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                                                                  Exhibit 99.1


FACTORS AFFECTING FUTURE OPERATING RESULTS

    THIS ANNUAL REPORT ON FORM 10-K CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN
THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
THESE STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES AND ARE BASED ON THE
BELIEFS AND ASSUMPTIONS OF OUR MANAGEMENT BASED ON INFORMATION CURRENTLY
AVAILABLE TO OUR MANAGEMENT. USE OF WORDS SUCH AS "BELIEVES," "EXPECTS,"
"ANTICIPATES," "INTENDS," "PLANS," "ESTIMATES," "SHOULD," "LIKELY" OR SIMILAR
EXPRESSIONS, INDICATE A FORWARD-LOOKING STATEMENT. FORWARD-LOOKING STATEMENTS
INVOLVE RISKS, UNCERTAINTIES AND ASSUMPTIONS. CERTAIN OF THE INFORMATION
CONTAINED IN THIS ANNUAL REPORT ON FORM 10-K CONSISTS OF FORWARD-LOOKING
STATEMENTS. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS INCLUDE THE FOLLOWING:

WE ARE AN EARLY STAGE COMPANY THAT MAY NEVER BE PROFITABLE.

    We have incurred substantial operating losses since our inception. As of
December 31, 2001, we have generated only minimal revenue from our HAP
Technology, and we do not expect to generate significant revenues for several
years, if ever. From inception through December 31, 2001, we had an accumulated
deficit of approximately $160.5 million. Our losses to date have resulted
principally from costs we incurred in the development of our HAP Technology, in
our clinical trials and from general and administrative costs associated with
operations. We expect to devote substantial resources to our HAP Drug program
and to maintain and develop further our HAP Technology.

    We expect to incur additional losses this year and in future years, and we
may never achieve profitability. In addition, pharmaceutical and biotechnology
companies are only now beginning to use products such as ours in their drug
development or marketing efforts and, accordingly, they may not choose to use
our HAP Technology. We do not expect our losses to be substantially mitigated by
revenues from our HAP Partnership program or from our HAP Drug program for a
number of years, if ever.

TO GENERATE SIGNIFICANT REVENUES, WE MUST OBTAIN CUSTOMERS FOR OUR HAP
PARTNERSHIP PROGRAM AND SUCCESSFULLY DEVELOP OUR CANDIDATE HAP DRUGS.

    Our strategy depends on entering into agreements with pharmaceutical and
biotechnology companies for our HAP Partnership program and finding partners to
co-develop and/or co-market our candidate HAP Drugs. To date, we have four
partners for our HAP Partnership program, and we may not obtain additional
partners for our HAP Partnership program or find partners to co-develop and/or
co-market our candidate HAP Drugs. We currently do not have any partners to
co-develop and/or co-market our two candidate HAP Drugs. If we are unsuccessful
in obtaining additional customers for our HAP Partnership program and finding
partners for our HAP Drug program, we may never generate sufficient revenues to
sustain our operations. In addition, we expect that some of our future HAP
Partnership program collaborations will be limited to specific, limited-term
projects. Accordingly, we must continually obtain new customers to be
successful.

IF WE ARE UNABLE TO IDENTIFY WHICH OF OUR HAP MARKERS ARE PREDICTIVE FOR SAFETY
AND/OR EFFICACY FOR A CANDIDATE HAP DRUG, WE MAY NOT GENERATE SUFFICIENT
REVENUES TO SUPPORT OUR OPERATIONS.

    To be successful with our HAP Drug program, we must discover a correlation
between genomic variations and drug response. We may not have sufficient funds
to pursue our HAP Drug program and we may never discover any pharmaceutically
relevant correlations as a result of the program. Even if we discover
information on the correlation between drug response and genomic variation as a
result of our HAP Drug program, we may be unable to find a partner to co-develop
and/or co-market the candidate HAP Drug on terms sufficient to recover our
costs.

