-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SXfKPvXY6Y33ADsuIF78YvfLBcrwH0F0++pwqfaX/MS5X7RTmrSVuJqdKTKX/Pm4 MLajWQ90A1gYjHM1wp/JoQ== 0000913610-03-000040.txt : 20030814 0000913610-03-000040.hdr.sgml : 20030814 20030814133345 ACCESSION NUMBER: 0000913610-03-000040 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20030814 FILED AS OF DATE: 20030814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SANGSTAT MEDICAL CORP CENTRAL INDEX KEY: 0000913610 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 943076069 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22890 FILM NUMBER: 03845653 BUSINESS ADDRESS: STREET 1: 6300 DUMBARTON CIRCLE CITY: FREMONT STATE: CA ZIP: 94555 BUSINESS PHONE: 5107894300 MAIL ADDRESS: STREET 1: 6300 DUMBARTON CIRCLE CITY: FREMONT STATE: CA ZIP: 94555 10-Q 1 form10-q_final.htm FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

		For the quarterly period ended June 30, 2003

OR

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

		Commission File Number: 0-22890


SANGSTAT MEDICAL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		94-3076-069

(State of incorporation)		(IRS Employer Identification No.)

6300 Dumbarton Circle
Fremont, CA 94555

(Address of principal executive office, Zip Code)

Registrant’s telephone number, including area code: 510-789-4300

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes

o No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

x Yes

o No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

CLASS		NUMBER OF SHARES

Common Stock		26,474,774*

* As of July 31, 2003

SANGSTAT MEDICAL CORPORATION
FORM 10-Q
INDEX

PART I. FINANCIAL INFORMATION

		Page
ITEM 1.	Financial Statements

	Condensed Consolidated Balance Sheets June 30, 2003 and December 31, 2002	3

	Condensed Consolidated Statements of Operations Three and Six Months Ended June 30, 2003 and 2002	4

	Condensed Consolidated Statements of Comprehensive Loss Three and Six Months Ended June 30, 2003 and 2002	4

	Condensed Consolidated Statements of Cash Flows Six Months Ended June 30, 2003 and 2002	5

	Notes to Condensed Consolidated Financial Statements	6

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

ITEM 3.	Quantitative and qualitative disclosures about market risk	36

ITEM 4.	Controls and Procedures	36

PART II. OTHER INFORMATION

ITEM 1.	Legal Proceedings	36

ITEM 2.	Changes in Securities and Use Of Proceeds	39

ITEM 3.	Defaults upon Senior Securities	39

ITEM 4.	Submission of Matters to a Vote of Security Holders	39

ITEM 5.	Other Information	40

ITEM 6.	Exhibits and Reports on Form 8-K	40

SIGNATURES		44

SANGSTAT MEDICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par values)

	June 30, 2003			December 31, 2002 (1)

	(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	80,051		$	85,412
Short-term investments		17,338			12,100
Accounts receivable (net of allowances of $4,255 in 2003 and $4,150 in 2002)		26,016			22,847
Other receivables		1,728			1,948
Inventories		26,345			27,161
Prepaid expenses and other current assets		5,545			7,501

Total current assets		157,023			156,969
PROPERTY AND EQUIPMENT – net		5,521			5,824
INVESTMENT IN AFFILIATE		2,179			3,036
INTANGIBLE ASSETS (net of accumulated amortization of $4,750 in 2003 and $4,250 in 2002)		7,142			7,642
OTHER ASSETS		18,833			18,966

TOTAL	$	190,698		$	192,437

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	19,010		$	22,447
Accrued liabilities		13,444			13,485
Capital lease obligations – current portion		264			235
Deferred revenue – current portion		3,158			3,158
Notes payable – current portion		11,912			4,114

Total current liabilities		47,788			43,439
CAPITAL LEASE OBLIGATIONS		356			448
DEFERRED REVENUE		1,579			3,158
NOTES PAYABLE		5,560			15,472
STOCKHOLDERS’ EQUITY:
Preferred stock, $.001 par value 5,000 shares authorized; none outstanding		—			—
Common stock. $.001 par value, 40,000 shares authorized; outstanding: 2003, 26,469 shares; 2002, 26,443 shares		310,672			310,495
Accumulated deficit		(177,067	)		(180,666	)
Accumulated other comprehensive income		1,810			91

Total stockholders’ equity		135,415			129,920

TOTAL	$	190,698		$	192,437

(1) Derived from the Company's audited consolidated financial statements at December 31, 2002.

See notes to Condensed Consolidated Financial Statements.

SANGSTAT MEDICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,

	2003			2002			2003			2002

REVENUES:
Net product sales	$	32,608		$	30,127		$	61,346		$	53,482
Revenue from collaborative agreements		814			790			1,604			1,579

Total revenues		33,422			30,917			62,950			55,061

COSTS AND OPERATING EXPENSES:
Cost of product sales		14,389			15,266			28,073			25,889
Research and development		6,200			5,110			10,626			9,428
Selling, general & administrative		9,776			8,677			19,028			16,630
Amortization of intangible assets		250			250			500			500

Total costs and operating expenses		30,615			29,303			58,227			52,447

Income from operations		2,807			1,614			4,723			2,614
OTHER INCOME (EXPENSE) - NET		(140	)		763			594			874
Equity in net loss of affiliate		(453	)		—			(857	)		—

INCOME BEFORE INCOME TAXES		2,214			2,377			4,460			3,488
INCOME TAX PROVISION		(439	)		(569	)		(861	)		(1,002	)

NET INCOME	$	1,775		$	1,808		$	3,599		$	2,486

NET INCOME PER SHARE - BASIC	$	0.07		$	0.07		$	0.14		$	0.10
NET INCOME PER SHARE - DILUTED	$	0.07		$	0.07		$	0.13		$	0.10
Shares Used in Per Share Computations - Basic		26,465			26,376			26,455			25,210
Shares Used in Per Share Computations - Diluted		26,925			27,305			26,692			26,034

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,

	2003			2002			2003		2002

Net income	$	1,775		$	1,808		$	3,599	$	2,486
Unrealized gains and losses on marketable securities classified as available for sale in the current period		(6	)		(42	)		30		(42	)
Foreign currency translation adjustments		994			1,396			1,689		1,285

Total comprehensive income	$	2,763		$	3,162		$	5,318	$	3,729

See notes to Condensed Consolidated Financial Statements.

SANGSTAT MEDICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

	Six Months Ended June 30,

	2003			2002

OPERATING ACTIVITIES:
Net income	$	3,599		$	2,486
Adjustments to reconcile net income to net cash:
Depreciation and amortization		1,385			1,302
Non-cash interest expense		180			370
Equity in net loss of affiliate		857			—
Loss on disposal of property and equipment		50			7
Changes in assets and liabilities:
Accounts receivable		(3,169	)		(4,701	)
Other receivables		220			(1,148	)
Inventories		816			(1,098	)
Prepaid expenses and other current assets		1,956			654
Other assets		133			502
Accounts payable		(3,437	)		4,568
Accrued liabilities		(41	)		(1,694	)
Deferred revenue		(1,579	)		(1,579	)

Net cash provided by (used in) operating activities		970			(331	)

INVESTING ACTIVITIES:
Purchases of property and equipment		(424	)		(712	)
Maturities of short-term investments		12,100			—
Purchases of short-term investments		(17,308	)		(21,566	)

Net cash used in investing activities		(5,632	)		(22,278	)

FINANCING ACTIVITIES:
Sale of common stock		177			87,563
Notes payable borrowings		—			156
Notes payable repayments		(2,294	)		(14,838	)
Repayment of capital lease obligations		(63	)		(28	)

Net cash (used in) provided by financing activities		(2,180	)		72,853

EFFECT OF EXCHANGE RATE CHANGES ON CASH		1,481			1,042

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(5,361	)		51,286
CASH AND CASH EQUIVALENTS, Beginning of period		85,412			32,822

CASH AND CASH EQUIVALENTS, End of period	$	80,051		$	84,108

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest	$	788		$	561

See notes to Condensed Consolidated Financial Statements

SANGSTAT MEDICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. Basis of Presentation

The condensed consolidated financial statements include the accounts of SangStat Medical Corporation and its wholly owned subsidiaries (the “Company”). Intercompany accounts and transactions have been eliminated.

The condensed consolidated financial statements presented are unaudited and in the opinion of management reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial condition and results of operations as of and for the interim periods presented. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2002 and notes thereto included in the Company’s 2002 Annual Report on Form 10-K filed with the SEC on March 26, 2003. The results of operations for the three and six months ended June 30, 2003 are not necessarily indicative of the results to be expected for any other interim period or for the year ending December 31, 2003.

2. Net Income Per Share

Basic earnings per share (EPS) exclude dilution and are computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that would occur under the treasury stock method if securities or other contracts to issue common stock were exercised or converted into common stock.

The following table presents the calculation of the basic and diluted net income per share (amounts in thousands, except per share amounts):

	Three Months Ended June 30,				Six Months Ended June 30,

	2003		2002		2003		2002

Net income	$	1,775	$	1,808	$	3,599	$	2,486

Basic:
Weighted average number of common shares outstanding		26,465		26,376		26,455		25,210

Diluted:
Weighted average number of common shares outstanding		26,465		26,376		26,455		25,210
Common share equivalents - stock options		460		929		237		824

Weighted average number of common shares and common share equivalents		26,925		27,305		26,692		26,034

Basic net income per share	$	0.07	$	0.07	$	0.14	$	0.10

Diluted net income per share	$	0.07	$	0.07	$	0.13	$	0.10

3. Accumulated Other Comprehensive Income

The following are the components of accumulated other comprehensive income (in thousands):

	June 30, 2003		December 31, 2002

Unrealized gain (loss) on investments	$	24	$	(6	)
Accumulated translation adjustments		1,786		97

Total	$	1,810	$	91

4.Inventories

Inventories, valued at the lower of cost (first-in, first-out) or market, consist of (in thousands):

		June 30, 2003		December 31, 2002

Raw materials	$	912	$	830
Work in process		17,240		16,896
Finished goods		8,193		9,435

Total	$	26,345	$	27,161

In addition to these inventories, the Company has classified at June 30, 2003 and December 31, 2002 approximately $17,527,000 of raw materials inventory as other assets in the accompanying condensed consolidated balance sheets, as it is not expected that any significant portion of the inventory will be utilized in operations during the next twelve months.

5. Notes Payable

Notes payable consist of (in thousands):

	June 30, 2003			December 31, 2002

Note payable to Aventis	$	2,000		$	4,000
Discount on note payable to Aventis		(45	)		(176	)
Convertible note		9,923			9,874
Note payable to Abbott Laboratories		5,000			5,000
Other debt		594			888

Total		17,472			19,586
Less current portion		(11,912	)		(4,114	)

Long-term	$	5,560		$	15,472

6. Collaborative Agreements

Effective April 1, 2003, Abbott Laboratories and the Company agreed to amend their co-promotion agreement for Gengraf for the remaining 21 months of its term. The amendment relieves Abbott of its obligations to perform physician details and to maintain a minimum number of managed care organization account representatives. The Company is relieved of its obligation to maintain a minimum number of sales representatives or perform a minimum number of physician details. The Company will assume sole responsibility for all Gengraf marketing and promotional expenses, which were previously shared by both companies, and Abbott will pay a quarterly fee to the Company if certain sales thresholds are met. The Company is accounting for this quarterly fee as a reduction of inventory cost in accordance with Emerging Issues Task Force (“EITF”) Issue No. 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor.

7. Stock-Based Compensation

The Company has stock-based compensation plans under which stock options are granted to employees and directors at the market price on the date of grant. Grants were issued during the three and six months ended June 30, 2003 and 2002, respectively, under these stock-based compensation plans. Pursuant to SFAS No. 123, Accounting for Stock-Based Compensation, the Company has elected to account for its employee stock option plans under APB Opinion No. 25, Accounting for Stock Issued to Employees, which recognizes expense based on the intrinsic value at date of grant. As stock options have been issued with exercise prices equal to grant date fair value, no compensation cost has resulted. Had compensation cost for all options granted been determined based on the fair value at grant date consistent with SFAS No. 123, the Company’s net earnings and earnings per share would have been as follows:

	Three Months Ended June 30,						Six Months Ended June 30,

	2003			2002			2003			2002

Net earnings:
Net income - as reported	$	1,775		$	1,808		$	3,599		$	2,486
Stock option compensation expense determined
under fair value method		(321	)		(523	)		(722	)		(1,047	)

Net income - pro forma	$	1,454		$	1,285		$	2,877		$	1,439

Net earnings per common share:
Basic net income per share - as reported	$	0.07		$	0.07		$	0.14		$	0.10
Diluted net income per share- as reported	$	0.07		$	0.07		$	0.13		$	0.10
Basic net income per share - pro forma	$	0.05		$	0.05		$	0.11		$	0.06
Diluted net income per share- pro forma	$	0.05		$	0.05		$	0.11		$	0.06

8. Recently Issued Accounting Pronouncements

In July 2001, the FASB issued SFAS No.143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development, and (or) the normal operation of a long-lived asset,

except for certain obligations of lessees. The provisions of SFAS No. 143 were effective for fiscal years beginning after June 15, 2002. The Company has adopted the provisions of SFAS No. 143. Adoption of this statement did not have an impact on the Company’s financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated With Exit or Disposal Activities. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (“EITF”) Issue No. 94-3 Liability Recognition for Certain Employer Termination Benefits and other Costs to an Exit Activity (Including Certain Costs in a Restructuring). SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue No. 94-3, a liability for an exit cost was recognized at the date of the Company’s commitment to an exit plan. SFAS No.146 also establishes that the liability should initially be measured and recorded at fair value. Restructuring activities initiated after December 31, 2002 will be accounted for in accordance with the provisions of SFAS No. 146.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure requirements of SFAS No. 123, Accounting for Stock-Based Compensation, to require more prominent disclosures about the method of accounting for stock-based employee compensation and the effect of the method used on reported results in both annual and interim financial statements. The Company has adopted the disclosure provisions of SFAS No. 148.

In November 2002, the FASB issued FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). FIN 45 requires that upon issuance of a guarantee, a guarantor must recognize a liability for the fair value of an obligation assumed under a guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual financial statements about the obligations associated with guarantees issued. The recognition provisions of FIN 45 are effective for any guarantees issued or modified after December 31, 2002. The disclosure requirements were effective for financial statements of interim or annual periods ending after December 15, 2002. The Company adopted the disclosure requirements for its financial statements for the period ended December 31, 2002. Adoption of the recognition provisions of FIN 45 as of January 1, 2003 did not have an impact on the Company’s financial position or results of operations.

In January 2003, the FASB issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities. FIN 46 requires that the assets, liabilities and results of the activity of variable interest entities be consolidated into the financial statements of the company that has a controlling financial interest. It also provides the framework for determining whether a variable interest entity should be consolidated based on voting interest or significant financial support provided to it. This Interpretation is effective July 1, 2003. The Company is currently evaluating the effects of FIN 46.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for how

an entity classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an entity classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company is currently evaluating SFAS No. 150.

9. Litigation

Novartis Patent Litigation with Respect to Gengraf

Novartis sued Abbott in United States District Court in Delaware claiming that Gengraf^® infringes its patents. While a judgment was entered on August 19, 2002 finding that Gengraf infringed one of the Novartis patents, the judge reversed the judgment and ruled that Abbott had not infringed the Novartis patents on March 27, 2003. Novartis is appealing the decision. The Company has not been named a defendant in this lawsuit. Under the Company’s agreement with Abbott, Abbott is obligated to indemnify the Company against such suits, but their indemnity may not cover lost sales, if any. The course of litigation is inherently uncertain. Novartis may choose to sue the Company directly, Abbott may not prevail on appeal, Abbott may elect to withdraw Gengraf from the market or Abbott may choose to settle on terms adverse to the Company’s interests. Should the Company be sued by Novartis, it may incur expenses prior to reimbursement, if any, by Abbott pursuant to its indemnity obligation. Should Novartis succeed in obtaining a preliminary or permanent injunction, Abbott and the Company may be forced or elect to remove Gengraf from the market before the Company’s co-promotion agreement with Abbott expires on December 31, 2004; the Company’s customers might return unsold inventory to the Company for credit or refund; and the Company could then be holding inventory of Gengraf that it may be unable to sell. In that event, the Company’s revenues would decrease significantly and its operating results would be materially adversely affected. The Company might also be required to write-off all or a portion of its Gengraf inventory.

Novartis Regulatory Litigation

U.S. Regulatory Litigation. Novartis U.S. sued the Food and Drug Administration (or FDA) on February 11, 1999 in the United States District Court for the District of Columbia alleging that the FDA did not follow its own regulations in approving SangCya Oral Solution in October 1998. The lawsuit alleges that because Neoral Oral Solution and SangCya Oral Solution are based on different formulation technologies, they should be classified as different dosage forms. Novartis initially asked the Court to (i) allow Novartis to keep its microemulsion labeling; (ii) declare microemulsion to be a separate dosage form; and (iii) rescind the AB rating that was given to SangCya Oral Solution. The Company intervened in this lawsuit. The Court granted the Company’s motion to dismiss the counts that relate specifically to the approval of SangCya Oral Solution, but Novartis may appeal this decision. The Company remains a party in the case. On July 11, 2002, the judge ordered Novartis, the FDA and the Company to file motions for summary judgment and set a schedule for briefs to be filed through December 20, 2002. The Company permanently withdrew SangCya Oral Solution from the U.S. market in July 2000, and receives no revenue from SangCya, but if the court were to declare microemulsion to be a separate dosage form, this ruling would require rescission of the AB rating for Gengraf, which would have a material adverse effect on its Gengraf revenues.

