***] prior written notice. Furthermore, GSK may also terminate this Agreement and all of its obligations with respect to such Collaboration Product if Collaboration Product is not approved by FDA or EMEA for the Lead Indication upon [***] prior written notice. In either case, GSK shall be responsible for its share of the financial costs and expenses actually incurred and other noncancelable obligations during the relevant termination period, including costs and expenses as may be required for the completion of any ongoing Clinical Study in humans (in the event that no significant safety issue is presented by continuing such ongoing study), provided such costs and expenses are actually incurred during the termination period. For the avoidance of doubt, costs that are not pre-agreed, prior to the date of termination, by the Parties will be excluded. Notwithstanding the foregoing, GSK will not be responsible for ongoing costs incurred during the termination period if HGS executes an agreement with a new collaborator for the Collaboration Product during the termination period. HGS agrees to use Diligent Efforts to speed the transition of the project as quickly as possible.

12.3 Termination Upon Material Breach.

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          12.3.1 If either Party commits a material breach of this Agreement, the non-breaching Party shall have the right to terminate this Agreement by giving written notice of termination to the breaching Party in sufficient detail to ascertain and respond to the alleged breach. Termination shall take effect [***] after receipt of such notice unless the breach is corrected within the same time period, except as otherwise provided in Section 12.4.

          12.3.2 Notwithstanding the foregoing, if either Party fails to use Diligent Efforts with respect to its obligations hereunder and such failure amounts to a material breach of the Agreement, then the non-breaching Party shall have the right to give the breaching Party written notice thereof stating in reasonable detail the particular diligence failure(s). In such event, the breaching Party shall initiate a program to address the failure of diligence within [***] from the breaching Party’s receipt of such notice, and the period for the breaching Party to cure the lack of diligence shall not be longer than [***] from the breaching Party’s receipt of such notice, unless extended by the mutual written agreement of the Parties.

12.4 Effects of Termination.

          12.4.1 If HGS terminates in accordance with Section 12.3, then (i) all rights and licenses granted by HGS to GSK hereunder shall immediately terminate, and GSK shall have no right to any continued use of HGS Existing Patent Rights, HGS Existing Know-How, HGS Arising Patent Rights or HGS Arising Know-How, (ii) all rights and licenses granted by GSK to HGS hereunder shall immediately terminate and HGS shall have no right to any continued use of the GSK Arising Patent Rights and GSK Arising Know-How, and (iii) HGS shall not incur any additional costs, expenses or liabilities of any kind to GSK under this Agreement except for those costs, expenses or liabilities which have matured and accrued as of the effective date of termination.

          12.4.2 If GSK terminates this Agreement in accordance with Section 12.2, then all rights and licenses granted by HGS to GSK hereunder shall immediately terminate, and GSK shall have no right to any continued use of the HGS Existing Patent Rights, HGS Existing

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Know-How, HGS Arising Patent Rights or HGS Arising Know-How. Furthermore, HGS shall have no obligation to make any Active or Tail Period payments to GSK as provided above, unless such Active or Tail Payments are accrued and due prior to or during the termination period.

          12.4.3 If GSK terminates this Agreement in accordance with Section 12.3, then, (i) all rights and licenses granted by HGS to GSK hereunder shall immediately terminate, and GSK shall have no right to any continued use of the HGS Existing Patent Rights, HGS Existing Know-How, HGS Arising Patent Rights or HGS Arising Know-How, (ii) all rights and licenses granted by GSK to HGS hereunder shall immediately terminate and HGS shall have no right to any continued use of the GSK Arising Patent Rights and GSK Arising Know-How, and (iii) GSK shall not incur any additional costs, expenses or liabilities of any kind to HGS under this Agreement except for those costs, expenses or liabilities which have matured and accrued as of the effective date of termination. Furthermore, HGS shall have no obligation to make any Active or Tail Period payments to GSK as provided above, unless such Active or Tail Payments are accrued and due prior to or during the termination period.

12.5 Termination Upon Insolvency.

          12.5.1 Either Party may terminate this Agreement if, at any time, the other Party shall file in any court or agency pursuant to any statute or regulation of any state, country or jurisdiction, a petition in bankruptcy or insolvency or for reorganization or for an arrangement or for the appointment of a receiver or trustee of that Party or of its assets, or if the other Party proposes a written agreement of composition or extension of its debts, or if the other Party shall be served with an involuntary petition against it, filed in any insolvency proceeding, and such petition shall not be dismissed within [***] after the filing thereof, or if the other Party shall propose or be a Party to any dissolution or liquidation, or if the other Party shall make an assignment for the benefit of its creditors.