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OUR HAP TECHNOLOGY MAY NOT ALLOW OUR PARTNERS OR US TO DEVELOP COMMERCIAL
PRODUCTS OR TO INCREASE SALES OF THEIR CURRENTLY MARKETED PRODUCTS.

    We base our HAP Technology on the assumption that information about gene
association and genomic variation may help drug development professionals better
understand the drug response of particular individuals and complex disease
processes. Although the pharmaceutical and biotechnology industry is increasing
its use of genomics in analyzing drug response and diseases, we are unaware of
any successful drug development program applying population genomics.

    The focus of our HAP Technology is the rapid discovery of HAP Markers for
all of the pharmaceutically relevant genes. If we are unable to find HAP Markers
for a significant portion of the pharmaceutically relevant genes in a timely
manner, our potential partners may lose confidence in our HAP Technology and our
company, and this loss in confidence could decrease our ability to generate
revenues. Even if we are able to discover the HAP Markers for all of the
pharmaceutically relevant genes, this information may not prove to be superior
to genomic variation information discovered by our competitors. Furthermore,
pharmaceutical and biotechnology companies may not choose our HAP Technology
over competing technologies.

    Our DECOGEN-Registered Trademark- Informatics System may also be less
effective than we expect or may not allow our partners or us to determine a
correlation between genomic variation and drug response. Furthermore, even if
our partners or we are successful in identifying a specific correlation between
genomic variation and drug response based on our HAP Technology, neither our
partners or us may be able to develop or sell commercially viable products nor
may our partners be able to increase the sales of their existing products.
Accordingly, our HAP Markers and HAP Technology may not improve the development,
marketing and prescribing of drugs developed by our HAP Partnership program
customers and the HAP Drugs, if any, that we co-develop and/or co-market with
partners.

WE MAY NOT BE ABLE TO OBTAIN SUFFICIENT ADDITIONAL FUNDING TO MEET OUR CAPITAL
  REQUIREMENTS.

    We have used substantial amounts of cash to fund our research and
development activities. We will continue to spend funds to maintain and develop
further our HAP Technology and for our HAP Drug program. We plan to pay for
these activities with funds from:

    - our existing cash and investment securities and

    - income that we may receive from our HAP Partnership program.

    We intend to rely on HAP Partnership program customers for significant
funding in the future to support our research efforts. We cannot be certain when
we will begin to receive additional income, if at all, from our HAP Partnership
program and income, if any, from our HAP Drug program. If we do not receive this
income or do not receive it as rapidly as we expect, we would spend our existing
cash and investment securities more rapidly than we currently plan. We believe
that existing cash and investment securities will be sufficient to fund our
expected net losses, debt obligations and capital expenditures for at least
18 months. We have based this belief on assumptions that may prove wrong.

    To support the maintenance and further development of our HAP Technology and
our HAP Drug program, we need to seek additional funding through public or
private equity offerings, debt financings or commercial partners. Additional
financing may not be on terms favorable to our stockholders or us. Stockholders'
ownership will be diluted if we raise additional capital by issuing equity
securities. If we raise additional funds through partnerships and other
licensing arrangements, we may have to relinquish rights to some of our HAP
Technology or grant licenses on unfavorable terms. If adequate funds are not
available, we would have to scale back or terminate our HAP Drug program and the
maintenance and further development of our HAP Technology.

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IF WE ARE UNABLE TO OBTAIN INTELLECTUAL PROPERTY PROTECTION FOR OUR HAP
TECHNOLOGY, TRADE SECRETS OR KNOW-HOW, WE MAY NOT BE ABLE TO OPERATE OUR
BUSINESS PROFITABLY.

    Our success depends, in part, on our ability to protect our HAP Technology,
and any other proprietary software, methods and technologies that we develop,
under the patent and other intellectual property laws of the United States and
other countries, so that we can prevent unauthorized entities from using our
inventions and proprietary information. Because patent applications that were
filed prior to November 29, 2000 in the United States are confidential until
patents issue, third parties may have filed patent applications for technology
covered by our pending patent applications without our being aware of those
applications, and our patent applications may not have priority over any patent
applications of others. We are aware that there are other firms or individuals
who have discovered, or are currently discovering, genomic variation information
similar to the information we are discovering, who may have filed, and in the
future are likely to file, patent applications covering genes, gene products,
SNPs, or haplotypes that are similar or identical to our HAP Technology.