U.K. Regulatory Litigation—SangCya Oral Solution. On October 18, 1999, Novartis U.K. was granted leave to seek judicial review of the decision by the Medicines Control Agency, or MCA, to approve SangCya Oral Solution. On March 30, 2000, the High Court in London dismissed Novartis’s application for judicial review and ruled that the MCA acted properly in granting the SangCya Oral Solution marketing authorization. Novartis appealed the High Court’s decision, and the hearing was held before the Court of Appeal on November 13 and 14, 2000. The Court of Appeal has stayed ruling on this matter pending the answer of certain questions of law to be submitted to the European Court of Justice, or ECJ. The ECJ hearing was held on November 7, 2002, and the Advocate General issued an opinion in January 2003. The Company expects the ECJ’s decision approximately six to twelve months thereafter. Following the ECJ ruling, the parties would go back to the Court of Appeal, which will then apply the ECJ ruling on the law to the facts of this case. The Company no longer markets SangCya Oral Solution, but the outcome of the case may affect the timing of regulatory approvals for its cyclosporine capsule product.

U.K. Regulatory Litigation—Cyclosporine Capsules. In November 1999, Novartis filed a request with the High Court in London for judicial review of the refusal by MCA to state that it would not reference Neoral data in approving any generic copies of Novartis’s cyclosporine capsule. An agreement was reached between the parties in which Novartis agreed to stay the judicial review until the earlier of (i) the decision on the judicial review of SangCya Oral Solution or (ii) MCA’s approval of SangStat’s marketing authorization for its cyclosporine capsule product; in return, the Company agreed that it would not launch or commence mutual recognition procedures in relation to the cyclosporine capsule marketing authorization (including a request to MCA to prepare an assessment report) for a period of 28 days commencing on the day on which the Company notifies Novartis’s solicitors of capsule approval. The parties have agreed to continue the stay until the appeal of the High Court decision with respect to the judicial review of SangCya Oral Solution. The stay of this application for judicial review will remain in place pending the ECJ ruling on the questions of law and subsequent Court of Appeal judgment.

Novartis has also indicated that it will seek an injunction to prevent the Company’s cyclosporine capsule from being sold in the United Kingdom until final resolution of the judicial review relating to its cyclosporine oral solution. Because the High Court ruled in favor of the MCA with respect to the SangCya Oral Solution marketing authorization and the Court of Appeal has referred questions of law to the ECJ, the Company believes that it is unlikely that a court would grant Novartis a preliminary injunction with respect to its cyclosporine capsule marketing authorization. If the Court of Appeals reverses the High Court’s ruling following the ECJ’s decisions on questions of law, either the MCA could still approve the cyclosporine capsule as supra-bioavailable to Sandimmune without referencing Neoral data or the MCA could decide not to approve the Company’s cyclosporine capsule marketing authorization until the expiration of the ten year data exclusivity period for Neoral capsules (May 2004).

Italian Regulatory/Trade Secret Litigation. On May 5, 2000, Novartis Farma S.p.a. (“Novartis Italy”) served IMTIX-SangStat S.r.l., an Italian SangStat subsidiary, and IMTIX-SangStat Ltd. with a summons to the Milan Tribunal in a lawsuit concerning our application for approval by the Italian Health Authorities of the SangCya Oral Solution. In December 2002, Novartis Italy agreed to withdraw the lawsuit and the Company agreed not to file for approval of a cyclosporine oral solution before May 2004. Consequently, the Company does not expect any adverse consequences from this lawsuit.

IFFA CREDO and Elevage Scientifique des Dombes Breach of Contract Suit
In August 2000, two affiliated suppliers, IFFA CREDO and Elevage Scientifique des Dombes (“ESD”), sued the Company’s French subsidiary, IMTIX-SangStat SAS, for breach of contract in the Commercial Court of Lyon, France. The suppliers won in the trial court and appeals court and the Company paid approximately $3.6 million in damages plus interest. IMTIX-SangStat recorded charges of $3,250,000 and $204,000 to other income (expense)—net for the year ended December 31, 2001, which, combined with reserves recorded in fiscal 2000, fully provided for the court award. The Company appealed the case to the French Cours de Cassation. In March 2003, the Company settled the lawsuit in return for a payment by IFFA CREDO and ESD of 800,000 Euros (approximately $864,000) and this amount was recorded in other income (expense)—net. The Company receiv ed these amounts in April 2003.

Summary

The course of litigation is inherently uncertain. With respect to Novartis’s lawsuit against Abbott, Novartis is seeking to remove Gengraf from the market. If Novartis succeeds despite the recent ruling of non-infringement, the loss of Gengraf sales would have a significant and material adverse effect on the Company’s business and operating results. The Company might also be required to write-off all or a portion of its cyclosporine inventory. With respect to the European regulatory lawsuits, Novartis’s requested relief, if granted, could have a material adverse effect on the Company if the European Court of Justice ruling prevents the Company from filing for marketing authorization of its cyclosporine capsule product currently under development until after the expiration of the data exclusivity period for Novartis’s Neoral cyclosporine product. (That data exclusivity period expires in May 2004 for most European countries, including Germany, France, Italy and the United Kingdom.) If the Company cannot obtain approval of its cyclosporine capsule in Europe until 2004, this could have a material adverse impact on the Company’s future operating results because of (i) the loss of potential revenue and (ii) the need to write-off some or all of its bulk cyclosporine inventory. With respect to the FDA lawsuit, Novartis’s requested relief, if granted could mean that Gengraf and all other generic cyclosporine products that are not microemulsions would lose their AB rating. If Gengraf were no longer AB-rated to Neoral capsules, pharmacists could not automatically substitute Gengraf for Neoral capsules and this would have a material adverse effect on the Company. Currently, none of the foregoing litigation matters require the Company to expend significant time or expense.

On August 7, 2003, a purported shareholder class action was filed in the California Superior Court, County of Alameda, under the caption Pignone v. SangStat Medical Corp., et al., (Case No. RG 03110801). Plaintiff in Pignone alleges that he is a Company shareholder and purports to bring the action on behalf of the holders of the Company’s common stock. Plaintiff names as defendants in the action the Company and each of the Company’s current directors. Plaintiff asserts a single cause of action claiming that the Company and each of its directors has breached fiduciary duties to the Company shareholders by consenting to the proposed sale of the Company to Genzyme Corporation on the terms announced in the Company’s August 4, 2003, press release entitled “Genzyme to Acquire SangStat Medical Corporation,” previously reported on Form 8-K filed by the Company on August 4, 2003. Plaintiffs allege that they do not seek monetary damages but instead seek only equitable relief, including a declaration by the Court that the agreement between the Company and Genzyme was entered into in breach of the fiduciary duties of the defendants and is therefore unlawful and unenforceable, an order enjoining the consummation of the transaction and directing the defendants to exercise their fiduciary duties to obtain a transaction in the best interests of Company shareholders, and an order

rescinding the transaction to the extent already implemented. Plaintiff also seeks costs of suit, including attorneys’ fees.

10. Subsequent Event

On August 4, 2003, SangStat announced that it has entered into a merger agreement providing for the acquisition of SangStat by Genzyme Corporation. In accordance with the merger agreement, Genzyme, through its indirect, wholly owned subsidiary, has commenced a tender offer to purchase all of the outstanding shares of SangStat common stock for $22.50 per share in cash. The tender offer is conditioned upon, among other things, a number of shares that represents at least a majority of SangStat’s outstanding shares, determined on a fully-diluted basis, being validly tendered and not withdrawn prior to the expiration of the offer. The merger agreement provides that the tender offer will be followed by a merger in which each share of SangStat common stock not purchased in the tender offer will be converted into the right to receive the same per share price paid in the tender offer. The merger is also conditioned upon customary closing conditions.

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Condensed Consolidated Financial Statements and Notes thereto included elsewhere in this Quarterly Report on Form 10-Q, as well as the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2002. Except for the historical information contained herein, the discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are subject to the “safe harbor” created by those sections. The forward-looking statements are based on the Registrant’s current expectations and projections about future events. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “could,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and similar expressions. In particular, we have included forward-looking statements regarding the following: (i) our anticipated financial results for 2003; (ii) the timeline and potential results of preclinical development and clinical trials; (iii) the timeline and potential outcomes of our pending litigation; (iv) our plans for marketing a cyclosporine capsule in Europe; (v) anticipated expenditures and timing relating to FDA and foreign approval of our products and facilities; (vi) anticipated potential strategic collaborations with others; and (vii) our expectation with respect to completion of the pending acquisition of SangStat by Genzyme. These forward-looking statements are made as of the date of this Repor t on Form 10-Q. These forward-looking statements are based on current beliefs, expectations and assumptions and involve certain risks and uncertainties that could cause actual results, levels of activity, performance, achievements and events to differ materially from those implied by such forward-looking statements. The cautionary statements made in this Report on Form 10-Q should be read as being applicable to all related forward-looking statements wherever they appear. Our actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include those discussed in “Risk Factors,” as well as those discussed elsewhere herein. The Registrant disclaims any obligation to update these forward-looking statements.

SangStat is a global biopharmaceutical company focused on immunology and working to discover, develop and market high-value therapeutic products in immunology, transplantation medicine, hematology/oncology and auto-immune disorders. Since our incorporation in 1988, we have been dedicated to improving the outcome of organ and bone marrow transplantation through the development and marketing of products that address transplantation in the worldwide market. We are headquartered in Fremont, California. We maintain a strong European and U.S. presence, including direct sales and marketing forces in all major European markets, the U.S. and Canada and distributors throughout the rest of the world.

Our primary marketed product, Thymoglobulin, a treatment for acute rejection of a kidney transplant, was launched in the U.S. in February 1999. Thymoglobulin achieved worldwide sales of $37.9 million in 2000, $51.4 million in 2001 and $69.5 million in 2002. The success of Thymoglobulin and its potential in areas beyond solid organ transplantation have provided us with the ability to examine and develop new therapeutic opportunities outside of transplantation.

We are now focusing on a variety of therapeutic products and product candidates to address the pre-transplant, acute care and chronic phases of transplantation as well as product candidates in immunology, hematology/oncology and auto-immune disease.

Recent Developments

Critical Accounting Policies

In December 2001, the SEC issued Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies, or FR 60, suggesting that companies provide additional disclosure and commentary on those accounting policies considered most critical. FR 60 considers an accounting policy to be critical if it is important to a company’s financial condition and results and requires significant judgment and estimates on the part of management in its application. Our critical accounting estimates and the related assumptions are evaluated periodically as conditions warrant, and changes to such estimates are recorded as new information or changed conditions require revision. Application of the critical accounting policies requires management’s significant judgments, often as the result of the need to make estimates of matters that are inherently uncertain. If actual results were to differ materially from the estimates made, the reported results could be materially affected. Our senior management has reviewed these critical accounting policies and estimates with our audit committee. We believe that the following represents our critical accounting policies as contemplated by FR 60.

Revenue Recognition

Revenue from product sales, net of estimated sales allowances and rebates, is recognized upon receipt by the customer, when a purchase order has been received, the sales price is fixed or determinable and collection of the resulting receivable is reasonably assured. We record estimated reductions to revenue for customer programs, including contract pricing agreements, promotions, other volume based incentives and estimated future returns, in the same period as the related revenues are recorded. The estimates for returns are adjusted periodically based upon historical rates of return and other related factors. The estimates and reserves for rebates and price protection are based on historical rates. In addition, our revenue recognition policy determines the timing of certain expenses, such as commissions and royalties that are recorded in the same period as the related revenue. While we believe we can make reliable estimates for these revenue adjustments, it is possible that actual amounts realized could vary from our estimates and that the amounts of such changes could affect our operating results.

Revenue from sales of Gengraf, which we co-promote with Abbott Laboratories, is recorded on a gross basis, in accordance with Emerging Issues Task Force Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent. Abbott’s share of the gross profit, as defined, resulting from the sale is recorded as cost of product sales.

Revenue from collaborative agreements is recognized in accordance with the related contract terms. Upfront or milestone payments received under such agreements are generally recognized as revenues ratably over the life of the agreement where significant obligations for future services or our participation exist or as milestones are met and no significant obligation for future services exists.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market. We classify inventory not expected to be utilized within the next twelve months as long-term assets. We evaluate our inventory levels based on our estimates of marketing approval and forecasts of future sales, among other things. If these estimates or forecasts change at some time in the future we may be required to record additional charges for the write-down of excess or obsolete inventories. At June 30, 2003 we classified approximately $17.5 million of bulk cyclosporine raw materials inventory, net of reserves, as other long-term assets. We filed for marketing approval of the cyclosporine capsule product in a European country in January 2003. We intend to follow the European Community Mutual Recognition Procedure for obtaining marketing authorization in multiple member states following initial approval and to launch in these countries shortly after obtaining approval. The use of such inventory is dependent upon the successful approval and launch of the cyclosporine capsule in the major European markets.

Foreign currency gains and losses

Many of our foreign sales are invoiced in local currencies, creating receivables denominated in currencies other than the U.S. dollar, primarily in the Euro and the Japanese yen but also in the U.K. pound. The risk due to foreign currency fluctuations associated with these receivables is partially reduced by local payables denominated in the same currencies, and presently we do not consider it necessary to hedge these exposures. However, we may revise our hedging policy from time to time as our foreign operations change. Gains and losses resulting from foreign currency transactions are included in other income (expense) – net in our statement of operations.

Income taxes

SangStat has operations in several countries other than the United States, including France, where we manufacture Thymoglobulin. This product is then sold to other SangStat entities in other countries, including the United States. We believe that we record these sales at an appropriate transfer price; however it is possible that the tax authorities could challenge these transfer prices and assess additional taxes on prior-period transactions. Any such assessment could require us to record an additional tax provision in our statement of operations.

We have substantial deferred tax assets that relate to prior-period losses, primarily in the United States. We evaluate these deferred tax assets in each tax jurisdiction by estimating the likelihood of generating future profits to realize these assets. In most cases, we have assumed that we will not be able to generate sufficient future taxable income to realize these assets and have created valuation reserves to reduce the net asset values to zero. If these estimates and assumptions change in the future, we may be required to record additional valuation allowances against the net deferred tax assets resulting in additional income tax expense in our consolidated statement of operations. Conversely, we may be able to reverse the valuation allowances in future periods should the Company generate taxable income. At December 31, 2002, we had approximately $71.0 million of valuation allowances related to our net deferred tax assets.

Recently Issued Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board, or FASB issued Statement of Financial Accounting Standards, or SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development, and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. The provisions of SFAS No. 143 were effective for fiscal years beginning after June 15, 2002. We adopted the provisions of SFAS No. 143. Adoption of this statement did not have an impact on our financial position or results of operations.

based employee compensation and the effect of the method used on reported results in both annual and interim financial statements. We adopted the disclosure provisions of SFAS No. 148.

In November 2002, the FASB issued FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). FIN 45 requires that upon issuance of a guarantee, a guarantor must recognize a liability for the fair value of an obligation assumed under a guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual financial statements about the obligations associated with guarantees issued. The recognition provisions of FIN 45 are effective for any guarantees issued or modified after December 31, 2002. The disclosure requirements were effective for financial statements of interim or annual periods ending after December 15, 2002. We adopted the disclosure requirements for our financial statements for the period ended December 31, 2002. Adoption of the recognition provisions of FIN 45 as of January 1, 2003 did not have an impact on our financial position or results of operations.

In January 2003, the FASB issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities. FIN 46 requires that the assets, liabilities and results of the activity of variable interest entities be consolidated into the financial statements of the company that has a controlling financial interest. It also provides the framework for determining whether a variable interest entity should be consolidated based on voting interest or significant financial support provided to it. This Interpretation is effective July 1, 2003. We are currently in the process of evaluating the impact of this Statement on our financial condition and operating results.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for how an entity classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an entity classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. We are currently in the process of evaluating SFAS No. 150.

Results of Operations — Three and Six Months Ended June 30, 2003 and 2002

Revenues. Total revenues for the three months ended June 30, 2003 were $33,422,000, an increase of $2,505,000 or 8% over total revenues of $30,917,000 for the three months ended June 30, 2002. Total revenues for the six months ended June 30, 2003 were $62,950,000, an increase of $7,889,000 or 14% over total revenues of $55,061,000 for the six months ended June 30, 2002. Sales of Thymoglobulin in North America for the three months ended June 30, 2003 were $15,394,000 compared to $13,587,000 in the second quarter of 2002 and for the six months ended June 30, 2003 were $29,098,000 compared to $24,111,000 for the same period in 2002, representing increases of 13% and 21% respectively. Gengraf sales in the second quarter of 2003 were $7,644,000 compared to $10,584,000 in the second quarter of 2002 and for the six months ended June 30, 2003 were $15,463,000 compared to $17,624,000 for the same period in 2002, representing decreases of 28% and 12% respectively.