          12.5.2 All rights and licenses granted under or pursuant to this Agreement by GSK or HGS are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the

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U.S. Bankruptcy Code, licenses of right to “intellectual property” as defined under Section 101 of the U.S. Bankruptcy Code. The Parties agree that the Parties, as licensees of such rights under this Agreement, shall retain and may fully exercise all of their rights and elections under the U.S. Bankruptcy Code. The Parties further agree that, in the event of the commencement of a bankruptcy proceeding by or against either Party under the U.S. Bankruptcy Code, the Party hereto that is not a Party to such proceeding shall be entitled to a complete duplicate of (or complete access to, as appropriate) any such intellectual property and all embodiments of such intellectual property, which, if not already in the non-subject Party’s possession, shall be promptly delivered to it (a) upon any such commencement of a bankruptcy proceeding upon the non-subject Party’s written request therefor, unless the Party subject to such proceeding elects to continue to perform all of its obligations under this Agreement or (b) if not delivered under (a) above, following the rejection of this Agreement by or on behalf of the Party subject to such proceeding upon written request therefor by the non-subject Party.

12.6 The right of either Party to terminate this Agreement as herein above provided shall not be affected in any way by its waiver of or failure to take action with respect to any previous default. Any such termination shall be without prejudice to any further rights and remedies vested in the Parties. The license rights granted herein shall survive the bankruptcy or reorganization of either Party.

12.7 Survival. Expiration or termination of this Agreement for any reason, except as otherwise stated under this Agreement, shall be without prejudice to:

          12.7.1 Articles 1 (for interpretation purposes only), 6, 11, 12, 14, 15, and 16; and Section 10.1 which shall survive termination or expiration of this Agreement in accordance with their respective terms for the stated duration or indefinitely if no duration is stated; and

          12.7.2 either Party’s obligation to make any payments due pursuant to this Agreement which accrue prior to termination, and at the time of termination, all such payments due shall be made in full.

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ARTICLE 13

REPRESENTATIONS & WARRANTIES, COVENANTS

13.1 Representations and Warranties of Each Party. Each Party hereby represents and warrants to the other that:

          13.1.1 it is a corporation duly organized and validly existing under the law of the state of its incorporation;

          13.1.2 it has the full legal right and authority to enter into and perform all of the duties and obligations contemplated under this Agreement attributed to such Party, and to convey the rights and licenses granted to the other Party herein;

          13.1.3 the execution, delivery and performance of this Agreement by it has been duly authorized by all requisite corporate action, subject only to approval of its board of directors; and

          13.1.4 it has not entered into as of the Effective Date, and shall not at any time thereafter enter into any agreement, understanding, or other obligation or commitment which would prevent or conflict or otherwise encumber or interfere with the performance of its obligations or contemplated activities hereunder or the grant or exercise of any of the rights or licenses expressly granted to the other Party hereunder.

13.2 HGS Representations and Warranties. HGS hereby represents and warrants to GSK that:

          13.2.1 it is the owner of or controls all right, title and interest in and to the HGS Existing Patent Rights as defined herein and listed in Appendix A (as updated from time to time) and the HGS Existing Know-How for any use of Collaboration Product;

          13.2.2 it has provided GSK with true and complete copies of all contracts, agreements, understandings, arrangements and commitments with any Third Party pertaining to any part of the HGS Existing Patent Rights and HGS Existing Know-How and the use, transfer, access to, disclosure of, or grant of any right, title, interest or license in or to the same, solely as it relates to Collaboration Product; and

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          13.2.3 it has and will maintain insurance for products liability and general liability in accordance with standard and prudent practices in the pharmaceutical industry for products such as the Collaboration Products in amounts not less than [***] per incident and [***] annual aggregate, provided that such amounts shall increase to [***] when the Collaboration Product enters Phase III Clinical Studies and [***] at the time of First Commercial Sale of the Collaboration Product. Such insurance shall provide (i) product liability coverage and (ii) broad form contractual liability coverage for HGS’s indemnification under Section 14.2 of this Agreement.

          13.2.4 it has not used, in any capacity associated with or related to the Manufacture of Collaboration Product, the services of any persons who have been, or are in the process of being, debarred under 21 U.S.C. sec. 335 (a) or (b) or any comparable Law. Furthermore, neither HGS nor any of its officers, employees, or consultants has been convicted of an offense under (i) either a federal or state law that is cited in 21 U.S.C. sec. 335(a) as a ground for debarment, denial of approval, or suspension, or (ii) any other Law cited as a ground for debarment, denial or approval or suspension.

          13.2.5 the manufacture, generation, processing, distribution, transport, treatment, storage, disposal and other handling of Collaboration Product by HGS shall (i) be in accordance with and conform to the specifications agreed upon by the Parties, cGMPs, Laws and the Quality Agreement; (ii) be in accordance with and conform to the applicable standards specified by the United States Pharmacopeia and Pharmacopeial Forum and the European Pharmacopeia and Pharmacopeial Forum, and (iii) otherwise conform to any provisions of the applicable Laws not reflected in cGMPs and the Quality Agreement. The Collaboration Product will strictly comply with the specifications agreed upon by the Parties, shall be free from defects in materials and workmanship and shall not be adulterated or misbranded within the meaning of applicable Laws or the United States Federal Food, Drug and Cosmetic Act.