    Our pending patent applications may not result in issued patents. The patent
positions of pharmaceutical and biotechnology companies, including ours, are
generally uncertain as a result of the uncertain state of the patent law in the
biotechnology field. There is no uniform, worldwide policy regarding the subject
matter and scope of claims granted or allowable in biotechnology patents,
particularly those involving genomics.

    There is substantial uncertainty in the United States and abroad concerning
the patent ability of genes, gene fragments, SNPs, or haplotypes having no known
function or medical utility. The U.S. Patent and Trademark Office has issued new
examination guidelines that address the requirements for demonstrating the
utility and describing the structure of these substances. While the new
guidelines do not require phenotypic correlation data for issuance of patents
relating to human genomic variation, the guidelines have been in effect for only
a short period of time and it is possible that the U.S. Patent and Trademark
Office may interpret them in a way that could delay or adversely affect our
ability or the ability of our partners to obtain patent protection. Similarly,
U.S. courts are addressing the requirements for demonstrating the utility and
describing the structure of these substances in patent infringement and
enforcement proceedings. The biotechnology patent situation outside the United
States is even more uncertain and is currently undergoing review and revision in
many countries. Accordingly, we do not know the degree of future protection for
our proprietary rights or the breadth of claims allowed in any patents issued to
us or to others. Furthermore, we must continually review our patent strategy and
patent applications to address the changing legal standards in the United States
and abroad.

    Our strategy depends on our ability to identify rapidly and seek patent
protection for HAP Markers for all of the pharmaceutically relevant genes. In
order to do so, we must significantly increase our ability to prosecute the
substantial number of resulting patent applications, as well as patent
applications for the large number of discoveries we have made to date for which
we have not yet filed patent applications and for which we may not obtain
patents. In order to obtain ultimately a patent on a HAP Marker, we may need
both to discover the entire DNA sequence of the gene version defined by the HAP
Marker as well as to describe the utility of our HAP Marker for characterizing
genomic variation that is linked to a drug response or particular disease. This
process will be expensive and time consuming, and we may not be able to increase
sufficiently our patent prosecution capacity or to file and prosecute all
necessary or desirable patent applications at a reasonable cost or in a timely
manner.

IF WE ARE UNABLE TO PREVENT OTHERS FROM UNAUTHORIZED USE OF, OR ARE UNABLE TO
DEFEND OUR USE OF, OUR HAP TECHNOLOGY, TRADE SECRETS OR KNOW-HOW, WE MAY NOT BE
ABLE TO OPERATE OUR BUSINESS PROFITABLY.

    Despite our efforts to protect our proprietary rights, unauthorized parties
may be able to obtain and use information that we regard as proprietary. The
mere issuance of a patent does not guarantee that it is valid or enforceable;
thus even if we obtain patents, they may not be valid or enforceable against
third parties.

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    We also rely upon unpatented trade secrets and improvements, unpatented
know-how and continuing technological innovation to develop and maintain our
competitive position. We generally protect this information with reasonable
security measures, including confidentiality agreements signed by our employees,
academic collaborators and consultants that provide that all confidential
information developed or made known to others during the course of the
employment, consulting or business relationship will be kept confidential except
in specified circumstances. Agreements with employees, consultants and
collaborators provide that all inventions conceived by the individual while
employed by us are our exclusive property. If employees, consultants or
collaborators do not honor these agreements, we may not have adequate remedies
for breach. Furthermore, our trade secrets may otherwise become known or be
independently discovered by competitors.