Sales revenues outside of North America, in the second quarter of 2003, were $9,417,000 for the three months ended June 30, 2003, compared with $5,843,000 in the second quarter of 2002 and

$16,494,000 and $11,875,000 for the six months ended June 30, 2003 and 2002, respectively. Although the increase in sales was partially due to the effect of the stronger Euro, sales measured in local currency increased by 31% and 13% for the three and six months ended June 30, 2003 as compared to the corresponding periods in 2002.

Included in total revenues was revenue from collaborative agreements of $814,000 and $789,000 for the three months ended June 30, 2003 and 2002, respectively. Revenue from collaborative agreements was $1,604,000 and $1,579,000 for the six months ended June 30, 2003 and 2002, respectively. In the first six months of 2003 and 2002, we recognized revenue of $1,579,000 from milestone payments from Abbott Laboratories under the co-promotion agreement for Gengraf. The unamortized portion of these milestone payments is shown as deferred revenue on the Company’s condensed consolidated balance sheet and will be recognized as revenue on a straight-line basis over the remaining term of the co-promotion agreement which expires December 31, 2004.

Cost of product sales. Cost of product sales was $14,389,000 for the three months ended June 30, 2003, a decrease of $877,000 or 6% over cost of product sales of $15,266,000 for the three months ended June 30, 2002. There were two main reasons for the decrease in cost compared with the prior period. One of these is the improved profitability of Gengraf following the amendment to the co-promotion agreement with Abbott, which became effective April 1, 2003. This amendment effectively reduced the cost of Gengraf inventory to SangStat. In addition, the change in the mix of product sales, which has resulted in an increase in sales of Thymoglobulin in North America, our highest margin product, relative to sales of Gengraf, our lowest margin product, has contributed to lower cost of product sales. Cost of product sales was $28,073,000 for the six months ended June 30, 2003, an increase of $2,184,000 or 8% over cost of product sales of $25,889,000 for the six months ended June 30, 2002. The 8% increase in cost of product sales was lower than the corresponding 14% increase in sales revenues for the same reasons as the change in the three month cost numbers.

Research and development. Research and development expenses were $6,200,000 for the three months ended June 30, 2003, an increase of $1,090,000 or 21% over research and development expenses of $5,110,000 for the three months ended June 30, 2002. Research and development expenses were $10,626,000 for the six months ended June 30, 2003, an increase of $1,198,000 or 13% over research and development expenses of $9,428,000 for the six months ended June 30, 2003. The increase in spending for the three and six months ended June 30, 2003 mainly relates to spending on RDP58 and the ongoing stability studies for our cyclosporine capsule. This increase in spending was partially offset by lower expenses relating to our negotiated share of development costs incurred by Abgenix for ABX-CBL.

While we allocate scientists and track resources when required pursuant to the terms of a partnering or similar arrangement, members of our research team typically work on a number of products concurrently, and our equipment and intellectual property resources often are deployed over a range of products with a view to maximizing the benefit of our investment. Accordingly, we have not and do not intend to separately track the costs incurred to date for each of our research projects on a product-by-product basis. For the six months ended June 30, 2003, however, we estimate that the majority of research and development expense was associated with our two product candidates: RDP58 and cyclosporine capsules. The balance of our expense was associated primarily with ongoing development of our marketed products, clinical trials for Thymoglobulin, and early-stage product candidates.

In Europe, we recently completed Phase IIa clinical trials for RDP58 and announced preliminary results on April 9, 2003. The Phase II trials were prospective, randomized, blinded trials in patients with mild-to-moderate ulcerative colitis (UC) or Crohn’s disease. Endpoints in each disease were response and remission. In UC, RDP58 achieved statistically significant response and remission compared with a placebo. In Crohn’s disease, there was no statistically significant response or remission compared with a placebo. We consider the RDP58 UC results to be a significant milestone event for us with a number of important implications which may result in changes to our corporate strategy. Because the UC results indicate that RDP58 has promise as a therapeutic agent, we may be able to license rights to RDP58, and possible follow-on molecules, for significant payments and commitments. We also are working to determine the optimum path for further clinical and toxicology studies of RDP58, which could lead to an eventual application to market RDP58 and benefits from potential development and marketing partners. We are also studying the implications for manufacturing (such as scale-up, cost reduction and formulations), including a capsule version of RDP58, and for marketing in the gastrointestinal arena. Future efforts for developing RDP58 could result in significant expense which may or may not be offset by revenues from licensing or partnering.

We filed a regulatory application for marketing approval for a cyclosporine capsule in a European country in January 2003. We intend to follow the European Community Mutual Recognition Procedure for obtaining marketing authorization in multiple member states following initial approval.

We intend to initiate two new clinical studies involving Thymoglobulin in 2003. One study would investigate the use of Thymoglobulin to prevent rejection of a kidney transplanted from a living donor. Currently, Thymoglobulin is approved by the FDA only for treatment of an acute rejection of a transplanted kidney, in conjunction with concomitant immunosuppression.

The second study will investigate the effect of Thymoglobulin on prevention of graft-versus-host disease in bone marrow transplant patients using matched related donors.

Of course, our timelines are estimates that are subject to change. Due to the inherent risks and uncertainties associated with the development of our proposed drugs, we are unable to further specify with meaningful certainty the estimated completion date or estimated cost of completion of our proposed products, or whether any of our products will eventually be successfully developed. For a discussion of the risks and uncertainties surrounding the development and cost of these products, see “Risk Factors - If we do not develop and market new products, our business will be harmed” and “Risk Factors - If our preclinical and clinical testing of potential products is unsuccessful, our business will be harmed.”

Selling, general and administrative. Selling, general and administrative expenses for the three months ended June 30, 2003 were $9,776,000, an increase of $1,099,000 or 13% over expenses of $8,677,000 for the three months ended June 30, 2002. Selling, general and administrative expenses for the six months ended June 30, 2003 were $19,028,000, an increase of $2,398,000 or 14% over expenses of $16,630,000 for the three months ended June 30, 2002. The increase in expenses for the three and six months ended June 30, 2003 over the comparable periods in 2002 was primarily due to increased selling and marketing costs related to promotional programs and grant costs to support new and existing products.

Other income (expense) - net. Other income (expense) - net for the three months ended June 30, 2003 was an expense of ($140,000), compared to an income of $763,000 for the three months ended June 30, 2002. Other income (expense) - net for the six months ended June 30, 2003 was an income of $594,000, compared to $874,000 for the six months ended June 30, 2002. The following table shows the components of other income (expense) – net (in thousands).

	Three Months Ended June 30,						Six Months Ended June 30,

	2003			2002			2003			2002

Interest expense - net	$	(44	)	$	(22	)		(165	)		(340	)
Net gains on sales of fixed assets		—			—			—			300
Compensation received for a termination of manufacturing agreement		—			—			—			375
Income related to a lawsuit settlement		—			—			864			—
Foreign exchange effects resulting from the impact of currency movements		(70	)		784			(76	)		609
Other, net		(26	)		1			(29	)		(70	)

Other (expense) income - net	$	(140	)	$	763		$	594		$	874

The one-time income of $864,000 for the six months ended June 30, 2003 is related to the settlement of the IMTIX-SangStat rabbit supplier litigation (See Note 9 to the condensed consolidated financial statements).

Equity in net loss of affiliate. Equity in net loss of affiliate for the three and six months ended June 30, 2003 includes SangStat’s proportionate share of the net loss of THP and the amortization of intangible assets, representing the difference between the Company’s carrying value and its interest in the underlying net assets of THP. These intangible assets are being amortized on a straight-line basis over two years.

Income taxes. For the three and six months ended June 30, 2003, we recorded a provision of $439,000 and $861,000, respectively, for income taxes compared to a provision of $569,000 and $1,002,000, respectively, for the three and six months ended June 30, 2002. The income tax provision primarily relates to our European operations.

Net income. Net income from operations for the three months ended June 30, 2003 was $1,775,000, a decrease of $33,000 or 2% as compared to $1,808,000 for the three months ended June 30, 2002. Net income from operations for the six months ended June 30, 2003 was $3,599,000, an increase of $1,113,000 or 45% as compared to $2,486,000 for the six months ended June 30, 2002. The increase in net income for the six months ended June 30, 2003 was primarily due to higher product sales, partially offset by higher cost of product sales, resulting primarily from the higher product sales, and increased selling and marketing costs related to promotional programs and unrestricted grant costs to support new and existing products. In addition, other income (expense)-net for the six months ended June 30, 2003 included a one-time income of $864,000 related to the settlement of the IMTIX-SangStat rabbit supplier litigation (See Note 9 to the condensed consolidated financial statements).

Impact of Litigation

The cyclosporine product that we sell is involved in litigation. Novartis sued Abbott, claiming that Abbott’s Gengraf product (which is co-marketed and distributed by us) violates Novartis

patents. A judgment that was entered finding that Gengraf infringes one of the Novartis patents was reversed by the trial judge and is on appeal. The course of litigation is inherently uncertain. With respect to Novartis’s lawsuit against Abbott, Novartis is seeking to remove Gengraf from the market. If Novartis succeeds, the loss of Gengraf sales would have a significant and material adverse effect on our business and operating results. We might also be required to write-off all or a portion of our cyclosporine inventory. With respect to the European regulatory lawsuits, Novartis’s requested relief, if granted, could have a negative material adverse effect on us if the European Court of Justice ruling prevents us from filing for marketing authorization of our cyclosporine capsule product currently under development until after the expiration of the data exclusivity period for Novartis’s Neoral cyclosporine product. (That data exclusivity period expires in May 2004 for most European countries, including Germany, France, Italy and the United Kingdom.) If we cannot launch our cyclosporine capsule in Europe until after 2004, this could have a material adverse impact on our future operating results because of (i) the loss of potential revenue and (ii) need to write-off some or all of our bulk cyclosporine inventory. With respect to the FDA lawsuit, Novartis’s requested relief, if granted could mean that Gengraf and all other generic cyclosporine products that are not microemulsions would lose their AB rating. If Gengraf were no longer AB-rated to Neoral capsules, pharmacists could not automatically substitute Gengraf for Neoral capsules and this would harm our operating results. The litigation, if not resolved favorably to us, could have a material adverse effect on our business and operating results. Currently, none of the foregoing litigation matters require us to expend significant time or expense.

Liquidity and Capital Resources

As of June 30, 2003, we had cash, cash equivalents and short-term investments of $97,389,000 and total assets of $190,698,000.

During the six months ended June 30, 2003, the net cash provided by operating activities was $970,000 as compared to cash used in operating activities of $331,000 in the same period of 2002.

Net cash used in investing activities for the six months ended June 30, 2003 was $5,632,000, as compared to $22,278,000 for the same period in 2002. The amount in 2003 and 2002 is primarily the result of purchases of short-term investments and property and equipment.

Net cash used in financing activities for the six months ended June 30, 2003 was $2,180,000, as compared to net cash provided by financing activities of $72,853,000 for the same period in 2002. The amount in 2003 was primarily related to repayment of notes and capital lease obligations. In 2002, cash provided by the sale of common stock was partially offset by the repayment of notes and capital lease obligations. On February 20, 2002, we completed the issuance of 5,175,000 shares of common stock in a public offering for proceeds net of underwriting discounts of $84,145,500. Subsequently, we repaid $11,000,000 of a note payable to Abbott Laboratories.

Effective April 1, 2003, Abbott Laboratories and we agreed to amend our co-promotion agreement for Gengraf for the remaining 21 months of its term. The amendment relieves Abbott of its obligations to perform physician details and to maintain a minimum number of managed care organization account representatives. We are relieved of our obligation to maintain a minimum number of sales representatives or perform a minimum number of physician details.

We will assume sole responsibility for all Gengraf marketing and promotional expenses, which were previously shared by both companies, and Abbott will pay a quarterly fee to us if certain sales thresholds are met. We anticipate that the net effect of this amendment will be to favorably affect quarterly net income (loss) by approximately $350,000 through the term of the agreement, which expires December 31, 2004.

We believe that our current cash position, together with cash flows from operations, will be sufficient to meet our cash flow requirements for at least the next 12 months. However, we may need to raise additional funds through additional financings, including private or public equity and/or debt offerings and collaborative research and development arrangements with corporate partners in order to pursue new business opportunities. Our future capital requirements will depend on many factors, including our research and development programs, the scope and results of clinical trials, the time and costs involved in obtaining regulatory approvals, the costs involved in obtaining and enforcing patents or any litigation by third parties regarding intellectual property, the status of competitive products, the maintenance of our manufacturing facility and the establishment of third-party manufacturing arrangements, the maintenance of sales and marketing capabilities, the establishment of collaborative relationships with other parties, and the costs of manufacturing scale-up and working capital requirements for inventory and financing of accounts receivable.

Properties

We sublease our U.S. headquarters in Fremont, California for a term expiring June 30, 2005. We do not have an option to extend the sublease. We lease additional vacant office space in Newark, California, which housed our discontinued operation, The Transplant Pharmacy. While we are seeking to obtain a tenant for this property, to date we have not succeeded in doing so due to the depressed real estate market. We have reserved approximately $146,000 against this lease, which expires March 31, 2005. Our lease payments currently are $11,000 per month.

Risk Factors

Our pending acquisition by Genzyme is subject to closing conditions.

We recently announced that we have entered into a merger agreement providing for the acquisition of StangStat by Genzyme Corporation. The agreement provides for the commencement of a tender offer followed by a merger for $22.50 per share in cash, which represents a substantial premium to the prior trading price of our shares. The tender offer is subject to customary closing conditions, including, among other things, the tender of at least a majority of our outstanding shares, determined on a fully-diluted basis, receipt of the requisite regulatory approvals and third party consents, and the absence of a material adverse change in our business. Even if the tender offer is completed, the merger may not be promptly completed if at least 75% of our outstanding shares are not tendered, and may not be completed at all if the conditions to closing the merger are not satisfied. As a result, we may be unable to cause the tender offer and merger to be compl eted within the time frame anticipated, if at all, and the failure to do so would likely result in an immediate and substantial decrease in the trading price of our stock.

We have a history of operating losses, and our continued profitability is uncertain.

We were incorporated in 1988 and have experienced significant operating losses since that date. As of June 30, 2003, our accumulated deficit was $177.0 million. While fiscal year 2002 was a profitable year, we may recognize losses in subsequent periods for a variety of reasons, particularly if we increase our research and development expenditures directly or through investment or partnering arrangements with others. We expect to continue the development of our existing products and to enter into license or partnering arrangements in the future.

To date, our product revenues have been primarily derived from sales of Thymoglobulin, Lymphoglobuline, and Gengraf. Revenues from Thymoglobulin were 60%, 54% and 58% of total revenues in 2000, 2001 and 2002, respectively. Revenues from Lymphoglobuline were 12%, 8% and 7% of total revenues in 2000, 2001 and 2002, respectively. In addition, revenues from Gengraf were 18%, 31% and 31% of total revenues in 2000, 2001 and 2002, respectively. If Abbott were required to obtain a license from Novartis to continue the sale of Gengraf, Abbott’s cost of sales for Gengraf may increase, and Gengraf sales may fall dramatically if this increased cost renders Gengraf less competitive in the marketplace. We believe that under our agreement with Abbott, any royalties due to Novartis should be paid by Abbott solely from Abbott’s share of Gengraf profits, but Abbott may contest this. If Gengraf were withdrawn from the market due to the Novartis patent lawsuit against Abbott, these revenues would be lost entirely.

While we experienced our first profitable year in 2002, we may not be able to maintain or increase our financial reporting profitability on a quarterly or annual basis. Our operating results will be significantly dependent upon our success in, among other things:

	•	maintaining and increasing revenues from Thymoglobulin, Lymphoglobuline and Gengraf, particularly Thymoglobulin;
	•	Abbott’s ability and willingness to continue marketing Gengraf despite the current litigation by Novartis alleging that Gengraf infringes Novartis’ patents;
	•	successfully commercializing our product candidates, especially RDP58;
	•	limiting our manufacturing and selling, general and administrative expenses; and
	•	controlling research and development expenses.

Our operating results may also be affected by the licensing of complementary products or the investments in or acquisition of products or companies we may effect in the future. Any such acquisition or licensing could have the immediate effect of causing an operating loss in future periods. In this regard, our recent collaboration with and investment in Human Therapeutic Polyclonals decreased our level of profitability in 2002.

Fluctuations in quarterly and annual operating results may decrease our stock price.

Our quarterly and annual operating results may fluctuate due to a variety of factors, and these fluctuations may not match our expectations or the expectations of investors and securities analysts. This could cause the trading price of our common stock to decline substantially. We therefore believe that quarter-to-quarter comparisons of our operating results may not be a good indication of our future performance, and you should not rely on them to predict our future performance or the future performance of our stock.