          13.2.6 as of the Effective Date, and except as set forth in Appendix E, it is not aware of any action, suit, inquiry, investigation or other proceeding threatened, pending or ongoing, brought by HGS or any Third Party that challenges or threatens the validity or

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enforceability of any of the HGS Existing Patent Rights or any other intellectual property licensed to GSK hereunder or that alleges that the use of any such intellectual property for Development and Commercialization of Collaboration Products as contemplated hereunder would infringe or misappropriate the intellectual property rights of any Third Party. In the event that HGS becomes aware of any such action or proceeding, it shall notify GSK in writing within fifteen (15) days.

          13.2.7 HGS is not in material breach or default of any provision or obligation under any of the Third Party license agreements.

          13.2.8 HGS is not aware of any valid patent, know-how or other intellectual property right owned or Controlled by HGS as of the Effective Date which is not licensed to GSK under Article 2, which HGS has reason to believe as of the Effective Date would be necessary or important for the Parties to Develop and/or Commercialize the Collaboration Product as contemplated hereunder.

          13.2.9 HGS has filed and prosecuted HGS Existing Patent Rights in good faith and complied with all duties of disclosure as required by the United States Patent and Trademark Office.

13.3 HGS Covenants. HGS hereby covenants that at no time during the Term of this Agreement shall HGS assign, transfer, encumber or grant rights in or with respect to any rights licensed to GSK hereunder or any portion or all of the HGS Existing Patent Rights, HGS Existing Know-How, HGS Arising Patent Rights, HGS Arising Know-How or HGS’ interest in the Joint Arising Patent Rights or Joint Arising Know-How that are inconsistent with the license grants and other rights reserved to GSK under this Agreement, provided, however, this covenant shall not affect the absolute right of HGS to transfer title to such HGS Existing Patent Rights, HGS Existing Know-How, HGS Arising Know-How, HGS Arising Patent Rights or its interest in Joint Arising Know-How and Joint Arising Patent Rights as well as its exclusively licensed rights to any successor to all or substantially all of that portion of HGS’ business relating to belimumab.

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13.4 GSK Representations and Warranties. GSK hereby represents and warrants to HGS that it is self-insured for products liability and general liability, and that it has and will maintain those coverages and other self-insured liability coverages in accordance with standard and prudent practices in the pharmaceutical industry for products such as the Collaboration Products in amounts not less than [***] per incident and [***] annual aggregate, provided that such amounts shall increase to [***] when the Collaboration Product enters Phase III Clinical Studies and [***] at the time of First Commercial Sale of the Collaboration Product. Such insurance shall provide (i) product liability coverage and (ii) broad form contractual liability coverage for GSK’s indemnification under Section 14.1 of this Agreement.

13.5 GSK Covenants. GSK covenants that at no time during the term of this Agreement shall GSK assign, transfer, encumber or grant rights in or with respect to any rights licensed to GSK hereunder or any portion or all of the GSK Arising Patent Rights, GSK Arising Know-How and GSK’s interest in the Joint Arising Patent Rights and Joint Arising Know-How that are inconsistent with the grants and other rights reserved to HGS under this Agreement; provided, however, this covenant shall not affect the absolute right of GSK to transfer title to such GSK Arising Patent Rights and GSK Arising Know-How or its interest in the Joint Arising Know-How and Joint Arising Patent Rights as well as its exclusive licensed rights under this Agreement to any successor to all or substantially all of that portion of GSK’s business relating to belimumab.

13.6 EXCEPT AS OTHERWISE PROVIDED IN THIS ARTICLE 13, NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A WARRANTY THAT ANY PATENT RIGHTS INCLUDED WITHIN COLLABORATION TECHNOLOGY ARE VALID OR ENFORCEABLE OR THAT EITHER PARTY’S EXERCISE OF COLLABORATION TECHNOLOGY DOES NOT INFRINGE ANY PATENT RIGHTS OF THIRD PARTIES.

13.7 EXCEPT AS OTHERWISE EXPRESSLY SET FORTH HEREIN, NEITHER PARTY MAKES ANY REPRESENTATIONS NOR EXTENDS ANY WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES

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OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED.

ARTICLE 14

INDEMNIFICATION

14.1 Indemnification by GSK. GSK shall defend, indemnify and hold harmless HGS, its Affiliates, and each of its or their respective directors, officers, shareholders, agents and employees (collectively, the “HGS Indemnitees”), from and against any and all liability, loss, damages, costs and expenses, including reasonable attorneys’ fees and expenses (“Costs”) resulting from any lawsuit or other legal proceeding brought by a Third Party asserting any legal claim, demand, or judgment (“Claims”) (i) arising out of the negligence or misconduct in the handling, storage, testing, transportation, advertising, promotion, distribution, sale, use, treatment or disposal of the Collaboration Product by, on behalf of or through GSK or any Third Party granted rights by GSK hereunder; (ii) the violation of any applicable federal, state or local law or regulation by any GSK Indemnitee, or (iii) a breach by GSK of any of its representations, warranties or covenants hereunder, or (iv) failure by GSK to comply with the terms of any safety data exchange agreement to be entered into by the Parties pursuant to Section 8.4.2; provided, however, the indemnity provided hereunder shall not under any circumstances extend to any Cost or Claim asserted against an HGS Indemnitee to the extent such Cost or Claim is attributable to the gross negligence, willful misconduct or material breach of this Agreement of or by any such HGS Indemnitee or to the extent subject to indemnity by HGS pursuant to Section 14.2 below. GSK shall have the exclusive right to control the defense of any action which is to be indemnified by GSK hereunder, including the right to select counsel reasonably acceptable to HGS to defend HGS Indemnitees and to settle such action; provided that, without the written consent of HGS (which shall not be unreasonably withheld or delayed), GSK shall not agree to settle any claim against an HGS Indemnitee to the extent such claim has a material adverse effect on HGS or such settlement consists of obligations other than the payment of money.