    Further, a patent does not provide the patent holder with freedom to operate
in a way that infringes the patent rights of others. A third party may sue us
for infringing on its patent rights. Likewise, we may need to resort to
litigation to enforce a patent issued to us or to determine the scope and
validity of third party proprietary rights. The cost to us of any litigation or
other proceeding relating to intellectual property rights, even if resolved in
our favor, could be substantial, and the litigation would divert our
management's efforts. Some of our competitors may be able to sustain the costs
of complex patent litigation more effectively than we can because they have
substantially greater resources. Uncertainties resulting from the initiation and
continuation of any litigation could limit our ability to continue our
operations.

    If any party should successfully claim that the creation or use of our
DECOGEN-Registered Trademark- Informatics System or HAP Marker data infringes
upon their intellectual property rights, in addition to any damages we might
have to pay, a court could require us to stop the infringing activity or obtain
a license on unfavorable terms. Moreover, any legal action against us or our HAP
Partnership program customers or any HAP Drug co-development and/or co-marketing
partners claiming damages or seeking to enjoin commercial activities relating to
the affected products and processes could, in addition to subjecting us to
potential liability for damages, require us or our HAP Partnership program
customers or any of our HAP Drug co-development and/or co-marketing partners to
obtain a license in order to continue to manufacture or market the affected
products and processes. Any license required under any patent may not be made
available on commercially acceptable terms, if at all. In addition, some
licenses may be non-exclusive, and, therefore, our competitors may have access
to the same technology licensed to us. If we fail to obtain a required license
or are unable to design around a patent, we may be unable to market effectively
some of our HAP Technology and HAP Drugs, if any, which could limit our
profitability and possibly prevent us from generating revenue sufficient to
sustain our operations.

WE MAY BE UNABLE TO DEVELOP OR COMMERCIALIZE OUR HAP TECHNOLOGY AND CANDIDATE
HAP DRUGS IF WE CANNOT ESTABLISH COLLABORATIVE RELATIONSHIPS, AND WE WILL DEPEND
ON OUR PARTNERS TO DEVELOP OR TO CO-DEVELOP PRODUCTS.

    We currently have four HAP Partnership program customers and no partners to
co-develop and/or co-market our two candidate HAP Drugs. Under our current
strategy, and for the foreseeable future, we do not expect to develop or market
pharmaceutical products on our own. As a result, our current and future revenues
will depend on payments from our current HAP Partnership program customers and
our future HAP Partnership program customers and the future co-developers and
co-marketers of our HAP Drugs, if any, for either the new products they may
develop, or for increased sales of their existing products, made possible
through the use of our HAP Technology, or from HAP Drugs, if any, that the
co-developers and co-marketers may sell. If we are unable to attract additional
HAP Partnership program customers or co-developers and/or co-marketers for our
candidate HAP Drugs, we may never generate sufficient revenues to sustain our
operations.

    Our HAP Partnership program customers will be responsible and our HAP Drug
co-developers probably will be responsible for pre-clinical study and clinical
development of therapeutic and diagnostic products and for regulatory approval,
manufacturing and marketing of any products or

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enhanced marketing claims that result from the application of our HAP
Technology. We anticipate that our agreements with HAP Partnership program
customers and HAP Drug co-developers, if any, will allow them significant
discretion in pursuing these activities. We cannot control the amount and timing
of resources that our current HAP Partnership program customers and any future
HAP Partnership program customers will devote to our programs or potential
products. Our HAP Partnership program arrangements may also have the effect of
limiting the areas of research that we may pursue either alone or with others.
Because part of our revenues will be dependent on the successful
commercialization or development of our customers' products, if, for any reason,
a HAP Partnership program customer delays or abandons its development or
commercialization of a product developed using our HAP Technology, we may
receive reduced royalty or other payments or no royalty or other payments at
all. In addition, because part of our future revenues will be dependent on the
successful commercialization of our HAP Drugs, if any, with our co-developers
and/or co-marketers, if, for any reason, a HAP Drug co-developer and/or
co-marketer delays or abandons its development or commercialization of our HAP
Drug, we may receive reduced royalty or other payments or no royalty or other
payments at all.