We also expect our operating results to fluctuate significantly as a result of a number of factors, including:

	•	the uncertainty in the timing and the amount of revenue we earn from product sales, including seasonal fluctuations;
	•	our ability to continue marketing Gengraf in light of pending litigation between Novartis and Abbott, and Abbott’s willingness to continue marketing Gengraf;
	•	our achievement of research and development milestones;
	•	expenses we incur for product development, clinical trials and marketing and sales activities;
	•	the licensing of new products or the acquisition of products or other companies;
	•	increased competition by existing or new products;
	•	regulatory action;
	•	market acceptance of our products;
	•	manufacturing capabilities;
	•	cost of litigation; and
	•	third-party reimbursement policies.

Fluctuations in our operating results have affected our stock price in the past and are likely to continue to do so in the future.

If our preclinical and clinical testing of potential products is unsuccessful, our business will be harmed.

Before obtaining regulatory approval for the sale of any of our product candidates, we must subject these product candidates to extensive preclinical and clinical testing to establish their safety and efficacy. If these tests are unsuccessful, we will be unable to commercialize these products. We recently announced the results of our Phase II trials of RDP58 for patients with mild-to-moderate ulcerative colitis or Crohn’s disease, and clinical trials of RDP58 are expected to be ongoing. As our lead and primary product in development, adverse or inconclusive results from these trials would have a significant and material adverse effect on our research and development program and our prospects. In any event, interim results of trials do not necessarily predict final results, and acceptable results in early trials may not be repeated in later trials. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful. For example, we delayed our expected filing for our cyclosporine capsule by approximately six months due to unanticipated results on an initial clinical trial for that product, and we could experience further delays in the future for this and other products. Similarly, we recently announced preliminary results from our PhaseII/III study of ABX-CBL indicating that survival with ABX-CBL was similar to that with ATGAM. Based on these results, we do not plan to pursue further development of ABX-CBL. Moreover, preclinical and clinical data can be interpreted in different ways, which could delay, limit or prevent regulatory approval. Negative or inconclusive results or adverse medical events during a clinical trial could cause a clinical trial to be repeated or a program to be terminated. We typically rely on third-party clinical investigators to conduct our clinical trials and other third-party organizations to perform data collection and analysis and, as a result, we may face additional delayin g factors outside our control. The rate of completion of clinical trials depends, in part, on the enrollment of patients, which in turn depends on many factors such as the size of the patient population, the proximity of target patients to clinical sites, the eligibility criteria for the trial, the trial design, perceived risks and benefits, availability of the study drug and the existence of competitive experimental or approved therapies. Any delay in planned patient enrollment in our current or future clinical trials may result in increased costs, trial delays or both. Our product development costs will increase if we have delays in testing or approval or if we need to perform more or larger clinical trials than

planned. If the delays are significant, our financial results and the commercial prospects for our products will be harmed.

Our future growth depends on sales of key products.

We expect to derive most of our future revenues from sales of Thymoglobulin, Lymphoglobuline, and Gengraf. We have limited experience selling our products in the U.S. Our sales of Thymoglobulin began in the U.S. in February 1999. We began distributing Gengraf in May 2000. We are marketing Gengraf in the U.S. under a co-promotion agreement with Abbott Laboratories. Abbott could be required or could elect to discontinue or curtail marketing of Gengraf in light of the Novartis patent litigation. Because we expect Thymoglobulin, Lymphoglobuline and Gengraf to be key revenue-generating products, any factor decreasing sales of these products, particularly Thymoglobulin, would harm our financial results. In this regard, Thymoglobulin has recently experienced increased competition from the off-label use of a newly introduced product and increased marketing efforts by competitors. Increased competition from this or other products could affect the future sales or price of Thymoglobulin, which could have a material adverse effect on our business and operating results. In addition, a delay in regulatory approval of our cyclosporine capsule product would harm our future financial results. The following factors could harm the sale or approval of these products:

	•	the timing of regulatory approval and market entry relative to competitive products;
	•	the availability of alternative therapies;
	•	perceived clinical benefits and risks;
	•	competitive changes;
	•	regulatory issues;
	•	ease of use;
	•	changes in the prescribing practices of physicians;
	•	the availability of third-party reimbursement; and
	•	product liability claims.

In particular, with respect to Thymoglobulin, the following factors may decrease sales:

	•	the price of our products relative to alternative therapies;
	•	manufacturing or supply interruptions; and
	•	competitive pressures from competing products.

With respect to Gengraf and our proposed cyclosporine capsule, the following factors may, in particular, decrease revenue:

	•	Abbott’s ability and willingness to continue marketing Gengraf despite the Novartis patent litigation;
	•	Reaction of patients, physicians, pharmacies, distributors and medical institutions to possible disruptions in the supply of Gengraf due to fears that Gengraf may be removed from the market because of the Novartis patent lawsuit against Abbott;
	•	perceptions of both patients and physicians regarding use of a generic version of a critical, life-saving therapeutic;
	•	perception of bioequivalence;
	•	number of contracts with managed care providers and group purchasing organizations;
	•	pricing pressure from other generic competitors;

	•	intense competitive pressure from Novartis; and
	•	Novartis’s litigation with the U.S. Food and Drug Administration, the Medicines Control Agency in the U.K. and Abbott.

From time to time, we have experienced seasonality in our product sales, which in the past has resulted in weakness in our first quarter results. We may experience similar seasonality in this or other quarters in the future.

We face substantial competition.

Each of the drugs we develop competes with existing and new drugs being created by pharmaceutical, biopharmaceutical, biotechnology companies and universities. Many of these entities have significantly greater research and development capabilities, as well as substantial marketing, manufacturing, financial and managerial resources and represent significant competition. The principal factors upon which our products compete are product utility, therapeutic benefits, ease of use, effectiveness, marketing, distribution and price. With respect to our products, we are competing against large companies that have significantly greater financial resources and established marketing and distribution channels for competing products. Additionally, our increasing sales of Thymoglobulin are attracting competition. Thymoglobulin has recently experienced increased competition from the off-label use of a newly introduced product and increased marketing efforts by competitors. Increased competition from this or other products could affect the future sales or price of Thymoglobulin, which could have a material adverse effect on our business and operating results.

The drug industry is intensely price competitive, and we expect we will face this and other forms of competition. Developments by others may render our products or technologies obsolete or noncompetitive, and we may not be able to keep pace with technological developments. Many of our competitors have developed or are in the process of developing technologies that are, or in the future may be, the basis for products that compete with our own. Some of these products may have an entirely different approach or means of accomplishing the desired therapeutic effect than do our products and may be more effective, more convenient or less costly. In addition, many of these competitors have significantly greater experience than we do in undertaking preclinical testing and human clinical trials of pharmaceutical products, obtaining regulatory approval of such products and manufacturing them. Accordingly, our competitors may succeed in commercializing products more rapidly than us.

Other treatments for problems associated with transplantation that our products seek to address are currently available and under development. To the extent these products address the problems associated with the diseases on which we have focused, they may represent significant competition.

Novartis’s patent lawsuit against Abbott with respect to Gengraf may be resolved adversely.

Novartis sued Abbott in August 2000 claiming that Gengraf infringes certain Novartis patents. While a judgment was entered on August 19, 2002 in U.S. District Court finding that Gengraf infringed one of the Novartis patents the judge reversed the judgment and ruled that Abbott had not infringed the Novartis patents on March 27, 2003. The course of litigation is inherently uncertain: Novartis may choose to sue us directly, Abbott may not prevail, Abbott may withdraw

Gengraf from the market or Abbott may choose to settle on terms adverse to our interests. If Novartis sues us directly, we may incur expenses before reimbursement, if any, by Abbott, which is obligated under our agreement to indemnify us against such suits but its indemnity may not cover lost sales. Should Novartis succeed in obtaining a preliminary or permanent injunction, this injunction may temporarily or permanently remove Gengraf from the market. If Abbott or the Company is forced or elects to remove Gengraf from the market before our co-promotion agreement with Abbott expires on December 31, 2004, our customers might return unsold inventory to us for credit or refund and we could be holding inventory of Gengraf that we may be unable to sell. In that event, our revenues would decrease significantly and our operating results would be materially adversely affected.

A change in marketing strategy and a delay in product approval have created excess perishable inventories that may result in significant reductions in our future gross margins.

We have approximately $17.5 million of bulk cyclosporine active ingredient inventory classified as other assets in the balance sheet that we are not using to manufacture finished product in the amount anticipated. This inventory was originally purchased for use in cyclosporine finished products to be sold in the U.S. and Europe. However, since we are now distributing Gengraf in the U.S. and no longer sell SangCya Oral Solution, we are dependent on our capsule product under development to use this inventory. Although we plan to obtain marketing approval for the cyclosporine capsule product in Europe, the inherent uncertainty of the approval process makes it very difficult to forecast a launch date for this product. We filed for marketing approval of the cyclosporine capsule product in a European country in January 2003. If the approval and product launch are delayed, we may not be able to convert all the inventory into finished product and sell it before its expiration date. As a result, we could write off portions or all of our bulk cyclosporine active ingredient in a future period, which could significantly reduce the gross margin reported for that future period. If our cyclosporine capsule product is not launched by mid to late 2004, or if sales do not meet our expectations, we may have to write off additional amounts for expired inventory, which would adversely impact our operating results.

Four wholesalers account for a high percentage of our revenues, and the failure to maintain or expand these relationships could harm our business.

A substantial portion of demand for our products is from customers such as hospitals and pharmacies who purchase our products from wholesalers. Sales to Cardinal Health Inc., McKesson Corporation, Bergen Brunswig Drug Company and AmeriSource accounted for approximately 28%, 19%, 15% and 14%, respectively, of total revenues in 2002. Bergen Brunswig Drug Company acquired AmeriSource in 2002. We expect that we will continue to derive a substantial portion of our revenue from these wholesalers. The loss of any of these wholesalers could harm our business and operating results.

We may not be able to manufacture or obtain sufficient quantities of our products, which could lead to product shortages and harm our business.

Our manufacturing facility near Lyon, France, must meet FDA standards of Good Manufacturing Practices and other regulatory guidelines. The FDA and other regulatory authorities inspect our manufacturing facility to ensure that it meets regulatory standards. The FDA, as well as the Canadian and French health authorities, inspected our Lyon facility in February and March 2002. While the FDA may inspect our facilities at any time, we do not expect an FDA inspection until

2004. If in the future the FDA or Canadian authority believes that we are not complying with its guidelines, it can issue a warning letter or prevent the import and sale of Thymoglobulin into the U.S. or Canada, and/or order a recall of these products, which would cause an immediate and significant adverse effect on our business and operating results. In addition, Thymoglobulin and Lymphoglobuline are biological products, which are more difficult to manufacture than chemical compounds. We rely on Aventis for certain important manufacturing services, including quality assurance, quality control, and lyophilization, a step in the manufacturing process which involves removing the water from the product. Aventis may not continue to effectively and continuously provide us these critical manufacturing services. In addition, we may have difficulties manufacturing Thymoglobulin or Lymphoglobuline in the future that may impair our ability to deliver products to our customers, which could reduce our revenues.

Although we primarily use our own facilities to manufacture Thymoglobulin and Lymphoglobuline, we rely on third parties to supply us with raw materials. These third parties may stop supplying us with the materials we need at any time, and we may have to find new suppliers. We have seven suppliers of rabbit serum used for the manufacturing of Thymoglobulin. We recently had a dispute with two former suppliers of rabbit serum that resulted in a judgment against us of approximately $3.6 million plus interest, which was recorded as a charge to other income (expense) - net for the year ended December 31, 2001. We appealed the case to the French Cours de Cassation. In March 2003, we settled the lawsuit in return for a payment of 800,000 Euros (approximately $864,000). Our preferred rabbit suppliers are reaching full capacity and we have negotiated arrangements with them to expand capacity to meet our future needs. If this expansion is delayed or fails to materialize, we may incur shortages of an essential raw material. We have drawn upon our inventory of rabbit serum and our current inventory represents approximately 2 months supply.

Our reliance on third parties for manufacturing may delay product approval or, once approved, result in a product shortage, which would reduce our revenues.

Except for Thymoglobulin and Lymphoglobuline, third parties manufacture all of our products and product candidates. We rely on Abbott Laboratories and Sicor for the manufacture of bulk cyclosporine for the capsule product that is pending regulatory review in Europe. Abbott Laboratories also manufactures Gengraf, which would be a competing product with our cyclosporine capsule in Europe. It is possible that this competitive relationship could result in Abbott being an unreliable supplier of bulk cyclosporine for us. Federa (Fresenius Kabi France) manufactures Celsior for us. Some of the risks associated with using third parties for manufacturing are as follows:

	•	the manufacturer may not pass a pre-approval inspection or, once approved, may not continue to manufacture to the FDA’s and other regulatory authorities’ standards;
	•	the manufacturer may not timely deliver adequate supplies of a sufficiently high quality product in the timeline necessary to meet product demand; and
	•	we may not be able to obtain commercial quantities of a product at an economically viable price.

In addition, we may not be able to enter into commercial scale manufacturing contracts on a timely or commercially reasonable basis, or at all, for our product candidates. We rely on Accucaps Industries Limited to supply us with cyclosporine capsules and UCB S.A. to supply us with bulk RDP58 for research and clinical purposes. For some of our potential products, we will

need to develop our production technologies further for use on a larger scale to conduct human clinical trials and produce such products for sale at an acceptable cost.

If our manufacturers fail to perform their obligations effectively and on a timely basis, these failures may delay clinical development or submission of products for regulatory approval or, once a product is approved, result in product shortages, which could harm our business and operating results. Additionally, because our manufacturers can only manufacture our products in facilities approved by the applicable regulatory authorities, we may not be able to replace our manufacturing capacity quickly or efficiently in the event that our manufacturers are unable to manufacture our products.

Government regulation imposes significant costs and restrictions on the development and commercialization of our products, and we may not obtain regulatory approvals for our products.

Our research, preclinical development, clinical trials, manufacturing, marketing and distribution of our products in the U.S. and other countries are subject to extensive regulation by numerous governmental authorities including, but not limited to, the FDA. In order to obtain regulatory approval of a drug product, we must demonstrate to regulatory agencies, among other things, that the product is safe and effective for its intended uses and that the manufacturing facilities are in compliance with Good Manufacturing Practices requirements. The process of obtaining FDA and other required regulatory approvals is lengthy and requires the expenditure of substantial resources. We do not know if we will obtain the necessary approvals for any of our product candidates. Further, for our approved products, the marketing, distribution and manufacture of our products remains subject to extensive ongoing regulatory requirements administered by the FDA and other regulatory bodies. Failure to comply with applicable regulatory requirements could result in, among other things, warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, refusal of the government to grant pre-market clearance or pre-market approval, withdrawal of approvals and criminal prosecution.

We may not achieve the anticipated benefits from the acquisition or licensing of other products or companies, and any such transaction could harm our business and operating results.

We may elect to in-license or partner the development of new products from others, or we may elect to acquire products or other companies. We expect that the licensing or acquisition of products or companies in an early stage of development would require substantial additional investment prior to yielding anticipated returns. Moreover, we may fail to ultimately realize any anticipated benefits for a variety of reasons including risks inherent to the research and development of early-stage products, competition, quality problems, declining reimbursement, and integration risks related to new products, technology and human resources. Integration of new products or companies may strain our existing financial and managerial controls, reporting systems and procedures. This may result in the diversion of management and financial resources from our core business objectives and needs. Because we only recently realized quarterly profitability, we would expect that any such acquisi tion or licensing could have the immediate effect of causing an operating loss in future periods. Furthermore, the licensing or acquisition of new products or companies for cash could limit our financial resources, and the issuance of our stock in such a transaction could result in substantial dilution to existing stockholders. Accounting rules require us to periodically evaluate our investments in products, technologies or

collaborators, such as our investment in Therapeutic Human Polyclonals, Inc. A reduction in appraised value due to technology delays or failures or other reasons would require us to record losses that would adversely affect our financial results.

Significant movements in foreign currency exchange rates may harm our financial results.

Many of our foreign sales are invoiced in local currencies, creating receivables denominated in currencies other than the U.S. dollar, primarily in the Euro and the Japanese yen but also in the U.K. pound. The risk due to foreign currency fluctuations associated with these receivables is partially reduced by local payables denominated in the same currencies, and presently we do not consider it necessary to hedge these exposures. We may revise our hedging policy from time to time as our foreign operations change.

If we do not develop and market new products, our business will be harmed.

To maintain profitable operations, we must successfully develop, obtain regulatory approval for, manufacture, introduce and market new products and product candidates. We may not be able to successfully do this. Our product candidates will require extensive development and testing, as well as regulatory approval before marketing to the public. Our cyclosporine capsule product candidate in Europe has been delayed and we did not file for approval until January 2003. We recently announced preliminary results from our PhaseII/III study of ABX-CBL indicating that survival with ABX-CBL was similar to ATGAM. Based on these results, we do not plan to pursue further development of ABX-CBL. In addition, cost overruns and product approval delays could occur due to the following:

	•	unanticipated regulatory delays or demands;
	•	unexpected adverse side effects; or
	•	insufficient therapeutic efficacy.