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14.2 Indemnification by HGS. HGS shall defend, indemnify and hold harmless GSK, its Affiliates and each of its or their respective directors, officers, shareholders, agents and employees (“GSK Indemnitees”), from and against any and all Costs, resulting from any Claims (i) arising out of the negligence or misconduct in the handling, storage, design, manufacture, testing, transportation, advertising, promotion, distribution, sale, use, treatment or disposal of the Collaboration Product by, on behalf of or through HGS or any Third Party granted rights by HGS; (ii) the violation of any applicable federal, state or local law or regulation by any HGS Indemnitee, (iii) a breach by HGS of any of its representations, warranties or covenants hereunder, or (iv) failure by HGS to comply with the terms of any safety data exchange agreement entered into by the Parties pursuant to Section 8.4.2; provided, however, that the indemnity provided hereunder shall not under any circumstances extend to any Cost or Claim asserted against a GSK Indemnitee to the extent such Cost or Claim is attributable to the gross negligence, willful misconduct or material breach of this Agreement of or by any such GSK Indemnitee or to the extent subject to indemnity by GSK under Section 14.1. HGS shall have the exclusive right to control the defense of any action which is to be indemnified by HGS hereunder, including the right to select counsel reasonably acceptable to GSK to defend GSK Indemnitees and to settle such action; provided that, without the written consent of GSK (which shall not be unreasonably withheld or delayed), HGS shall not agree to settle any claim against a GSK Indemnitee to the extent such claim has a material adverse effect on GSK or such settlement consists of obligations other than the payment of money.

14.3 Each Party shall be responsible for a percentage of all Costs resulting from any Claims which are not covered under Sections 14.1 or 14.2 above and which (i) arise out of the joint Development (as described in Section 4.2, except for independent Development by one Party as outlined in Section 4.3) or joint Commercialization (as described in Article 5, except as set forth in Section 5.3.1(ii)) of a Collaboration Product by the Parties pursuant to this Agreement or (ii) are brought against either Party or its indemnities alleging infringement or misappropriation of the intellectual property rights of any Third Party to the extent based upon or attributable to the Collaboration Technology (subject to Section 14.3.1 below), or (iii) arise out of a claim of inequitable conduct brought before the United States Patent and Trademark Office and any resulting antitrust claims arising therefrom. [***].

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          14.3.1 If a Claim is brought against either Party alleging infringement or misappropriation of the intellectual property rights of a Third Party to the extent based upon or attributable to a patent forming part of the Collaboration Technology which claims a method of use of the Collaboration Product for a specific indication, then the [***].

14.4 A Party will promptly notify the indemnifying Party of receipt of notice of any such Claim and shall cooperate fully with the indemnifying Party in the defense of all such Claims. Failure of an indemnified Party to provide notice of a Claim to the indemnifying Party shall affect indemnified Party’s right to indemnification only to the extent that such failure has a material adverse effect on the indemnifying Party’s ability to defend or the nature or the amount of the liability. GSK shall have the right to assume the defense of any Claim related to the liability set forth in Section 14.1 above if it has assumed responsibility for the suit or claim in writing and HGS shall have the right to assume the defense of any Claim related to the liability set forth in Section 14.2 above if it has assumed responsibility for the suit or claim in writing; however, if in the reasonable judgment of the indemnified Party, such Claim involves an issue or matter which could have a materially adverse effect on the business operations or assets of such indemnified Party, the indemnified Party may waive its rights to indemnity under this Agreement and control the defense or settlement thereof, but in no event shall any such waiver be construed as a waiver of any indemnification rights the indemnified Party may have at law or in equity. If the indemnifying Party defends the Claim, the indemnified Party may participate in (but not control) the defense thereof at its sole cost and expense.

ARTICLE 15

DISPUTE RESOLUTION

15.1 All disputes between the Parties arising under this Agreement shall be in the first instance referred to the JSC for resolution. The JSC will have [***] after submission of a dispute to work together in good faith to reach a reasonable resolution of such dispute. If, after [***] and good faith efforts, the JSC or its Senior Officers fail to reach consensus on the resolution of such dispute as set forth in Section 3.1, then (i) disputes relating to Development of a Collaboration

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Product shall be elevated to GSK’s [***] for resolution; (ii) disputes relating to Manufacturing of Collaboration Product shall be elevated to [***] for resolution, and (iii) disputes relating to the Commercialization of a Collaboration Product shall be elevated to [***] for resolution.