    Although we intend to retain the rights to all HAP Markers, which we
discover as well as to HAP Markers discovered jointly with our HAP Partnership
program customers, we may not always be able to negotiate the retention of these
rights. Furthermore, disputes may arise in the future over the ownership of
rights to HAP Markers as well as any other technology we develop with our HAP
Partnership program customers. These and other possible disagreements between
our HAP Partnership program customers and us could lead to delays in the
research, development or commercialization of their products. These
disagreements could also result in litigation or require arbitration to resolve.
Any of these events could prevent us from effectively marketing our HAP
Technology.

WE INVEST CONSIDERABLE AMOUNTS OF TIME, EFFORT, AND MONEY TO SELL OUR HAP
TECHNOLOGY AND CANDIDATE HAP DRUGS; AND IF WE ARE UNABLE TO SELL OUR HAP
TECHNOLOGY AND CANDIDATE HAP DRUGS, WE MAY NOT GENERATE SUFFICIENT REVENUE TO
SUSTAIN OUR OPERATIONS.

    Our ability to obtain customers for our HAP Technology and candidate HAP
Drugs will depend in significant part upon the pharmaceutical and biotechnology
industry's acceptance that our HAP Technology can help accelerate or improve
their drug development and marketing efforts. To achieve this market acceptance,
we must continue to educate the pharmaceutical and biotechnology industry and
the public in general as to the potential benefits of our HAP Technology and
candidate HAP Drugs. Most importantly, we must convince the research and
development, clinical and marketing departments of pharmaceutical and
biotechnology companies that our HAP Technology can accelerate and improve the
processes for developing, marketing, and prescribing drugs and that our
candidate HAP Drugs will be commercially viable. Given the amount of time and
effort necessary to educate our potential partners, if we fail to gain this
acceptance, we may never generate sufficient revenues to sustain our operations.
In addition, each of our HAP Partnership program agreements and our HAP Drug
co-development and/or co-marketing agreements, if any, will likely involve the
negotiation of agreements containing terms that may be unique to the partner
involved. We may expend substantial funds and management effort to market our
HAP Technology and candidate HAP Drugs, without any resulting sales.

REGULATORY OVERSIGHT OF OUR HAP TECHNOLOGY AND PUBLIC OPINION REGARDING ETHICAL
ISSUES SURROUNDING THE USE OF GENETIC INFORMATION MAY ADVERSELY AFFECT OUR
ABILITY TO MARKET OUR HAP TECHNOLOGY AND CANDIDATE HAP DRUGS.

    The Secretary's Advisory Committee on Genetic Testing, an advisory panel to
the Secretary of the U.S. Department of Health and Human Services, has
recommended that the FDA expand its regulation of genetic testing to require FDA
approval for all new genetic tests and labeling of genetic tests. Currently, the
FDA reviews only genetic tests that companies package and sell as kits. If the
FDA adopts this recommendation, it could require that we apply for FDA approval
as a prerequisite to

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marketing our HAP Technology. If the FDA were to deny any application of this
kind, we could not conduct our business and we would be unable to generate
sufficient revenues to sustain our operations.

    In addition, the federal Centers for Disease Control and the Centers for
Medicare and Medicaid Services are preparing a proposed rule that would
establish a genetics laboratory specialty under CLIA. When this rule is
finalized, our laboratory likely will be required to comply with it in order to
maintain its CLIA certification.

    Moreover, our success will depend in part on the FDA's and other regulatory
agencies' acceptance of genomic variation analysis as part of the drug approval
process and, more specifically, the validity of our HAP Technology as a basis
for identifying genomic variation and for correlating drug response with genomic
variation. Without this acceptance, we may be unable to market effectively our
HAP Technology and we may not generate sufficient revenues to sustain our
operations. To date, the FDA has not required, in connection with approving any
drug, that a physician must have genomic variation information determined about
a patient before the doctor prescribes a drug. However, the FDA, in one
instance, has required that a physician must have gene expression information
about a patient before the doctor prescribes the drug.