These events would prevent or substantially slow down the development effort and ultimately would harm our business. Furthermore, our product candidates under development may not prove to be safe, effective or capable of being manufactured in commercial quantities at an economical cost, and our products could infringe the proprietary rights of others or may not be accepted in the marketplace.

Our business exposes us to the risk of product liability claims for which we may not be adequately insured.

We face an inherent business risk of exposure to product liability claims in the event that the use of our products is alleged to have resulted in adverse effects. Such risk exists even with respect to those products that are manufactured in licensed and regulated facilities or that otherwise received regulatory approval for commercial sale. We could be subject to significant product liability claims. We currently have product liability insurance in the amount of $20.0 million per claim and $20.0 million in the aggregate on a claims-made basis, which may not be adequate to cover potential liability exposures. In addition, adequate insurance coverage may not be available in the future on commercially reasonable terms, if at all. The loss of insurance coverage or the assertion of a product liability claim or claims could harm our operating results.

We may be unable to attract or retain key personnel.

Our ability to develop our business depends in part upon our attracting and retaining qualified management and scientific personnel. As the number of qualified personnel is limited, competition for such personnel is intense. We may not be able to continue to attract or retain such people on acceptable terms, given the competition for such personnel among biotechnology, pharmaceutical and healthcare companies, universities and nonprofit research institutions. The loss of our key personnel or the failure to recruit additional key personnel could significantly impede attainment of our objectives and harm our financial condition and operating results. There is risk that changes in management will disrupt our operations or lead to further resignations. Additionally, new and proposed laws, rules and regulations increasing the liability of directors and officers may make it more difficult to recruit for these positions.

Our litigation with Novartis may be resolved adversely and could consume our time and resources.

We are involved in litigation with Novartis in the U.S. and the U.K., which could potentially harm sales of Gengraf in the U.S. (due to the U.S. regulatory litigation which would impact the labeling for all generic cyclosporine products), and our cyclosporine capsule product candidate in Europe. The course of litigation is inherently uncertain, and we may not achieve a favorable outcome. The litigation, whether or not resolved favorably to us, is likely to be expensive, lengthy and time consuming, and to divert management’s attention.

Failure to protect our intellectual property will harm our competitive position.

Our success depends in part on our ability to obtain and enforce patent protection for our products and to preserve our trade secrets. We hold patents and pending patent applications in the U.S. and abroad. Some of our patents involve specific claims and thus do not provide broad coverage. Our patent applications or any claims of these patent applications may not be allowed, valid or enforceable. These patents or claims of these patents may not provide us with competitive advantages for our products. Our competitors may successfully challenge or circumvent our issued patents and any patents issued under our pending patent applications, or the patents of our collaborators. Further, we do not have patents on Thymoglobulin or Lymphoglobuline. Therefore, we are primarily dependent upon our trade secrets for these products. We have not conducted extensive patent and prior art searches with respect to our product candidates and technologies, and we do not know if third-party patents or patent applications exist or have been filed in the U.S., Europe or elsewhere. This would have an adverse effect on our ability to market our products. We do not know if claims in our patent applications would be allowed, be valid or enforceable, or that any of our products would not infringe on others’ patents or proprietary rights in the U.S. or abroad. We also have patent licenses from third parties whose patents and patent applications are subject to the same risks as ours.

We also rely on trade secrets and proprietary know-how that we seek to protect, in part, by confidentiality agreements with our employees and consultants. Our employees and/or consultants, however, may breach these agreements. We may not have adequate remedies for any such breach. In addition, our trade secrets may be independently developed or misappropriated by competitors, which could harm our business and operating results.

We have registered or applied for trademark registration of the names of all of our marketed products and plan to register the names of our products under development once we select a name for the product candidate. However, we may fail to obtain these trademark registrations or our competitors may challenge them.

We depend on collaborative relationships and any failure by our strategic partners to perform may harm our competitive position.

We have strategic relationships for the development and distribution of our products. In particular, we have entered into a multi-year co-promotion, distribution and research agreement for Gengraf in the U.S. with Abbott. We are dependent upon Abbott for certain regulatory, manufacturing, marketing, and sales activities under the agreement and for defending the Novartis patent lawsuit. Abbott may not perform satisfactorily and any such failure may impair our ability to deliver products on a timely basis, or otherwise impair our competitive position, which would harm our business. We may enter into additional collaborative relationships with corporate and other partners to develop and commercialize certain of our potential products. We may not be able to negotiate acceptable collaborative arrangements in the future, or such collaborations may not be available to us on acceptable terms or, if established, be scientifically or commercially successful.

Our stock price has historically been volatile, and you could lose some or all of your investment.

The market prices for securities of pharmaceutical and biotechnology companies, including ours, are highly volatile. For example, during 2002, the price of our common stock ranged from $10.20 to $27.49 per share. The stock market has from time to time experienced significant price and volume fluctuations that may be unrelated to the operating performance of particular companies. The market price for our common stock may fluctuate as a result of factors such as:

	•	announcements of new therapeutic products by us or our competitors;
	•	announcements regarding collaborative agreements;
	•	governmental regulations;
	•	our clinical trial results or clinical trial results from our competitors;
	•	fluctuations in our revenues or profitability;
	•	the licensing or acquisition of new products or other companies;
	•	developments in patent or other proprietary rights;
	•	departures or changes in key personnel;
	•	financial or other disclosure matters;
	•	public concern as to the safety of drugs developed by us or others;
	•	comments or recommendations made by securities analysts; and
	•	general market conditions.

Adverse economic conditions, epidemics, terrorism, war and geopolitical actions could affect our business.

A recession or other downturn in the U.S. or other regional economy could adversely affect our customers, including wholesalers, which could reduce our sales or make it more difficult to collect payments from them on a timely basis. Epidemics such as the recent incidence of Severe Acute Respiratory Syndrome (SARS) can adversely affect our business. For example, SARS has

disrupted at least one of our transplant center customers, resulting in reduction of our sales to that customer. The continued threat of terrorism in the U.S. and elsewhere and any ongoing military action and heightened security measures in response to this threat may cause significant disruption to commerce throughout the world. To the extent that this disruption results in delays or cancellations of orders, a general decrease in spending on pharmaceutical products or our inability to effectively market and ship our products, our business and operating results could be harmed. In particular, our Thymoglobulin and Lymphoglobuline products are perishable and require express shipping, which may be curtailed or delayed because of security restrictions and border inspections. Geopolitical actions by governments, companies or individuals resulting in trade restrictions, embargos, boycotts or other actions could affect our business. We are unable to predict whether economic conditions, epidemics, terrorism, or the military, geopolitical or other responses thereto will result in any long-term commercial disruptions or if such activities or responses will have a long-term adverse effect on our business or operating results.

Financial disclosure and other compliance requirements present a risk of liability or government investigation

New laws, rules and regulations by the federal and state legislatures, Securities and Exchange Commission and NASDAQ will increase the requirements for review and disclosure of financial and other information. The Office of Inspector General of the Department of Health and Human Services has issued new compliance guidelines for the pharmaceutical industry relating to the marketing of pharmaceutical products and the federal government is increasingly active in investigating and enforcing laws and regulations on improper promotion of pharmaceutical products. These and other laws, rules and regulations create uncertainty and risk in our industry, particularly for smaller companies such as ours that must rely on external resources for guidance. Risks include government investigation (which can be costly, time consuming and divert management attention), fines and civil and criminal liability. The increased potential for liability also may make it more difficult to attract and retain candidates for our board of directors. New requirements for internal controls could require significant additional expense and divert management attention.

The uncertainty of pharmaceutical pricing and reimbursement may decrease the commercial potential of our products.

Our ability to successfully commercialize our products may depend in part on the extent to which adequate reimbursement for the cost of such products and related treatment will be available from third-party payers, such as government health administration authorities, private health coverage insurers and other organizations. Third-party payers increasingly are challenging or seeking to negotiate the pricing of medical services and products. In some cases, third-party payers will pay or reimburse a user or supplier of a prescription drug product only a portion of the purchase price of the product. In the case of our prescription products, payment or reimbursement by third-party payers of only a portion of the cost of such products could make such products less attractive, from a cost perspective, to users, suppliers and prescribing physicians. Reimbursement, if available, may not be adequate. If government entities or other third-party payers for our products do not provi de adequate reimbursement levels, our results of operations would be harmed. The pricing, availability of distribution channels and reimbursement status of newly approved healthcare products is highly uncertain.

Healthcare providers may purchase Thymoglobulin, and other products, for off-label use (that is, a use not specifically approved by the FDA or similar authority for other countries). Actions by the FDA or other authority to prevent off-label use or a decision by third-party payers not to pay for off-label use would adversely affect sales. As a result, adequate third-party coverage may not be available for us to maintain price levels sufficient for realization of an appropriate return on our investment in product development. In certain foreign markets, pricing or profitability of healthcare products is subject to government 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, we believe that an increasing emphasis on managed care in the U.S. has increased, and will continue to increase, the pressure on pharmaceutical pricing. While we cannot predict the adoption of any such legislative or regulatory proposals or the effect such proposals or managed care efforts may have on our business, the announcement of such proposals or efforts could harm our ability to raise capital, and the adoption of such proposals or efforts could harm our operating results. Further, to the extent that such proposals or efforts harm other pharmaceutical companies that are our prospective corporate partners, this may reduce our ability to establish corporate collaborations. We do not know whether consumers, third-party payers and others will consider our products and product candidates, if approved, 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 basis.

Our use of hazardous materials could result in unexpected costs or liabilities.

In connection with our manufacturing, research and development activities and operations, we are subject to foreign, federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials, biological specimens and wastes. As a result, we may incur significant costs to comply with environmental and health and safety regulations. Our manufacturing, research and development involve the controlled use of hazardous materials, including but not limited to certain hazardous chemicals, infectious biological specimens and radiological materials. Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by foreign, state and federal regulations, we cannot eliminate the risk of accidental contamination or injury from these materials. In the event of such an accident, we could be held liable for any damages that result and any such liability could exceed our ability to pay. Additionally, recent developments in California may make it more difficult or impossible to close facilities where radiological materials have been used. While we do not plan to close such facilities in the near future, if such restrictions are not eased, we could encounter difficulties expanding our research facilities or in establishing collaborations with third parties, and could incur expenses to retain facilities that cannot be closed.

Anti-takeover provisions could limit our share price and delay or deter a change in management.

Certain provisions of our Certificate of Incorporation and Bylaws could significantly impede the ability of the holders of our common stock to change management or delay or make it more difficult or even prevent a third party from acquiring us without the approval of our incumbent Board of Directors. These provisions could limit or adversely affect the price that investors might be willing to pay in the future for shares of our common stock. These provisions, among other things:

	•	limit the right of stockholders to call special meetings of stockholders;
	•	limit the right of stockholders to present proposals, nominate directors for election or otherwise raise matters at annual meetings of stockholders without giving advance notice;
	•	eliminate the ability of stockholders to take action by written consent;
	•	prohibit cumulative voting in any election of directors, which may make it more difficult for a third party to gain control of our Board of Directors; and
	•	authorize our Board of Directors to issue up to five million shares of preferred stock in one or more series and to determine the price, rights, preferences, privileges, and restrictions of those shares without any further vote or action on the part of stockholders.

In addition, we have adopted a stockholder rights plan. Under this plan we may issue a dividend to stockholders who hold rights to acquire our shares or, under certain circumstances, the shares of an acquiring corporation, at less than half their fair market value. The plan could have the effect of delaying, deferring or preventing a change in control or management. The rights plan, if triggered, could cause substantial dilution to a person or group that attempts to acquire us on terms not approved by the Board of Directors.

Further, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, which will prohibit us from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, even if such combination is favored by a majority of stockholders, unless the business combination is approved in a prescribed manner. The application of Section 203 also could have the effect of delaying or preventing a change of control or management.

We may not be able to find a tenant for our vacant space.

We lease vacant office space in Newark, California that housed our discontinued operation, The Transplant Pharmacy. Due to the depressed real estate market, we may not succeed in finding a tenant for this property for a subrental in an amount that will prevent us from recognizing a further loss on our lease.

Some of our facilities in California are located near an earthquake fault, and an earthquake or other types of natural disasters or resource shortages could disrupt our operations and adversely effect results.

Our corporate headquarters is located at a single location in the Fremont area of California near active earthquake zones. This location houses various functions and related infrastructure to support our international operations in France. In the event of a natural disaster, such as an earthquake, drought or flood, or localized extended outages of critical utilities or transportation systems, we do not have a formal business continuity or disaster recovery plan, and could therefore experience a significant business interruption. California from time to time has experienced shortages of water, electric power and natural gas; future shortages and conservation measures could disrupt our operations and cause expense, thus adversely affecting our business and financial results.

Legacy computer systems may be vulnerable to failure or breaches of security.

We use computer systems, including our enterprise-wide financial system that may not include the most advanced security and reliability features available. There is a risk of breakdown and unauthorized access to computer systems, including our financial systems. While management makes efforts to assess risks and prevent and detect such security breaches, our financial results, and our ability to accurately report such results, could be impacted if such unauthorized access were to occur and not be detected within our normal internal control procedures, or breakdowns were to occur and not be promptly remedied.

ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

Our exposure to market risks has not changed materially since December 31, 2002. Reference is made to part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2002.

ITEM 4.

Controls and Procedures

(a) Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective.

(b) Internal Control Over Financial Reporting. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.

Legal Proceedings

Novartis Patent Litigation with Respect to Gengraf

succeed in obtaining a preliminary or permanent injunction, Abbott or we may be forced or elect to remove Gengraf from the market before our co-promotion agreement with Abbott expires on December 31, 2004, our customers might return unsold inventory to us for credit or refund and we could then be holding inventory of Gengraf that we may be unable to sell. In that event, our revenues would decrease significantly and our operating results would be materially adversely affected. We might also be required to write-off all or a portion of our Gengraf inventory.

Novartis Regulatory Litigation

U.S. Regulatory Litigation. Novartis U.S. sued the FDA on February 11, 1999 in the United States District Court for the District of Columbia alleging that the FDA did not follow its own regulations in approving SangCya Oral Solution in October 1998. The lawsuit alleges that because Neoral Oral Solution and SangCya Oral Solution are based on different formulation technologies, they should be classified as different dosage forms. Novartis initially asked the Court to (i) allow Novartis to keep its microemulsion labeling; (ii) declare microemulsion to be a separate dosage form; and (iii) rescind the AB rating that was given to SangCya Oral Solution. We intervened in this lawsuit. The Court granted our motion to dismiss the counts that relate specifically to the approval of SangCya Oral Solution, but Novartis may appeal this decision. We remain a party in the case. On July 11, 2002, the judge ordered Novartis, the FDA and us to file motions for summary judgment and set a schedule for briefs to be filed through December 20, 2002. We permanently withdrew SangCya Oral Solution from the U.S. market in July 2000, and receive no revenue from SangCya, but if the court were to declare microemulsion to be a separate dosage form, this ruling would require rescission of the AB rating for Gengraf, which would have a material adverse effect on our Gengraf revenues.

U.K. Regulatory Litigation—SangCya Oral Solution. On October 18, 1999, Novartis U.K. was granted leave to seek judicial review of the decision by the Medicines Control Agency, or MCA, to approve SangCya Oral Solution. On March 30, 2000, the High Court in London dismissed Novartis’s application for judicial review and ruled that the MCA acted properly in granting the SangCya Oral Solution marketing authorization. Novartis appealed the High Court’s decision, and the hearing was held before the Court of Appeal on November 13 and 14, 2000. The Court of Appeal has stayed ruling on this matter pending the answer of certain questions of law to be submitted to the European Court of Justice, or ECJ. The ECJ hearing was held on November 7, 2002, and the Advocate General issued an opinion in January 2003. We expect the ECJ’s decision approximately six to twelve months thereafter. Following the ECJ ruling, the parties would go back to the Court of Appeal, which will then apply the ECJ ruling on the law to the facts of this case. We no longer market SangCya Oral Solution, but the outcome of the case may affect the timing of regulatory approvals for our cyclosporine capsule product.

U.K. Regulatory Litigation—Cyclosporine Capsules. In November 1999, Novartis filed a request with the High Court in London for judicial review of the refusal by MCA to state that it would not reference Neoral data in approving any generic copies of Novartis’s cyclosporine capsule. An agreement was reached between the parties in which Novartis agreed to stay the judicial review until the earlier of (i) the decision on the judicial review of SangCya Oral Solution or (ii) MCA’s approval of SangStat’s marketing authorization for its cyclosporine capsule product; in return, we agreed that we would not launch or commence mutual recognition procedures in relation to the cyclosporine capsule marketing authorization (including a request to MCA to prepare an assessment report) for a period of 28 days commencing on the day on which we notify Novartis’s solicitors of capsule approval. The parties have agreed to continue the stay until the appeal of the

High Court decision with respect to the judicial review of SangCya Oral Solution. The stay of this application for judicial review will remain in place pending the ECJ ruling on the questions of law and subsequent Court of Appeal judgment.