15.2 Arbitration.

          15.2.1 If the dispute is not fully resolved pursuant to Section 15.1 to the mutual satisfaction of the Parties, the dispute shall be resolved by binding arbitration administered by the American Arbitration Association (“AAA”) under its Commercial Arbitration Rules then in effect, except as otherwise provided for herein. The arbitration will be conducted in Washington, D.C. Within [***] after initiation of the arbitration proceeding by a Party and notice to the other Party, the Parties shall select, by mutual agreement, one arbitrator, with an expertise in the subject matter of this Agreement. Should no arbitrator be chosen within such period, then each Party shall select an arbitrator within [***] after the end of such period and the two arbitrators will select a mutually agreeable third arbitrator within [***].

          15.2.2 The Parties agree that the arbitrator(s) shall use [***] for resolving the dispute, as set forth in the AAA guidelines. The arbitrator shall set the date, time, and place of the hearing, to be scheduled to take place within [***] of confirmation of the arbitrator’s appointment. In advance of the hearing, each Party shall submit to the arbitrator(s), and exchange with each other, [***]. After the hearing the arbitrator(s) shall be limited to awarding [***].

          15.2.3 Within [***] after the hearing, the arbitrator(s) shall decide the matter by [***].

          15.2.4 Unless otherwise agreed to by the Parties, the arbitrator(s)shall make such decisions based on the following factors in descending order of importance: (a) consistency with the provisions of this Agreement; (b) consistency with the intent of the Parties as reflected in this Agreement; and (c) customary and reasonable provisions included in comparable agreements.

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          15.2.5 The decision of the arbitrator(s) will be binding upon the Parties without the right of appeal, and judgment upon the decision may be entered in any court having jurisdiction thereof. The Parties shall be responsible for their own legal fees and expenses incurred in the arbitration. The arbitrator(s)’ fees travel and other expenses, as well as AAA administrative fees, shall be borne equally by the Parties.

ARTICLE 16

MISCELLANEOUS

16.1 This Agreement sets forth the complete, final and exclusive agreement and all the covenants, promises, agreements, warranties, representations, conditions and understandings between the Parties hereto and supersedes and terminates all prior agreements and understandings between the Parties. There are no covenants, promises, agreements, warranties, representations, conditions or understandings, either oral or written, between the Parties other than as are set forth herein and therein. No subsequent alteration, amendment, change or addition to this Agreement shall be binding upon the Parties unless reduced to writing and signed by an authorized officer of each Party.

16.2 Both Parties shall be excused from the performance of their obligations under this Agreement to the extent that such performance is prevented by force majeure and the nonperforming Party promptly provides notice of the prevention to the other Party. Such excuse shall be continued so long as the condition constituting force majeure continues and the nonperforming Party takes reasonable efforts to remove the condition. For purposes of this Agreement, force majeure shall include conditions beyond the control of the Parties, including without limitation, an act of God, voluntary or involuntary compliance with any regulation, law or order of any government, war, civil commotion, labor strike or lock-out, epidemic, failure or default of public utilities or common carriers, destruction of production facilities or materials by fire, earthquake, storm or like catastrophe; provided, however, the payment of invoices due and owing prior to such force majeure event shall not be delayed by the payor because such a force majeure event affecting the payor; provided, further, that in the event the suspension of performance continues for [***] after the date of the occurrence, and such failure to perform

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would constitute a material breach of this Agreement in the absence of such force majeure, the non-breaching Party may terminate this Agreement pursuant to Section 12.3 by written notice to the other Party.

16.3 Any notice required or permitted to be given under this Agreement shall be in writing, shall specifically refer to this Agreement and shall be deemed to have been sufficiently given for all purposes upon the date of receipt if mailed by first class certified or registered mail, postage prepaid, express delivery service or personally delivered or upon the date of a confirmed facsimile transfer. Unless otherwise specified in writing, the mailing addresses of the Parties shall be as described below.

For HGS:
Human Genome Sciences, Inc.
14200 Shady Grove Road
Rockville, MD 20850
Attn: Chief Commercial Officer
With a Copy to: General Counsel

For GSK:
Alliance Management
WW Business Development
GlaxoSmithKline
Medicines Research Centre
Gunnels Wood Road
Stevenage SG1 2NY
UK
Fax: +44 1438 763276
Attention: Alliance Manager

With a copy to:
GlaxoSmithKline

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2301 Renaissance Boulevard
Mail Code: RN0220
King of Prussia, PA 19406
Fax: 610-787-7084
Attention: General Counsel

16.4 Whenever provision is made in this Agreement for either Party to secure the consent or approval of the other, that consent or approval shall not unreasonably be withheld or delayed, and whenever in this Agreement provisions are made for one Party to object to or disapprove a matter, such objection or disapproval shall not unreasonably be exercised.