    Within the field of personalized health and medicine, governmental and other
entities may enact patient privacy and healthcare laws and regulations that may
limit the use of genomic variation data. To the extent that these laws and
regulations limit the use of our HAP Technology or impose additional costs on
our partners, we may be unable to market effectively our HAP Technology and
candidate HAP Drugs and we may not generate sufficient revenues to sustain our
operations.

    Additionally, public opinion on ethical issues related to the
confidentiality and appropriate use of genetic testing results may influence
governmental authorities to call for limits on, or regulation of the use of,
genetic testing. In addition, governmental authorities or other entities may
call for limits on, or regulation of the use of, genetic testing or prohibit
testing for genetic predisposition to certain conditions, particularly for those
that have no known cure. The occurrence of any of these events could reduce the
potential markets for our HAP Technology, which could prevent us from generating
sufficient revenues to sustain our operations.

    Furthermore, we may be directly subject to regulations as a provider of
diagnostic information. To the extent that these regulations restrict the sale
of our HAP Technology or impose other costs, we may be unable to provide our HAP
Technology to our customers on terms sufficient to recover our expenses.

IF OUR PARTNERS DO NOT SEEK, OR DO NOT RECEIVE, MARKETING APPROVAL FOR PRODUCTS
DEVELOPED, IF ANY, USING OUR HAP TECHNOLOGY, WE MAY RECEIVE DELAYED ROYALTY OR
OTHER PAYMENTS OR NO ROYALTY OR OTHER PAYMENTS AT ALL.

    Any new drug, biologic, or new drug or biologic indication our partners
or we develop using our HAP Technology must undergo an extensive regulatory
review process in the United States and other countries before a new product
or indication of this kind could be marketed. This regulatory process can
take many years and require substantial expense. Changes in FDA policies and
the policies of similar foreign regulatory bodies can prolong the regulatory
review of each new drug or biologic license application or prevent approval
of the application.  For a HAP Drug that contains an off-patent compound in a
formulation that is not significantly different than existing generic
versions of the off-patent compound, there can be no assurance that the HAP
Drug, if approved, would have sufficient marketing exclusivity granted by the
FDA that would protect it from indirect competition by others in the
marketplace. We expect similar delays and risks in the regulatory review
process for any diagnostic product, whenever this regulatory review is
required. Even if a product obtains marketing clearance, a marketed product
and its manufacturer are subject to continuing review. A manufacturer may be
forced to withdraw a product from the market if a previously unknown problem
with a product becomes apparent. Because our revenues will be largely
dependent on the successful commercialization or development of products
using our HAP Technology, any delay in obtaining, failing to obtain, or
failing to maintain regulatory approval for a product developed using our HAP
Technology may delay our receipt of royalty or other payments or prevent us
from receiving royalty or other payments sufficient to recover our expenses.

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IF OUR PARTNERS OR WE ARE UNABLE TO OBTAIN FDA APPROVAL FOR THERAPEUTIC OR
DIAGNOSTIC PRODUCTS DEVELOPED USING OUR HAP TECHNOLOGY, THE LACK OF REGULATORY
APPROVAL WILL DIMINISH THE VALUE OF OUR HAP TECHNOLOGY AND ANY HAP DRUGS.

    To date, no one has developed or commercialized any therapeutic or
diagnostic products using our HAP Technology. We expect to rely on our HAP
Partnership program customers and our HAP Drug co-developers, if any, to file
these applications and generally direct the regulatory review process and obtain
FDA acceptance of our HAP Technology and our HAP Drugs. Significant resources
for research, development, testing and regulatory approval of any drugs would be
necessary. Our HAP Partnership program customers or our HAP Drug co-developers,
if any, may not submit an application for regulatory review; even if they do
submit applications, they may not be able to obtain marketing clearance for any
products on a timely basis, if at all. If our partners fail to obtain required
governmental approvals for therapeutic or diagnostic products, they will not be
able to market these products unless and until they obtain these approvals.
Moreover, we do not expect to have the resources necessary to obtain and
generally direct the regulatory review process and to commercialize products, if
any, on our own. As a result, we may not receive royalty or other payments from
our customers. The occurrence of any of these events may prevent us from
generating revenues sufficient to sustain our operations.