Novartis has also indicated that it will seek an injunction to prevent our cyclosporine capsule from being sold in the United Kingdom until final resolution of the judicial review relating to our cyclosporine oral solution. Because the High Court ruled in favor of the MCA with respect to the SangCya Oral Solution marketing authorization and the Court of Appeal has referred questions of law to the ECJ, we believe that it is unlikely that a court would grant Novartis a preliminary injunction with respect to our cyclosporine capsule marketing authorization. If the Court of Appeals reverses the High Court’s ruling following the ECJ’s decisions on questions of law, either the MCA could still approve our cyclosporine capsule as supra-bioavailable to Sandimmune without referencing Neoral data or the MCA could decide not to approve our cyclosporine capsule marketing authorization until the expiration of the ten year data exclusivity period for Neoral capsules (May 2004).

IFFA CREDO and Elevage Scientifique des Dombes Breach of Contract Suit

In August 2000, two affiliated suppliers, IFFA CREDO and Elevage Scientifique des Dombes (“ESD”), sued our French subsidiary, IMTIX-SangStat SAS, for breach of contract in the Commercial Court of Lyon, France. The suppliers won in the trial court and appeals court and we paid approximately $3.6 million in damages plus interest. IMTIX-SangStat recorded charges of $3,250,000 and $204,000 to other income (expense)—net for the year ended December 31, 2001, which, combined with reserves recorded in fiscal 2000, fully provided for the court award. We appealed the case to the French Cours de Cassation. In March 2003, we settled the lawsuit in return for a payment by IFFA CREDO and ESD of 800,000 Euros (approximately $864,000).

Summary

revenue and (ii) need to write-off some or all of our bulk cyclosporine inventory. With respect to

the FDA lawsuit, Novartis’s requested relief, if granted could mean that Gengraf and all other generic cyclosporine products that are not microemulsions would lose their AB rating. If Gengraf were no longer AB-rated to Neoral capsules, pharmacists could not automatically substitute Gengraf for Neoral capsules and this would have a material adverse effect on us. Currently, none of the foregoing litigation matters require us to expend significant time or expense.

ITEM 2.	Changes in Securities and Use of Proceeds
	None

ITEM 3.	Defaults upon Senior Securities
	None

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

We distributed our Definitive Proxy Statement, Proxy and Annual Report to Stockholders on or about April 7, 2003 to each stockholder of record as of March 17, 2003, for our Annual Meeting of Stockholders held on May 15, 2003. At our Annual Meeting, the stockholders were asked to consider two proposals.

The first proposal involved the election of directors. The nominating committee of the Board of Directors selected six nominees, who all ran unopposed. All the nominees were then serving as our directors. The nominees of the Board, and the voting results with respect thereto, were:

Name	Votes For		Withheld

Jean-Jacques Bienaimé		23,627,453		123,464
Fredric Feldman		23,502,886		248,031
Corrinne H. Lyle		23,502,892		248,025
Richard D.Murdock		23,683,327		67,590
Hollings Renton		22,478,328		1,272,589
Andrew Perlman		23,672,128		1,078,789

The second and final proposal was the ratification of our independent auditors, Deloitte & Touche LLP, for the fiscal year ending December 31, 2003. The number of shares cast for, against, and abstentions were 23,380,046, 370,861, and 10, respectively. The affirmative vote of a majority of the votes cast on the proposal at the Annual Meeting was required for approval of this proposal. The percent of shares voted in favor of this proposal was 98% of the shares of Common Stock outstanding. Therefore, the stockholders approved proposal two.

ITEM 5.	Other Information
	None

ITEM 6.	Exhibits and Reports on Form 8-K

(a)	EXHIBITS – The following exhibits are attached hereto and filed herewith:

Exhibits		Description

	2.2	Master Agreement between SangStat Medical Corporation and Pasteur Merieux Serums & Vaccins, S.A., dated June 10, 1998, including Exhibit 8 thereto (filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K, filed on October 15, 1998 and as amended on December 14, 1998, and incorporated herein by reference).

	3.1	Restated Certificate of Incorporation, filed with the Delaware Secretary of State on July 9, 2002 (filed as Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, filed on August 14, 2002, and incorporated herein by reference).

	3.4	Second Amended and Restated Bylaws of the Registrant (filed as Exhibit 3.5 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, filed on May 15, 2000, and incorporated herein by reference).

	4.1	Specimen Common Stock Certificate of Registrant (filed as Exhibit 4.5 to the Registrant's Registration Statement on Form S-1, file no. 033-70436, and incorporated herein by reference).

	4.2	Warrant Agreement, dated April 25, 2000, for purchase of up to 50,000 shares of the Registrant's common stock by the holder thereof.

	10.1	2002 Stock Option Plan effective as of March 6, 2002 (filed as Exhibit 10.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2002, filed on March 26, 2003, and incorporated herein by reference).



	10.2		Form of Indemnification Agreement between the Registrant and its directors, officers and certain other employees (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, filed on November 14, 2001, and incorporated herein by reference).

	10.3*		License Agreement, dated November 15, 1993, between the Registrant and the Board of Trustees of Leland Stanford Junior University (filed as Exhibit 10.19 to the Registrant's Registration Statement on Form S-1, file no. 033-70436, and incorporated herein by reference).

	10.4		Rights Agreement, dated as of August 14, 1995, between the Registrant and First National Bank of Boston (filed as Exhibit 2 to the Registrant's Registration Statement on Form 8-A, filed on August 25, 1995, and incorporated herein by reference).

	10.5		First Amendment to Rights Agreement, dated as of October 8, 2001, among the Registrant, Fleet National Bank (f/k/a The First National Bank of Boston) and EquiServe Trust Company, N.A. (filed as Exhibit 99.1 to the Registrant's Current Report on Form 8-K, filed on October 9, 2001, and incorporated herein by reference).

	10.6		Real Property Sub-Lease, dated March 8, 1999, between the Registrant and Kelley-Clarke, Inc. to the Real Property lease, dated September 1, 1988, between Kelly-Clarke Inc. and Kaiser Development Company, as amended on February 26, 1990, May 1, 1990, May 5, 1990, and April 19, 1995 (filed as Exhibit 10.26 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998, filed on March 31, 1999, and incorporated herein by reference).

	10.7*		Co-Promotion Agreement, dated as of May 7, 1999, between the Registrant and Abbott Laboratories, Inc. (filed as Exhibit 10.28 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, filed on March 30, 2001, and incorporated herein by reference).

	10.8		Right of First Refusal Agreement, dated as of May 7, 1999, between the Registrant and Abbott Laboratories, Inc. (filed as Exhibit 10.28 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, filed on August 16, 1999, and incorporated herein by reference).

	10.9		Convertible Promissory Note, dated March 1999, for $10,000,000 with Warburg Dillon Read LLC (filed as Exhibit 10.32 to the Registrant's Annual Report on Form 10-K for the fiscal year ended



			December 31, 1999, filed on April 14, 2000, and incorporated herein by reference).

	10.10*		Co-Development, Supply and License Agreement, dated as of August 8, 2000, between the Registrant and Abgenix, Inc. (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000, filed on November 14, 2000, and incorporated herein by reference).

	10.11*		Option Agreement dated as of November 8, 2002 among the Registrant, Research Corporation Technologies, Inc. and Therapeutic Human Polyclonals, Inc. (filed as Exhibit 10.17 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2002, filed on March 26, 2003, and incorporated herein by reference).

	10.12*		Hematology Alliance Agreement dated as of November 8, 2002 between the Registrant and Therapeutic Human Polyclonals, Inc. (filed as Exhibit 10.18 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2002, filed on March 26, 2003, and incorporated herein by reference).

	10.13*		hTG Collaboration Agreement dated as of November 8, 2002 between the Registrant and Therapeutic Human Polyclonals, Inc. (filed as Exhibit 10.19 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2002, filed on March 26, 2003, and incorporated herein by reference).

	10.14*†		Second Amendment to Co-Promotion Agreement dated as of April 1, 2003 between the Registrant and Abbott Laboratories, Inc. (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, and incorporated herein by reference).

	10.15		Separation and Release Agreement, dated October 18, 2002, between the Registrant and Jean-Jacques Bienaime (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002, and incorporated herein by reference).

	10.16		Separation Agreement and General Release of Claims dated as of November 8, 2002 between the Registrant and Roland Buelow (filed as Exhibit 10.20 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2002, filed on March 26, 2003, and incorporated herein by reference).

	10.17		Form of Change of Control Agreement.‡



	10.18		Nonqualified Deferred Compensation Plan effective as of December 12, 2001 ( filed as Exhibit 10.2 to the Registrant's Amended Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2002, filed on May 15, 2002, and incorporated herein by reference).

	10.19		Offer Letter from the Registrant to Richard D. Murdock, dated March 27, 2003.

	31.1		Certification of Richard D. Murdock, Chief Executive Officer, pursuant to rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934.

	31.2		Certification of Stephen G. Dance, Chief Financial Officer, pursuant to rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934.

	32.1		Certification of Richard D. Murdock, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350.

	32.2		Certification of Stephen G. Dance, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350.

* Confidential treatment has been granted for certain portions omitted from this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

† Confidential treatment has not yet been granted.

‡ The Company entered into change of control agreements with its officers on December 20, 2000 (or, with respect to each officer joining after such date, the date such officer joined the Company).

(b) We filed Current Reports on Form 8-K on July 28, 2003, and August 4, 2003.

SANGSTAT MEDICAL CORPORATION
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.

Date: August 14, 2003	SANGSTAT MEDICAL CORPORATION

	By:	/s/ RICHARD D. MURDOCK

		Richard D. Murdock Chairman, President and Chief Executive Officer (Principal Executive Officer)

	By:	/s/ STEPHEN G. DANCE

		Stephen G. Dance, CPA, FCA Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

EX-4.2 3 exh4_2warrant.htm WARRANT AGREEMENT

EXHIBIT 4.2

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

SANGSTAT MEDICAL CORPORATION

Warrant for the Purchase of Shares of Common Stock

No.                                                                                                                                 - -50,000 Shares-

                        FOR VALUE RECEIVED, SANGSTAT MEDICAL CORPORATION, a Delaware corporation (the "Company"), with its principal office at 6300 Dumbarton Circle, Fremont, California 94555, hereby certifies that HighbridgeInternational LLC or its registered assigns (the "Holder") is entitled, subject to the provisions of this Warrant, to purchase from the Company, the number of fully paid and nonassessable shares of Common Stock of the Company set forth above.

                        This Warrant shall be exercisable, in whole or in part, at any time or from time to time after the date hereof and on or before 5:00 p.m. California time on April 25, 2005; provided, however, that in the event of (a) the closing of the Company's sale or transfer of all or substantially all of its assets or (b) the closing of the acquisition of the Company by another entity by means of merger, consolidation or other transaction or series of related transactions, resulting in the exchange of the outstanding shares of the Company's capital stock such that the stockholders of the Company prior to such transaction own, directly or indirectly, less than 50% of the voting power of the surviving entity, this Warrant shall, on the date of such event, no longer be exercisable and become null and void. In the event of a proposed transaction of the kind described above, the Company shall notify the holder of the Warrant at least five (5) days prior to the closing of such event or transaction.

                        The Holder may purchase the above number of shares of Common Stock at a purchase price per share (as appropriately adjusted pursuant to Section 6 hereof) of $23.438 (the "Exercise Price"). The term "Common Stock" shall mean the aforementioned Common Stock of the Company, together with any other equity securities that may be issued by the Company in addition thereto or in substitution therefor as provided herein.

                        The number of shares of Common Stock to be received upon the exercise of this Warrant and the price to be paid for a share of Common Stock are subject to adjustment from time to time as hereinafter set forth. The shares of Common Stock deliverable upon such

exercise, as adjusted from time to time, are hereinafter sometimes referred to as "Warrant Shares".

                        This Warrant is issued pursuant to that certain Letter Agreement between the Company and Reedland Capital Partners, dated November 29, 1999 (the "Agreement") in satisfaction of the Company's obligations under the Agreement.

                        Section 1.         Exercise of Warrant.

                        (a)        The Holder may exercise the Warrant in whole or in part on any business day prior to the termination of the Warrant by presentation and surrender hereof to the Company at its principal office at the address set forth in the initial paragraph hereof (or at such other address as the Company may hereafter notify the Holder in writing) with the Purchase Form annexed hereto duly executed and accompanied by proper payment of the Exercise Price in lawful money of the United States of America in the form of cash, or a certified or cashier's check for the number of Warrant Shares specified in the Purchase Form. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable hereunder. Upon receipt by the Company of this Warrant and such Purchase Form, together with proper payment of the Exercise Price, at such office, the Holder shall be deemed to be the holder of record of the Warrant Shares, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Warrant Shares shall not then be actually delivered to the Holder. The Company shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of the Warrant Shares.

                        (b)        Notwithstanding the foregoing, upon such exercise pursuant to Section 1(a), in lieu of payment of the Exercise Price, the Holder may instead elect to receive that number of shares of Common Stock of the Company equal to the quotient obtained by dividing [(A-B)(C)] by A, where:

                                    (A)       =          the Fair Market Value (as defined below) of one share of Common Stock on the date of exercise of this Warrant;

                                    (B)       =          the Exercise Price for one share of Common Stock under this Warrant (as adjusted to the date of such calculation); and

                                    (C)       =          the number of shares of Common Stock issuable upon exercise of this Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being canceled (at the date of such calculation).

If the above calculation results in a negative number, then no shares of Common Stock shall be issued or issuable upon exercise of this Warrant pursuant to this Section 1(b).

            For purposes hereof, "Fair Market Value" of a share of Common Stock shall mean:

                                                (A) where there exists a public market for the Company's Common Stock at the time of such exercise, the fair market value per share of Common Stock shall be the average of the closing bid and asked prices of the Common Stock quoted in the Over-The-Counter Market Summary or the last reported sale price of the Common Stock or the closing sale price quoted on the NASDAQ National Market System or on any exchange on which the Common Stock is listed, whichever is applicable; or

                                                (B)   in all other cases, the fair value as determined in good faith by the Company's Board of Directors.

            Upon exercise of this Warrant pursuant to this Section 1(b), the registered holder hereof shall be entitled to receive a certificate for the number of shares of Common Stock determined as aforesaid within a reasonable time not to exceed twenty (20) days after exercise of the stock purchase rights represented by this Warrant.

                        Section 2.         Reservation of Shares. The Company hereby agrees that at all times there shall be reserved for issuance and delivery upon exercise of this Warrant all shares of its Common Stock or other shares of capital stock of the Company from time to time issuable upon exercise of this Warrant. All such shares shall be duly authorized and, when issued upon such exercise in accordance with the terms of this Warrant, shall be validly issued, fully paid and nonassessable, free and clear of all liens, security interests, charges and other encumbrances or restrictions on sale (other than as provided in the Company's certificate of incorporation and any restrictions on sale or transfer set forth herein or pursuant to applicable federal and state securities laws) and free and clear of all preemptive rights.

                        Section 3.         Fractional Interest. The Company will not issue a fractional share of Common Stock upon exercise of a Warrant. Instead, the Company will deliver its check for the fair market value of such fraction of a share, rounded to the nearest cent.

                        Section 4.         Representations and Warranties of the Holder. The Holder hereby represents, warrants and covenants with the Company as follows:

                                    (a)        The Holder is acquiring the Warrant and the Warrant Shares for its own account, not as nominee or agent, for investment and not with a view to, or for resale in connection with, any distribution or public offering thereof within the Act;

                                    (b)        The Holder understands that the Warrant Shares have not been registered under the Act by reason of a specific exemption therefrom, that such securities must be held by the Holder indefinitely unless the Warrant Shares are subsequently registered under the Act and qualified under any applicable state securities laws, or unless exemptions from registration and qualification are otherwise available. The Holder also understands that the Company is issuing this Warrant in reliance upon the Holder's representations and warranties contained herein, and that any federal or state exemption is contingent upon the accuracy of the Holder's representations and warranties contained herein; and

                                    (c)        The Holder is an “accredited investor” as such term is defined in Rule 501 of the Act and was not formed for the specific purpose of acquiring this Warrant or the Warrant Shares.

                        Section 5.         Rights of the Holder. The Holder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in this Warrant. Nothing contained in this Warrant shall be construed as conferring upon the Holder hereof the right to vote or to consent or to receive notice as a shareholder of the Company on any matters or any rights whatsoever as a shareholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the Warrant Shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised in accordance with its terms.

                        Section 6.         Adjustment of Exercise Price and Number of Shares. The number and kind of securities purchasable upon the exercise of each Warrant and the Exercise Price shall be subject to adjustment from time to time upon the happening of certain events, as follows:

                                    (a)        Adjustment for Change in Capital Stock. If the Company:

                                                (A) pays a dividend or makes a distribution on its Common Stock in shares of its Common Stock;

                                                (B) subdivides its outstanding shares of Common Stock into greater number of shares;

                                                (C) combines its outstanding shares of Common Stock into a smaller number of shares;

                                                (D) makes a distribution on its Common Stock in shares of its capital stock other than Common Stock; or

                                                (E) issues by reclassification of its Common Stock any shares of its capital stock;

then the exercise right and the Exercise Price in effect immediately prior to such action shall be adjusted so that the Holder may receive upon exercise of the Warrants the number of shares of capital stock of the Company which the Holder would have owned immediately following such action if the Holder had exercised the Warrants immediately prior to such action.