16.5 Neither Party may assign or transfer this Agreement or any rights or obligations hereunder without the prior written consent of the other Party, except that either Party may make such an assignment without the other Party’s consent to Affiliates or to a successor to substantially all of the pharmaceutical business of the assigning Party relating to the subject matter of this Agreement, whether in a merger, sale of stock, sale of assets or other transaction. Any permitted successor or assignee of rights and/or obligations hereunder shall, in writing to the non-assigning or non-transferring Party, expressly assume performance of such rights and/or obligations. This Agreement and the provisions hereof shall be binding upon and inure to the benefit of the successors, heirs, administrators and permitted assignees of the respective Parties. Any assignment or attempted assignment by either Party in violation of the tenets of this Section 16.5 shall be null and void and of no legal effect.

16.6 Each of HGS and GSK acknowledges that obligations under this Agreement may be performed by Affiliates of HGS and GSK. Each of HGS and GSK guarantee performance of this Agreement by its Affiliates.

16.7 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.

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16.8 Each Party agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.

16.9 If any one or more of the provisions of this Agreement is held to be invalid or unenforceable, the provision shall be considered severed from this Agreement and shall not serve to invalidate any remaining provisions hereof. The Parties shall make a good faith effort to replace any invalid or unenforceable provision with a valid and enforceable one such that the objectives contemplated by the Parties when entering this Agreement may be realized.

16.10 This Agreement shall be governed by and construed in accordance with the laws of Delaware, as if executed and fully performed within Delaware, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this agreement to the substantive law of another jurisdiction. Any disputes under this Agreement shall be subject to the exclusive jurisdiction and venue of the Delaware state courts and the Federal courts located in Delaware, and the parties hereby consent to the personal and exclusive jurisdiction and venue of these courts.

16.11 Any delay in enforcing a Party’s rights under this Agreement or any waiver as to a particular default or other matter shall not constitute a waiver of such Party’s rights to the future enforcement of its rights under this Agreement, excepting only as to an express written and signed waiver as to a particular matter for a particular period of time.

[SIGNATURE PAGES TO FOLLOW]

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     IN WITNESS WHEREOF, the Parties, through their authorized officers, have executed this Co-Development and Commercialization Agreement as of the Effective Date.

HUMAN GENOME SCIENCES, INC.		GLAXO GROUP LIMITED
By:		By:
	H. Thomas Watkins
	Chief Executive Officer
			(Printed Name)
			(Title)

94

Appendix A

[***]

[***] 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.

95

Appendix B

[***]

[***] 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.

96

Appendix C

[***]

[***] 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.

97

Appendix D

[***]

[***] 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.

98

Appendix E

[***]

[***] 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.

99

EX-10.26

Exhibit 10.26

SECOND AMENDMENT TO THE EMPLOYMENT AGREEMENT
BY AND BETWEEN
HUMAN GENOME SCIENCES, INC. AND H. THOMAS WATKINS

     WHEREAS, HUMAN GENOME SCIENCES, INC. (the “Company”) and H. THOMAS WATKINS (“Executive”) have entered into an employment agreement, dated as of November 21, 2004, as amended (the “Employment Agreement”);

     WHEREAS, the Company and Executive now desire to further amend the Employment Agreement to ensure compliance with Section 409A of the Internal Revenue Code of 1986, as amended, and the Treasury regulations and other guidance promulgated thereunder and to extend Executive’s air travel reimbursement benefit; and

     WHEREAS, Section 14 of the Employment Agreement provides that all amendments must be in writing signed by both parties;

     NOW, THEREFORE, the Employment Agreement is hereby amended as follows:

1.	Effective as of October 27, 2008, Section 4(h)(ii) is hereby amended in its entirety as follows:
	“(ii) The Company will also reimburse Executive for weekly roundtrip coach class commercial air travel to Chicago, Illinois and related expenses through November 21, 2009, or until the earlier relocation of his family to the Maryland/Virginia/Washington D.C. area; such reimbursement of related expenses shall be in accordance with the Company’s policies then in existence.”
2.	Section 5(f) is hereby amended by deleting therefrom the following sentence:
	“Such Date of Termination, in each case, is the date as of which the Company and Executive reasonably anticipate that no further services will be performed by Executive and shall be construed as the date Executive first incurs a “separation from service” as defined under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).”
3.	Section 18(vi) is hereby amended in its entirety to read as follows:
	“(vi) “Termination of employment,” “Date of Termination,” “resignation,” or words of similar import, as used in this Agreement means, for purposes of any payments under this Agreement that are payments of deferred compensation subject to Section 409A of the Code, the Executive’s “separation from service” as defined in Section 409A of the Code. If a payment obligation under this Agreement arises on account of Executive’s separation from service while he is a “specified employee” (as defined under Section 409A of the Code and determined in good faith by the Compensation Committee), any payment of “deferred compensation” (as defined under Treasury Regulation Section 1.409A-1(b)(1), after giving effect to the exemptions in Treasury Regulation Sections 1.409A-1(b)(3) through (b)(12)) that is scheduled to be paid within six months after such separation from service shall accrue with interest and shall be made within 15 days after the end of the six-month period beginning on the date of such separation from service or, if earlier, within 15 days after appointment of the personal representative or executor of Executive’s estate following his death. For purposes of the preceding sentence, interest shall accrue at the prime rate of interest published in the northeast edition of The Wall Street Journal on the date of Executive’s separation from service.”
4.	In all other respects, the Employment Agreement is hereby ratified and confirmed.