IF WE DO NOT SUCCESSFULLY DISTINGUISH AND COMMERCIALIZE OUR HAP TECHNOLOGY, WE
MAY BE UNABLE TO COMPETE SUCCESSFULLY WITH OUR COMPETITORS OR TO GENERATE
REVENUES SIGNIFICANT TO SUSTAIN OUR OPERATIONS.

    Numerous entities are attempting to identify genomic variation predictive of
specific diseases and drug response and to develop products and services based
on these discoveries. We face competition in these areas from pharmaceutical,
biotechnology and diagnostic companies, academic and research institutions and
government or other publicly-funded agencies, both in the United States and
abroad, most of which have substantially greater capital resources, research and
development staffs, facilities, manufacturing and marketing experience,
distribution channels and human resources than we do.

    These competitors may discover, characterize or develop important
technologies applying population genomics before us or our HAP Partnership
program customers that are more effective than those technologies which we
develop or which our HAP Partnership program customers develop, or these
competitors may obtain regulatory approvals of their drugs more rapidly than our
HAP Partnership program customers do, any of which could limit our ability to
market effectively our HAP Technology.

    Some companies and governments are marketing or developing a number of
databases and informatics tools to assist participants in the healthcare
industry and academic researchers in the management and analysis of genomic
data. Entities such as Celera Genomics Group, Incyte Genomics, Inc., National
Human Genome Research Institute, Perlegen Sciences and Variagenics, Inc. have
developed or plan to develop databases containing gene sequence, gene
expression, genomic variation or other genomic information and are marketing or
plan to market their data to pharmaceutical companies or plan to make freely
available their databases. In addition, numerous pharmaceutical companies, such
as GlaxoSmithKline plc, either alone or in partnership with our competitors, are
developing genomic research programs that involve the use of information that
can be found in these databases.

    In order to compete against existing and future technologies, we will need
to demonstrate to potential HAP Partnership program customers the value of our
HAP Technology and that our HAP Technology and capabilities are superior to
competing technologies. Although we believe that our focus on gene-based HAP
Markers, rather than random genomic SNPs, differentiates our HAP Technology from
other technologies our competitors are developing, any HAP Technology
improvements we create may fail to achieve greater market acceptance than the
technologies developed by our competitors.

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    Moreover, our competitors may obtain patent protection or other intellectual
property rights that would limit our rights or our partners' ability to use our
HAP Technology to commercialize therapeutic or diagnostic products. If we are
unable to protect our proprietary methods and our HAP Technology, we may not be
able to commercialize our HAP Technology and we may not be able to generate
sufficient revenue to sustain our operations. If the United States and foreign
patent offices do not grant patents for our applications, our competitors may
obtain rights to commercialize our discoveries, which would severely limit our
ability to compete.

    Furthermore, if the pharmaceutical and biotechnology industry accepts our
approach based on identifying HAP Markers, our competitors may adopt approaches
similar to ours. Also, our competitors' customers may be more successful than
our customers in their drug development and marketing efforts. If the
pharmaceutical and biotechnology industry does not accept our approach or if our
competitors are more successful than we are, we may be unable to market
effectively our HAP Technology and, as a result, we may be unable to generate
revenues sufficient to sustain our operations.

    Genomic technologies have undergone, and are expected to continue to
undergo, rapid and significant change. Our future success will depend in large
part on maintaining a competitive position in the genomics field. Others may
rapidly develop new technologies that may result in products or technologies
becoming obsolete before we recover the expenses we incur in connection with our
development. Our HAP Technology could become obsolete if our competitors offer
less expensive or more effective drug discovery and development technologies,
including technologies that may be unrelated to genomics. We may not be able to
make the enhancements to our HAP Technology necessary to compete successfully
with newly emerging technologies.