                        The adjustment shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date in the case of a subdivision, combination or reclassification.

                                    (b)        Notice of Adjustments. Whenever the Exercise Price or number of Warrant Shares issuable upon exercise hereof shall be adjusted pursuant to this section, the

Company shall provide notice of the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated and the Exercise Price and number of Warrant Shares purchasable hereunder after giving effect to such adjustment.

                                    (c)        Deferral of Issuance or Payment. In any case in which an event covered by this Section 6 shall require that an adjustment in the Exercise Price be made effective as of a record date, the Company may elect to defer until the occurrence of such event (i) issuing to the Holder, if this Warrant is exercised after such record date, the shares of Common Stock and other capital stock of the Company, if any, issuable upon such exercise over and above the shares of Common Stock or other capital stock of the Company, if any, issuable upon such exercise on the basis of the Exercise Price in effect prior to such adjustment, and (ii) paying to the Holder by check any amount in lieu of the issuance of fractional shares pursuant to Section 3.

                                    (d)        When No Adjustment Required. No adjustment need be made for a change in the par value or no par value of the Common Stock.

                                    (e)        Notice of Certain Actions. In the event that:

                                                (A) the Company shall authorize the issuance to all holders of its Common Stock of rights, warrants, options or convertible securities to subscribe for or purchase shares of its Common Stock or of any other subscription rights, warrants, options or convertible securities; or

                                                (B) the Company shall authorize the distribution to all holders of its Common Stock of evidences of its indebtedness or assets (other than dividends paid in or distributions of the Company's capital stock for which the Exercise Price shall have been adjusted pursuant to subsection (a) of this Section 6 or regular cash dividends or distributions payable out of earnings or earned surplus and made in the ordinary course of business); or

                                                (C) the Company shall authorize any capital reorganization or reclassification of the Common Stock (other than a subdivision or combination of the outstanding Common Stock and other than a change in par value of the Common Stock) or of any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required (other than a consolidation or merger in which the Company is the continuing corporation and that does not result in any reclassification or change of the Common Stock outstanding), or of the conveyance or transfer of the properties and assets of the Company as an entirety or substantially as an entirety; or

                                                (D) the Company is the subject of a voluntary or involuntary dissolution, liquidation or winding-up procedure; or

                                                (E) the Company proposes to take any action (other than actions of the character described in subsection (a) or (b) of this Section 6) that would require an adjustment of the Exercise Price pursuant to this Section 6;

then the Company shall cause to be mailed by first-class mail to the Holder, at least five (5) days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date as of which the holders of Common Stock of record to be entitled to receive any such rights, warrants or distributions are to be determined, or (y) the date on which any such consolidation, merger, conveyance, transfer, dissolution, liquidation or winding-up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property, if any, deliverable upon such reorganization, reclassification, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding-up.

                                    (f)         Common Stock Defined. Whenever reference is made in this Section 6 to the issue of shares of Common Stock, the term "Common Stock" shall include any equity securities of any class of the Company hereinafter authorized which shall not be limited to a fixed sum or percentage in respect of the right of the holders thereof to participate in dividends or distributions of assets upon the voluntary or involuntary liquidation, dissolution or winding-up of the Company. However, shares issuable upon exercise hereof shall include only shares of the class designated as Common Stock of the Company as of the date hereof or shares of any class or classes resulting from any reclassification or reclassifications thereof or as a result of any corporate reorganization.

                                    (g)        No Adjustment Upon Exercise of Warrants. No adjustments shall be made under any Section herein in connection with the issuance of Warrant Shares upon exercise of the Warrants.

                        Section 7. Assignment or Loss of Warrant.

                                    (a)        Except as otherwise provided herein, the Holder of this Warrant shall not be entitled, without obtaining the consent of the Company, to transfer, assign or sell its interest in this Warrant in whole or in part to any person or persons; provided, however, that this warrant may be assigned to affiliates, (including distributions or transfers made to general or limited partners of a Holder) in compliance with the provisions of Section 8. Subject to the provisions of Section 8, and the obtaining of such consent of the Company, where required, upon surrender of this Warrant to the Company or at the office of its stock transfer agent or warrant agent, with the Assignment Form annexed hereto duly executed and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant or Warrants in the name of the assignee or assignees named in such instrument of assignment and, if the Holders entire interest is not being assigned, in the name of the Holder, and this Warrant shall promptly be canceled.

                                    (b)        Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of indemnification satisfactory to the Company, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver a new Warrant of like tenor and date.

                        Section 8.         Transfer. This Warrant may not be exercised and neither this Warrant nor any of the Warrant Shares, nor any interest in either, may be sold, assigned, pledged, hypothecated, encumbered or in any other manner transferred or disposed of, in whole or in part, without the prior written consent of the Company and in compliance with applicable United States federal and state securities or blue sky laws and the terms and conditions hereof. Each Warrant shall bear a legend in substantially the same form as the legend set forth on the first page of this Warrant. Each certificate for Warrant Shares issued upon exercise of this Warrant, unless at the time of exercise such Warrant Shares are acquired pursuant to a registration statement that has been declared effective under the Act, shall bear a legend substantially in the following form:

            THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

Any certificate for any Warrant Shares issued at any time in exchange or substitution for any certificate for any Warrant Shares bearing such legend (except a new certificate for any Warrant Shares issued after the acquisition of such Warrant Shares pursuant to a registration statement that has been declared effective under the Act) shall also bear such legend unless, in the opinion of counsel for the Company, the Warrant Shares represented thereby need no longer be subject to the restriction contained herein. The provision of this Section 8 shall be binding upon all subsequent holders of certificates for Warrant Shares bearing the above legend and all subsequent holders of this Warrant, if any.

                        Section 9.         Modification and Waiver. This Warrant and any term hereof may be changed, waived, discharged or terminated by an instrument in writing signed by the Company and by the Holders of a majority of the Warrants (on the basis of the number of Warrant Shares into which such Warrants then outstanding are exercisable) issued pursuant to the Agreement. Any amendment effected in accordance with this Section 9 shall be binding upon each Holders of any of the Warrants, each future Holders of all such Warrants, and the Company; provided, however, that no special consideration or inducement may be given to any such Holders in connection with such consent that is not given ratably to all such Holders, and that such amendment must apply to all such Holders equally and ratably in accordance with the number of shares of Common Stock issuable upon exercise of their Warrants.

                        Section 10.       Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be deemed effectively given upon personal delivery, on the first business day following mailing by overnight courier, or on the fifth day following mailing by registered or certified mail, return receipt requested, postage prepaid,

addressed to the Company and the Holder at its address as shown on the books of the Company or to the Company at the address indicated therefor in the first paragraph of this Warrant.

Section 11. Descriptive Headings and Governing Law. The description headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of California.

Section 12. Successors and Assigns. The terms and provisions of this Warrant shall inure to the benefit of, and be binding upon, the Company and the Holders hereof and their respective successors and assigns.

                        IN WITNESS WHEREOF, the Company and the Holder have duly caused this Warrant to be executed and to be dated as of November 26, 2001.

                                                                        SANGSTAT MEDICAL CORPORATION

                                                                        By:       /s/ Stephen G. Dance

                                                                        Name: Stephen G. Dance

                                                                        Title:      Senior Vice President, Finance

                                                                        HIGHBRIDGE INTERNATIONAL LLC
                                                                        By:       HIGHBRIDGE CAPITAL
                                                                                    MANAGEMENT, LLC

                                                                        By:       /s/ Carolyn Rubin

                                                                        Name: Carolyn Rubin

                                                                        Title:      Director of Legal

PURCHASE FORM

                                                                                                Dated ________________, ____

[   ]       The undersigned hereby elects to exercise the within Warrant to purchase ___________ shares of the Common Stock of the Company (the "Shares") at a purchase price of _______________ Dollars ($                ) per Share or an aggregate purchase price of _____________ Dollars ($                ) (the "Purchase Price").

[   ]       The undersigned hereby elects to convert ___________ percent (    %) of the value of the Warrant pursuant to the provisions of Section 1(b) of the Warrant.

            Pursuant to the terms of the Warrant the undersigned has delivered the Purchase Price herewith in full in cash or by certified check or wire transfer.

                                                                        Very truly yours,

                                                                        ________________________________________

                                                                        By: _____________________________________

                                                                        Title:____________________________________

ASSIGNMENT FORM

Dated ________________, ____

                        FOR VALUE RECEIVED, ___________________________ hereby

sells, assigns, and transfers unto ______________________________ (the "Assignee"),
                                                            (please type or print in block letters)

_______________________________________________________________________
                                                            (insert address)
its right to purchase up to ____ shares of Common Stock represented by this Warrant and does hereby irrevocably constitute and appoint ____________________ as its attorney-in-fact, to transfer the same on the books of the Company, with full power of substitution in the premises.

___________________________________

(Signature)

EX-10.17 4 exh10_17formofcontrol.htm FORM OF CHANGE OF CONTROL AGREEMENT [FORM OF CHANGE OF CONTROL AGREEMENT]

EXHIBIT 10.17

[Form of Change of Control Agreement]

This Change of Control Agreement (the “Agreement”) is effective as of _________________ (the “Effective Date”), by and between_________________ (the “Employee”), and SangStat Medical Corporation (the “Company”).

RECITALS

            A.        The Employee is presently employed by the Company and performs significant strategic and management responsibilities necessary to the continued conduct of the Company’s business and operations.

            B.         The Board of Directors of the Company (the “Board”) has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication and objectivity of the Employee, notwithstanding the possibility or occurrence of a Change of Control (as defined below) of the Company.

            C.        The Board believes that it is imperative to provide the Employee with certain severance benefits upon the Employee’s termination of employment under the circumstances described herein which provide the Employee with enhanced financial security and provide sufficient incentive and encouragement to the Employee to remain with the Company following a Change of Control.

            D.        Certain capitalized terms used in the Agreement are defined in Section 3 below.

            In consideration of the mutual covenants herein contained the parties agree as follows:

         1.            Terms of Employment. The Company and the Employee agree that the Employee’s employment is at will, and that his or her employment relationship may be terminated by either party at any time, with or without cause. If the Employee’s employment terminates for any reason within one (1) month prior to, upon or within eighteen (18) months following a Change of Control, the Employee shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement.

         2.            Severance Benefits.

                        (a)        Termination Upon A Change of Control. If the Employee’s employment is terminated within one (1) month prior to, upon or within eighteen (18) months following a Change of Control, either by the Company, other than a Termination for Cause, or by the Employee as a result of an Involuntary Termination (as defined in Section 3(b) below), then the Employee shall be entitled to receive the compensation, accrued but unused vacation and benefits earned by the Employee through the date of the Employee’s termination of employment and in addition thereto the following severance benefits, as applicable:

                                    (i)         Severance Pay. Severance pay in an amount equal to (x) ________________¹ times (i) the Employee’s annual base salary at the time of such termination and (ii) any bonuses received by the Employee over the twelve (12) months immediately prior to the termination date, plus (y) an amount equal to a portion of the incentive bonus, if any, the Employee will have earned for the fiscal year of the termination on the basis of the achievement of the agreed upon goals for the fiscal year of the termination pro rated to the date of termination, to be paid in a lump sum within thirty (30) days of the Employee’s termination; provided, however, that Employee may elect to receive the salary part of the severance pay as salary continuation over the next _________________.²

                                   (ii)        Options. All options previously granted to Employee shall become immediately exercisable and vested in full as of Employee’s termination date;

                                    (iii)       Outplacement. Employee may receive outplacement services for the sooner of six months or until the Employee commences new employment, at a mutually agreed-upon vendor up to a value of [$5,000-$15,000], which amount shall be paid directly from the Company to the vendor; and

                                    (iv)       COBRA. For a period of up to _________________³ after any termination under this Section 2(a), the Company shall reimburse the Employee for any COBRA premiums paid by the Employee for continued group health insurance coverage (the “Employment Benefits”). If the Employee’s medical coverage immediately prior to the date of termination of employment included the Employee’s dependents, the Company paid COBRA premiums shall include premiums for such dependents. Such Employment Benefits, including dependent benefits, shall terminate upon the earlier of (i) _________________ from the date of the Employee’s termination or (ii) upon commencement of new employment by the Employee.

                        (b)        Voluntary Resignation. If the Employee’s employment terminates by reason of the Employee’s voluntary resignation (and is not an Involuntary Termination or a termination for Cause), then the Employee shall not be entitled to receive severance or other benefits following the date of such termination under the terms of this Agreement, and the Company shall have no obligation to provide for the continuation of any health and medical benefit or life insurance plans existing on the date of such termination except as otherwise required by applicable law.

                        (c)        Disability; Death. If the Company terminates the Employee’s employment as a result of the Employee’s Disability, or such Employee’s employment is terminated at any time due to the death of the Employee, then the Employee shall not be entitled to receive severance or other benefits following the date of such termination under the terms of

this Agreement, and the Company shall have no obligation to provide for the continuation of any health and medical benefit or life insurance plans existing on the date of such termination except as otherwise required by applicable law.

                        (d)        Termination for Cause. If the Employee is terminated for Cause (as defined in Section 3(c) below), then the Employee shall not be entitled to receive any severance or other benefits following the date of such termination under the terms of this Agreement, and the Company shall have no obligation to provide for the continuation of any health and medical benefit or life insurance plans existing on the date of such termination except as otherwise required by applicable law.

                        [(e)       Limitation of Payments and Benefits.

                                    [(i)        To the extent that any of the payments and benefits provided for in this Agreement or otherwise payable to the Employee constitute "parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and, but for this Section 2(e), would be subject to the excise tax imposed by Section 4999 of the Code or any similar or successor provision, the aggregate amount of such payments and benefits shall be reduced, but only to the extent necessary so that none of such payments and benefits are subject to excise tax pursuant to Section 4999 of the Code.

                                    (ii)        Within sixty (60) days after the later of termination of employment or the related Change in Control, the Company shall notify the Employee in writing if it believes that any reduction in the payments and benefits that would otherwise be paid or provided to the Employee under the terms of this Agreement is required to comply with the provisions of Subsection 2(e)(i). If the Company determines that any such reduction is required, it will provide the Employee with copies of the information used and calculations made by the Company to determine the amount of such reduction. The Company shall determine, in a fair and equitable manner after consultation with the Employee, which payments and benefits are to be reduced so as to result in the maximum benefit for the Employee.

                                    (iii)       Within thirty (30) days after the Employee's receipt of the Company's notice pursuant to Subsection 2(e)(ii), the Employee shall notify the Company in writing if the Employee disagrees with the amount of reduction determined by the Company, or the selection of the payments and the benefits to be reduced. As part of such notice, the Employee shall also advise the Company of the amount of reduction, if any, that the Employee has, in good faith, determined to be necessary to comply with the provisions of Subsection 2(e)(i) and/or the payments and benefits to be reduced. Failure by the Employee to provide this notice within the time allowed will be treated by the Company as acceptance by the Employee of the amount of reduction determined by the Company and/or the payments and benefits to be reduced. If any differences regarding the amount of the reduction and/or the payments and benefits to be reduced have not been resolved by mutual agreement within sixty (60) days after the Employee's receipt of the Company's notice pursuant to Subsection 2(e)(ii), the amount of

reduction and/or the payments and benefits to be reduced as determined by the Employee will be conclusive and binding on both parties unless, prior to the expiration of such sixty (60) day period, the Company notifies the Employee in writing of the Company's intention to have the matter submitted to arbitration for resolution and proceeds to do so promptly. If the Company gives no notice to the Employee of a required reduction as provided in Subsection 2(e)(ii), the Employee may unilaterally determine the amount of reduction required, if any, and/or the payments and benefits to be reduced, and, upon written notice to the Company, the amount and/or the payments and benefits to be reduced will be conclusive and binding on both parties.

If, as a result of the reductions required by Subsection 2(e)(i), the amounts previously paid to the Employee exceed the amount to which the Employee is entitled, the Employee will promptly return the excess amount to the Company.]

[OR]

                                    [(i)        To the extent that any of the payments and benefits provided for in this Agreement or otherwise payable to the Employee in connection with a Change of Control (collectively, the "Payments") would result in a "parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), the amount of such Payments shall be either:

                                    (A)       the full amount of the Payments, or

                                    (B)       a reduced amount which would result in no portion of the Payments being subject to the excise tax imposed pursuant to Section 4999 of the Code (the "Excise Tax"),

whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the Excise Tax, results in the receipt by the Employee, on an after-tax basis, of the greatest amount of benefit. Unless the Company and the Employee otherwise agree in writing, any determination required under this Subsection shall be made in writing by independent public accountants appointed by the Company and reasonably acceptable to the Employee (the "Accountants"), whose determination shall be conclusive and binding upon the Employee and the Company for all purposes. The Company shall bear all costs the Accountants may reasonably incur in connection with such determination, and the Company and the Employee shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under the Subsection.

                                    (ii)        If, as a result of a reduction of Payments required by Subsection 2(e)(i), the amounts previously paid to the Employee exceed the amount to which the Employee in entitled, the Employee will promptly return the excess amount to the Company.]]