     IN WITNESS WHEREOF, the Company and Executive hereby amend the Employment Agreement, effective as of the first day of January, 2009, except as otherwise provided herein.

H. THOMAS WATKINS		WITNESS:
/s/ H. Thomas Watkins		Cynthia Howland
HUMAN GENOME SCIENCES, INC.		ATTEST:
By:	/s/ James H. Davis, Ph.D	Rose Hadidian
	James H. Davis, Ph.D.

Title: Executive Vice President

EX-10.27

Exhibit 10.27

FORM OF FIRST AMENDMENT TO EXECUTIVE AGREEMENT

This FIRST AMENDMENT TO EXECUTIVE AGREEMENT (the “Amendment”) is entered into this ___day of December, 2008, by and between Human Genome Sciences, Inc. (the “Company”) and ___(the “Executive”) and serves to amend that certain Executive Agreement made and entered into as of the ___day of ___, 20___, by and between the Company and the Executive (the “Executive Agreement”).

WHEREAS, the Executive Agreement, by its terms, is intended to comply with, or otherwise be exempt from, Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”) and any regulations and Treasury guidance promulgated thereunder; and

WHEREAS, the Executive Agreement provides that the Company and the Executive agree that they will execute any and all amendments as they mutually agree in good faith may be necessary to ensure compliance with the provisions of Section 409A; and

WHEREAS, the Company and the Executive mutually agree that certain revisions to the Executive Agreement are advisable to ensure compliance with Section 409A.

NOW, THEREFORE, the Executive Agreement is amended, effective as of January 1, 2009, as follows:

1. Section 16(vi) is amended in its entirety to read as follows:

“(vi) “Termination of employment,” “Date of Termination,” “resignation,” or words of similar import, as used in this Agreement means, for purposes of any payments under this Agreement that are payments of deferred compensation subject to Section 409A of the Code, the Executive’s “separation from service” as defined in Section 409A of the Code.”

2. Section 16(vii) is amended in its entirety to read as follows:

“(vii) If a payment obligation under this Agreement arises on account of Executive’s separation from service while Executive is a “specified employee” (as defined under Section 409A of the Code and determined in good faith by the Compensation Committee), any payment of “deferred compensation” (as defined under Treasury Regulation Section 1.409A-1(b)(1), after giving effect to the exemptions in Treasury Regulation Sections 1.409A-1(b)(3) through (b)(12)) that is scheduled to be paid within six months after such separation from service shall accrue with interest and shall be made within 15 days after the end of the six-month period beginning on the date of such separation from service or, if earlier, within 15 days after appointment of the personal representative or executor of Executive’s estate following Executive’s death. For purposes of the preceding sentence, interest shall accrue at the prime rate of interest published in the northeast edition of The Wall Street Journal on the date of Executive’s separation from service.”

IN WITNESS WHEREOF, this First Amendment to Executive Agreement is executed as of the date first written above by the Executive and by a duly authorized officer of the Company on behalf of the Company.

[NAME OF EXECUTIVE]		WITNESS:
(“Executive”)
HUMAN GENOME SCIENCES, INC.		ATTEST:
(“Company”)
By:
	H. Thomas Watkins
Title:   President and Chief Executive Officer

EX-10.28

Exhibit 10.28

FORM OF FIRST AMENDMENT TO THE
HUMAN GENOME SCIENCES, INC.
SECOND AMENDED AND RESTATED KEY EXECUTIVE SEVERANCE PLAN

WHEREAS, the Second Amended and Restated Key Executive Severance Plan (the “Plan”), by its terms, is intended to comply with, or otherwise be exempt from, Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”) and any regulations and Treasury guidance promulgated thereunder; and

WHEREAS, the Compensation Committee (the “Committee”) of the Board of Directors of Human Genome Sciences, Inc. (the “Corporation”), upon advice of counsel, has determined that certain revisions to the Plan are advisable to ensure compliance with Section 409A.

NOW, THEREFORE, the Plan is amended, effective as of January 1, 2009, as follows:

1. Section 3.5(vi) is amended in its entirety to read as follows:

“(vi) “Termination of employment,” “resignation,” or words of similar import, as used in the Plan means, for purposes of any payments under the Plan that are payments of deferred compensation subject to Section 409A of the Code, the Participant’s “separation from service” as defined in Section 409A of the Code.”

2. Section 3.5(vii) is amended in its entirety to read as follows:

“(vii) If a payment obligation under this Plan arises on account of Participant’s separation from service while Participant is a “specified employee” (as defined under Section 409A of the Code and determined in good faith by the Compensation Committee), any payment of “deferred compensation” (as defined under Treasury Regulation Section 1.409A-1(b)(1), after giving effect to the exemptions in Treasury Regulation Sections 1.409A-1(b)(3) through (b)(12)) that is scheduled to be paid within six months after such separation from service shall accrue at the Prime Rate of interest and shall be made within 15 days after the end of the six-month period beginning on the date of such separation from service or, if earlier, within 15 days after appointment of the personal representative or executor of Participant’s estate following Participant’s death.”