IF WE FAIL TO MAINTAIN AND FURTHER DEVELOP OUR COMPUTER HARDWARE, SOFTWARE AND
RELATED INFRASTRUCTURE, WE COULD EXPERIENCE LOSS OF, OR DELAY IN, REVENUES AND
MARKET ACCEPTANCE.

    Because our business requires manipulating and analyzing large amounts of
data, we depend on the continuous, effective, reliable and secure operation of
our computer hardware, software and related infrastructure. To the extent that
our hardware or software malfunctions, we will experience reduced productivity.
We protect our computer hardware through physical and software safeguards.
However, our computer hardware is still vulnerable to fire, weather, earthquake,
or other natural disaster and power loss, telecommunications failures, physical
or software break-ins, and similar events. In addition, the software and
algorithmic components of our DECOGEN-Registered Trademark- Informatics System
are complex and sophisticated, and as such, could contain data, design or
software errors that could be difficult to detect and correct. Users of our
system may find software defects in current or future products. If we fail to
maintain and further develop the necessary computer capacity and data to support
our computational needs and our customers' drug discovery and development
efforts, we could experience a loss in revenues, or a delay in receiving
revenues, and a delay in obtaining market acceptance for our HAP Technology.

IF WE DO NOT EFFECTIVELY MANAGE OUR GROWTH, IT COULD AFFECT OUR ABILITY TO
PURSUE BUSINESS OPPORTUNITIES AND EXPAND OUR BUSINESS.

    We expect to continue to experience significant growth in the number of our
customers. This anticipated growth would place a significant strain on our
management and operations. We will need to continue to improve our operational
and financial systems and managerial controls and procedures. We will have to
maintain close coordination among our production, technical, accounting,
business development and research departments. Our ability to manage this
anticipated growth in the number of our customers will depend upon our ability
to broaden our management team and retain skilled employees. Our success will
also depend on the ability of our officers and key employees to continue to
implement and improve our operational and other systems, to manage multiple,
concurrent HAP Partnership program relationships and candidates for our HAP Drug
program and to train and manage our employees. In addition, we must continue to
invest in customer support resources as the number of

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our partners and their requests for support increase. Our partners are likely to
have worldwide operations and may require support at multiple U.S. and foreign
sites. If we cannot scale our business appropriately or otherwise adapt to
anticipated growth in this area, a key part of our strategy may not be
successful.

OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY, AND ANY FAILURE TO MEET
FINANCIAL EXPECTATIONS MAY DISAPPOINT SECURITIES ANALYSTS OR INVESTORS AND
RESULT IN A DECLINE IN OUR COMMON STOCK PRICE.

    Our operating results have fluctuated in the past and we expect they will
fluctuate in the future. These fluctuations could cause our common stock price
to decline. Some of the factors that could cause our operating results to
fluctuate include:

    - recognition of non-recurring revenues due to receipt of license fees,
      achievement of milestones, completion of contracts or other revenues;

    - demand for and market acceptance of our HAP Partnership program and our
      HAP Drug program;

    - timing of the execution of agreements on our HAP Partnership program or
      our HAP Drug program or other material contracts;

    - our competitors' announcements or introduction of new products, services
      or technological innovations;

    - disputes regarding patents or other intellectual property rights;

    - securities class actions or other litigation;

    - adverse changes in the level of economic activity in the United States and
      other major regions in which we do business; and

    - general and industry-specific economic conditions, which may affect our
      partners' use of our HAP Technology and our HAP Drug program.

    Due to volatile and unpredictable revenues and operating expenses, we
believe that period-to-period comparisons of our results of operations may not
be a good indication of our future performance. It is possible that, in some
future periods, our operating results may be below the expectations of
securities analysts or investors. In this event, the market price of our common
stock could fluctuate significantly or decline.


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