            3.         Definition of Terms. The following terms referred to in this Agreement shall have the following meanings:

                        (a)        Change of Control. “Change of Control” shall mean the occurrence of any of the following events:

                                    (i)         Any “person’ (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the total combined voting power represented by the Company’s then outstanding voting securities; or

                                    (ii)        A merger or consolidation of the Company with any other corporation or other business entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or parent thereof) more than fifty percent (50%) of the total combined voting power represented by the voting securities of the Company or such surviving or parent entity outstanding immediately after such merger or consolidation; or

                                    (iii)       the complete liquidation of the Company; or

                                    (iv)       the sale or disposition by the Company of all or substantially all the Company’s assets.

                        (b)        Involuntary Termination. “Involuntary Termination” shall mean the Employee’s resignation within 60 days after any of the following:

                                    (i)         Without the Employee’s express written consent, the assignment to the Employee of any significant duties or the significant reduction of the Employee’s duties, either of which is materially inconsistent with the Employee’s position with the Company and responsibilities in effect immediately prior to such assignment, or the removal of the Employee from such position and responsibilities, which is not effected for death, Disability or for Cause;

                                    (ii)        Without the Employee’s express written consent, any reduction in an amount greater than 5% in the base salary and/or or maximum incentive bonus (subject, however, to satisfaction of applicable goals with respect to the actual amount of incentive bonus earned) as in effect immediately prior to such reduction, other than a reduction applied generally to all employees of the acquiring company;

                                    (iii)       Without the Employee’s express written consent, any reduction in the kind or level of employee benefits to which the Employee is entitled immediately prior to such reduction, other than a reduction applied generally to all employees of the acquiring company;

                                    (iv)       Without the Employee’s express written consent, the relocation of the Employee to a facility or a location more than 40 miles from the Employee’s then present location; or

                                    (v)        The failure of the Company to obtain the assumption of the terms of this Agreement by any successors contemplated in Section 4 below;

provided, however, that the Employee’s resignation as a result of any of the foregoing conditions shall be a voluntary resignation, and not an Involuntary Termination, unless the Employee gives written notice of any such condition(s) to the Board and allows the Company at least 10 days thereafter to correct such condition(s).

                        (c)        Cause. For purposes of this Agreement, a termination for “Cause” occurs if the Employee is terminated for any of the following reasons:

                                    (i)         The Employee’s theft, dishonesty, misconduct or intentional falsification of any employment or Company records;

                                    (ii)        The Employee’s intentional and improper disclosure or use of the Company’s confidential or proprietary information;

                                    (iii)       Any action by the Employee that has a material detrimental effect on the Company’s reputation or business;

                                    (iv)       The Employee’s failure or inability to perform any assigned duty reasonably expected of a person holding the Employee’s position after written notice from the Board to the Employee of, and a reasonable opportunity to cure, such failure or inability; or

                                    (v)        The Employee’s conviction (including any plea of guilty or nolo contendere) for any criminal act that impairs the Employee’s ability to perform his duties for the Company.

                        (d)        Disability. “Disability” shall mean that the Employee is unable to perform one or more essential functions of his or her position as an employee of the Company as the result of his or her incapacity due to physical or mental impairment for 120 days (not necessarily consecutive) in any one year period. Termination resulting from Disability may only be effected after at least 30 days’ written notice by the Company of its intention to terminate the Employee’s employment. In the event that the Employee resumes the performance of substantially all of his or her duties as an employee of the Company before the termination of his employment becomes effective, the notice of intent to terminate shall automatically be deemed to have been revoked.

            4.         Severance.

                        No severance benefits shall be made under Section 2(a) unless and until the Employee shall, in consideration of such benefits, execute a release of claims in a form substantially similar to the form attached hereto as Exhibit A; provided, however, that the release shall not in any way impact the right of Employee to be indemnified by the Company.

            5.         Successors.

                        (a)        Company’s Successors. Any successor (or parent thereof) to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) or to all or substantially all of the Company’s business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be

required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term “Company” shall include any successor (or parent thereof) to the Company’s business and/or assets which executes and delivers the assumption agreement described in this subsection (a) or which becomes bound by the terms of this Agreement by operation of law.

                        (b)        Employee’s Successors. All rights of the Employee hereunder shall inure to the benefit of, and be enforceable by, the Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. Employee shall have no right to assign any of his obligations or duties under this Agreement to any other person or entity.

            6.         Notice.

                        (a)        General. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of the Employee, mailed notices shall be addressed to him at the home address which he most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its General Counsel.

                        (b)        Notice of Termination. Any termination by the Company for Cause or by the Employee as a result of a voluntary resignation or an Involuntary Termination shall be communicated by a notice of termination to the other party hereto given in accordance with Section 6 of this Agreement. Such notice shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision so indicated, and shall specify the termination date (which shall be not more than 15 days after the giving of such notice).

            7.         Miscellaneous Provisions.

                        (a)        No Duty to Mitigate. The Employee shall not be required to mitigate the amount of any payment contemplated by this Agreement (whether by seeking new employment or in any other manner), nor, except with respect to the Employment Benefits as described in Section 2(a)(iv), shall any such payment be reduced by any earnings that the Employee may receive from any other source.

                        (b)        Waiver. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Employee and by an authorized officer of the Company (other than the Employee). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

                        (c)        Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California.

                        (d)        Severability. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.

                        (e)        Arbitration. In the event of any dispute or claim relating to or arising out of the Employee’s employment relationship with the Company, this Agreement, or the termination of the Employee’s employment with the Company for any reason (including, but not limited to, any claims of breach of contract, wrongful termination, fraud or age, race, sex, national origin, disability or other discrimination or harassment), the Employee and the Company agree that all such disputes shall be fully, finally and exclusively resolved by binding arbitration conducted by the American Arbitration Association in Santa Clara County, California. The Employee and the Company hereby knowingly and willingly waive their respective rights to have any such disputes or claims tried to a judge or jury. Provided, however, that this arbitration provision shall not apply to any disputes or claims relating to or arising out of the actual or alleged misuse or misappropriation of confidential information, including, but not limited to, either party’s trade secrets or proprietary information.

                        (f)         No Assignment of Benefits. The rights of any person to payments or benefits under this Agreement shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor’s process, and any action in violation of this subsection (f) shall be void.

                        (g)        Employment Taxes. All payments made pursuant to this Agreement will be subject to withholding of applicable income and employment taxes.

                        (h)        No Representations. Each party acknowledges that it is not relying and has not relied on any promise, representation or statement made by or on behalf of the other party that is not set forth in this Agreement.

                        (i)         Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.

                        (j)         Prior Agreements. This Agreement shall supersede all prior arrangements whether written or oral, and understandings, regarding the subject matter of this Agreement.

                        (k)        Modification. This Agreement may only be modified or amended by a supplemental written agreement signed by Employee and the Company.

In Witness Whereof, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year first above written.

COMPANY                                                                SangStat Medical Corporation

                                                                                    By:

                                                                                    Title:

EMPLOYEE                                                                By:

¹ For executive officers, the range is one to two; for others, the range is one-half to one.
² For executive officers, the range is one to two years; for others, the range is six months to one year.
³ For executive officers, the range is one to two years; for others, the range is one-half to one year.
⁴ Optional provision related to IRS Code Section 280G.

EXHIBIT A

GENERAL RELEASE OF CLAIMS

1. In exchange for the additional separation benefits offered to me by SangStat Medical Corporation (the "Company") under the Change of Control Agreement entered into between the Company and myself on _________________, I, _________________, and my successors and assigns release and absolutely discharge the Company and its shareholders, directors, employees, agents, attorneys, legal successors and assigns of and from any and all claims, actions and causes of action, whether now known or unknown, that I now have, or at any other time had, or shall or may have against the Company based upon or arising out of any matter, cause, fact, thing, act or omission whatsoever occurring or existing at any time to and including the date hereof, including, but not limited to, any claims of wrongful termination, harassment, breach of contract or national origin, race, age, sex or other discrimination under the Civil Rights Act of 1964, the Age Discrimination In Employment Act of 1967, the Americans With Disabilities Act, the California Fair Employment and Housing Act, or any other applicable law.

2. I acknowledge that I have read section 1542 of the Civil Code of the State of California, which in its entirety states:

A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.

I hereby waive any right or benefit which I have under section 1542 of the Civil Code of the State of California or any equivalent provision of any other state, to the fullest extent that I may lawfully waive such rights pertaining to this Release of All Claims. Notwithstanding the above, I understand that I may retain whatever rights are otherwise preserved under law to file a charge or communicate with, or assist in any investigation or proceeding conducted by or through a state or federal administrative agency. However, in the event I bring any such claim or action I understand that I am not entitled to any actual relief or recovery therefrom, including recovery for any costs or attorney’s fees.

3. I acknowledge that I have carefully read and fully understand this release and I have not relied on any statement, written or oral, which is not set forth in this document.

I UNDERSTAND THAT I AM ENTITLED TO CONSULT WITH AN ATTORNEY PRIOR TO SIGNING THIS RELEASE AND THAT I AM GIVING UP ANY LEGAL CLAIMS I HAVE AGAINST THE COMPANY BY SIGNING THIS RELEASE. I ACKNOWLEDGE THAT I AM SIGNING THIS RELEASE KNOWINGLY, WILLINGLY AND VOLUNTARILY IN EXCHANGE FOR THE SEPARATION BENEFITS DESCRIBED IN THE CHANGE OF CONTROL AGREEMENT. I FURTHER UNDERSTAND THAT I HAVE [21/45] DAYS TO CONSIDER THIS RELEASE, THAT I MAY REVOKE IT AT ANY TIME DURING THE EIGHT DAYS AFTER I SIGN IT, AND THAT IT SHALL NOT BECOME EFFECTIVE UNTIL THAT EIGHT-DAY PERIOD HAS PASSED.

Dated: , 200___ Name:

EX-10.19 5 exh10-19_murdockofferletter.htm OFFER LETTER TO RICHARD D. MURDOCK

EXHIBIT 10.19

SangStat Medical Corporation
6300 Dumbarton Circle
Fremont, California 94555

March 27, 2003

Richard D. Murdock
3001 Seabrook Court
Redwood Shores, CA 94065

Dear Rick:

I am pleased to confirm our offer to you to continue with SangStat Medical Corporation (the “Company”) in the position of President and Chief Executive Officer, reporting to the Board of Directors, effective April 1, 2003. You also will continue to serve as Chairman of the Board of Directors at the discretion of the Board of Directors.

Salary and Bonus. Your base salary will continue to be $35,000 per month, which is equivalent to $420,000 on an annualized basis. You will also be eligible for a performance bonus of up to $210,000, in a final amount, if any, to be determined in the discretion of the Compensation Committee at the end of fiscal 2003. All wages and bonuses, if any, are subject to normal withholdings, and your base salary and eligible performance bonus may be increased or decreased from time to time after the end of fiscal 2003 in the discretion of the Compensation Committee.

Stock Options. As part of your compensation package, you will be granted a stock option to purchase an additional 300,000 shares of the Company’s common stock with an exercise price equal to the closing sale price on the date hereof. The stock option will be subject to a vesting schedule, whereby 25% of the option shall vest at the one-year anniversary of the date set forth below and the balance of the option shall vest monthly over the ensuing three years. These options are in addition to the 60,000 options you received as interim Chief Executive Officer and all other options currently existing as a result of your prior membership on the Board of Directors.

Severance Benefits.

(a) Termination upon a Change of Control. If your employment as President and Chief Executive Officer is terminated by the Company within one (1) month prior to, upon or within eighteen (18) months following, a Change of Control for any reason other than a termination for cause, as determined by the Board of Directors, then you shall be entitled to receive the compensation, accrued but unused vacation and benefits earned through the date of the termination of employment and in addition thereto the following severance benefits, as applicable:

(i) Severance Pay. Severance pay in an amount equal to two (2) times (i) your annual base salary at the time of such termination and (ii) any bonuses

received over the twelve (12) months immediately prior to the termination date, to be paid in a lump sum within thirty (30) days of your termination; provided, that you may elect to receive the salary portion of the severance pay as a salary continuation over twenty-four (24) months. Such election will not affect or extend the vesting of your options.

(ii) Options. Fifty percent (50%) of the then-unvested option to purchase the 300,000 shares noted above shall become immediately exercisable and vested in full as the termination date.

(b) Change of Control. A “Change of Control” shall mean the occurrence of any of the following events:

(i) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the total combined voting power represented by the Company’s then outstanding voting securities; or

(ii) A merger or consolidation of the Company with any other corporation or other business entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or parent thereof) more than fifty percent (50%) of the total combined voting power represented by the voting securities of the Company or such surviving or parent entity outstanding immediately after such merger or consolidation; or

(iii) the complete liquidation of the Company; or

(iv) the sale or disposition by the Company of all or substantially all the Company’s assets.

(c) As a condition to receiving any of the cash or equity compensation severance benefits set forth above, you must execute a general release in favor of the Company and its affiliates at the time of your termination of employment.

At-Will Employment. Please understand your employment is voluntarily entered into and is for no specific period. Accordingly, you are free to resign at any time, for any reason or for no reason, and the Company is free to conclude its employment relationship with you at any time, with or without cause.

Benefits Package. You and your eligible dependents will continue to be able to participate in a comprehensive benefits program including medical, dental and vision insurance as well as a 401(k) Plan and an Executive Deferred Compensation Plan. You will accrue seventeen (17) days of vacation per year up to an accrual maximum of thirty (30) days.

Proprietary Information. As a condition of employment, you will be required to sign a Proprietary Information and Inventions Agreement. You should also note that, in accordance with federal law, you will be required to demonstrate employment eligibility, which includes verification of your identity and of your authorization to work in the United States. The Company requests that you provide such documentation on your first day at work and in any event it must be provided no later than three (3) business days of your date of hire. In addition, you must complete and return SangStat’s Incoming Executive Questionnaire to Human Resources with an executed copy of this letter.

To indicate your acceptance of this offer of employment, please sign and date this confirmation form and return it to the Company. This letter sets forth the terms of your employment with the Company and supercedes any prior representations or agreements, whether written or oral. The terms and conditions in the employee manual and the plan documents are subject to change at any time by the Company, subject to requirements of federal, state or local law. This letter supercedes and replaces the prior letter between the Company and you dated October 18, 2002 and may only be modified by a written agreement signed by you and an officer of the Company.

Very truly yours,

/s/ Andrew Perlman

Andrew Perlman
Chairman of the Compensation Committee

Please indicate acceptance of this offer by returning this form with your signature.

I agree to and accept the offer of employment with SangStat Medical Corporation.

Richard D. Murdock

/s/ Richard D. Murdock

Signature

Date: March 31, 2003

EX-31.1 6 exh31-1certceo.htm CERTIFICATION OF CEO Rule 13a-14(a) Certification

EXHIBIT 31.1

Rule 13a-14(a) Certification

CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER

I, Richard D. Murdock, certify that:

1.	I have reviewed this report on Form 10-Q of SangStat Medical Corporation;
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(s) 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)) 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)	[paragraph reserved pursuant to SEC Release 33-8238]
	(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 officers 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 function):
	(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.

Signature	Title	Date


/s/ RICHARD D. MURDOCK	Chairman of the Board of Directors, President and Chief Executive Officer (Principal Executive Officer)	August 14, 2003

Richard D. Murdock

EX-31.2 7 exh31-2_certcfo.htm CERTIFICATION OF CFO Rule 13a-14(a) Certification

EXHIBIT 31.2

Rule 13a-14(a) Certification

CERTIFICATIONS OF CHIEF FINANCIAL OFFICER

I, Stephen G. Dance, certify that:

1.	I have reviewed this report on Form 10-Q of SangStat Medical Corporation;
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(s) 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)) 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)	[paragraph reserved pursuant to SEC Release 33-8238]
	(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 officers 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 function):
	(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.

Signature	Title	Date


/s/ STEPHEN G. DANCE	Chief Financial Officer (Principal Financial Officer and) Principal Accounting Officer)	August 14, 2003

Stephen G. Dance

EX-32.1 8 exh32-1certofceo.htm CERTIFICATION OF CEO PURSUANT TO 18 U.S.C. SECTION 1350

EXHIBIT 32.1

Certification of CEO Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of SangStat Medical Corporation (the “Company”) for the quarterly period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Richard D. Murdock, as Chairman of the Board of Directors, President and Chief Executive Officer of the Company, certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Richard D. Murdock

Richard D. Murdock
Chairman of the Board of Directors, President and Chief Executive Officer
Date: August 14, 2003

This certification accompanies the Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of § 18 of the Securities Exchange Act of 1934, as amended.

EX-32.2 9 exh32-2certofcfo.htm CERTIFICATION OF CFO PURSUANT TO 18 U.S.C. SECTION 1350

EXHIBIT 32.2

Certification of CFO Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of SangStat Medical Corporation (the “Company”) for the quarterly period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Stephen G. Dance, as Chief Financial Officer of the Company, certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Stephen G. Dance

Stephen G. Dance
Chief Financial Officer
Date: August 14, 2003

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