IN WITNESS WHEREOF, the Company has caused this First Amendment to be executed by its duly authorized officer this ___day of December, 2008.

ATTEST:	HUMAN GENOME SCIENCE, INC.
By:	By:
	Its:

EX-12.1

EXHIBIT 12.1

Ratio of Earnings to Fixed Charges
(dollars in thousands, except ratio data)

	Year Ended December 31,
	2008			2007			2006			2005			2004
Fixed Charges:
Interest expense on indebtedness (including amortization of debt expense and discount)	$	39,483		$	39,341		$	29,492		$	17,849		$	22,868
Interest expense on portion of rent expense representative of interest		20,018			20,211			19,899			14,614			9,089
Total Fixed Charges	$	59,501		$	59,552		$	49,391		$	32,463		$	31,957
Earnings (Loss):
Net loss before provision for income taxes	$	(244,915	)	$	(262,448	)	$	(251,173	)	$	(239,439	)	$	(242,898	)
Fixed Charges per above		59,501			59,552			49,391			32,463			31,957
Total Earnings (Loss)	$	(185,414	)	$	(202,896	)	$	(201,782	)	$	(206,976	)	$	(210,941	)
Ratio of Earnings to Fixed Charges		—			—			—			—			—
Coverage deficiency(1)(2)(3)	$	(244,915	)	$	(262,448	)	$	(251,173	)	$	(239,439	)	$	(242,898	)

(1)	The Company’s Coverage deficiency for 2008 includes a gain on the sale of an equity investment of $32,518, partially offset by a charge for impaired investments of $6,284.
(2)	The Company’s Coverage deficiency for 2006 includes charges for lease termination and restructuring of $29,510 partially offset by a gain on the sale of an equity investment of $14,759.
(3)	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.

EX-21.1

EXHIBIT 21.1

Subsidiaries

Name	Jurisdiction of Incorporation
Human Genome Sciences Pacific Pty Ltd.	Australia
Human Genome Sciences Europe GmbH	Germany

EX-23.1

EXHIBIT 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the following Registration Statements:

(1)	Registration Statement (Form S-3 No. 333-121724) of Human Genome Sciences, Inc.,
(2)	Registration Statement (Form S-3 No. 333-123472) of Human Genome Sciences, Inc.,
(3)	Registration Statement (Form S-3 No. 333-128874) of Human Genome Sciences, Inc.,
(4)	Registration Statement (Form S-3 No. 333-155769) of Human Genome Sciences, Inc.,
(5)	Registration Statement (Form S-8 No. 333-44798) of Human Genome Sciences, Inc. 2000 Stock Incentive Plan and Human Genome Sciences, Inc. Employee Stock Purchase Plan,
(6)	Registration Statement (Form S-8 No. 333-66670) of Human Genome Sciences, Inc. Amended and Restated 2000 Stock Incentive Plan,
(7)	Registration Statement (Form S-8 No. 333-89392) of Human Genome Sciences, Inc. Amended and Restated 2000 Stock Incentive Plan,
(8)	Registration Statement (Form S-8 No. 333-104219) of Human Genome Sciences, Inc. Amended and Restated 2000 Stock Incentive Plan,
(9)	Registration Statement (Form S-8 No. 333-142713) of Human Genome Sciences, Inc. Employee Stock Purchase Plan and Non-Employee Director Equity Compensation Plan,
(10)	Registration Statement (Form S-8 No. 333-156334) of Human Genome Sciences, Inc. Employee Stock Purchase Plan

of our reports dated February 26, 2009, with respect to the consolidated financial statements of Human Genome Sciences, Inc., and the effectiveness of internal control over financial reporting of Human Genome Sciences, Inc., included in this Annual Report (Form 10-K) for the year ended December 31, 2008.

/s/ Ernst & Young LLP

Baltimore, Maryland

February 26, 2009

EX-31.1

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, 2008 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

President and Chief Executive Officer

(Principal Executive Officer)

Date: February 26, 2009

EX-31.2

EXHIBIT 31i.2

I, Timothy C. Barabe, certify that:

1. I have reviewed this Annual Report on Form 10-K for the period ended December 31, 2008 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/  Timothy C. Barabe

Timothy C. Barabe

Senior Vice President and Chief Financial Officer

(Principal Financial Officer)

Date: February 26, 2009

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, President and Chief Executive Officer (principal executive officer) of Human Genome Sciences, Inc. (the “Registrant”), certify, to the best of my knowledge, based upon a review of the Annual Report on Form 10-K for the period ended December 31, 2008 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: February 26, 2009

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, Timothy C, Barabe, Senior 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, 2008 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/  Timothy C. Barabe

Name:     Timothy C. Barabe

Date: February 26, 2009