##### 









UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-K


ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934







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

HUMAN GENOME SCIENCES, INC.




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















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DOCUMENTS INCORPORATED BY REFERENCE






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









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##### 



PART I


ITEM 1.  BUSINESS


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


Overview










| |   |                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A drug development organization with the expertise necessary to
    design and implement well-focused, high-quality clinical trials
    of multiple compounds;                  
|
| |  | Manufacturing capability for the production of protein and
    antibody drugs for preclinical studies, clinical trials and the
    initial commercialization of our products;   
|
| |  | A scientific and discovery base, including expertise in the
    discovery of novel protein and antibody drugs, as well as
    genomics, proteomics and informatics capabilities;
|
| |  | Protein formulation technology, including the albumin fusion
    technology we use to create long-acting protein drugs;                                                         
|
| |  | A significant patent estate;                                                                                                                                                    
|
| |  | A skilled and experienced management team and board of directors;                                                                                                               
|
| |  | Employees who are creative, well-trained, hard-working and
    capable; and                                                                                                     
|
| |  | A strong balance sheet.                                                                                                                                                         





1



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##### 





20850-7464. 309-8504. 10-K.


Strategy






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Concentrate on novel human antibody drugs and long-acting
    versions of existing protein drugs. We concentrate our
    internal product development efforts on new antibody drugs
    discovered through genomics-based research, and on new
    long-acting versions of existing protein drugs created using our
    albumin fusion technology. Human monoclonal antibody drugs
    derived from our gene discoveries account for the majority of
    our current product pipeline. We rely on collaborations for the
    development of other products discovered using our
    genomics-based technology, including additional protein and
    antibody drugs, gene therapy products, small molecule drugs, and
    diagnostic products.
|
| |  | Develop, manufacture and commercialize our gene-based
    products on our own and with our strategic partners. The
    drugs we develop are designed to meet unmet medical needs
    representing significant markets. We select a limited number of
    products to develop, manufacture and market either by ourselves
    or with partners. We also license certain products to strategic
    partners in exchange for upfront payments, product milestone
    payments, royalties on sales, and other rights.                                                                                                                                                                                                                            
|
| |  | Pursue strategic acquisitions.We may pursue strategic
    acquisitions to augment our capabilities, to provide access to
    complementary technologies, and to expand our portfolio of new
    drug candidates in therapeutic categories we have identified as
    strategic areas of concentration.                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Expand our technology platform to accelerate our product
    development activities. We may continue to invest resources
    to expand and enhance our technology platform. We also may
    establish additional collaborations with leading biotechnology
    companies to gain access to complementary technologies for our
    product development efforts.                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Capitalize on our intellectual property portfolio.We
    pursue patents to protect our intellectual property and have
    developed a significant intellectual property portfolio. We
    intend to capitalize on our portfolio. As of March 1, 2006,
    we had 492 issued U.S. patents covering genes, proteins and
    antibodies, and had filed U.S. patent applications covering
    many more human genes, the proteins they encode, antibodies and
    proprietary technologies.                                                                                                                                                                                                                                                      

Products




tm LymphoStat-B tm B-lymphocyte tm B-cell tm Bacillus anthracis HGS-ETR1 HGS-ETR2 HGS-TR2J


2



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Lp-PLA2 VEGF-2 tm peptide-1 (GLP-1)


Clinical Programs




Albumin Fusion Protein Drugs




| |                                              
| | ---------------------------------------------
| | Albuferontm
    (albumin-interferon alpha 2b)



2-4 (50-140 (22-60


14-day 28-day


14-day 14-day 28-day 180-mcg alfa-2a


3



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##### 





12-week




| |                                            
| | -------------------------------------------
| | GSK716155 (albumin-glucagon-like peptide 1)

peptide-1 (GLP-1). GLP-1 GLP-1,




Human Monoclonal Antibody Drugs




| |                               
| | ------------------------------
| | LymphoStat-BTM
    (belimumab)

LymphoStat-B LymphoStat-B. LymphoStat-B LymphoStat-B LymphoStat-B


LymphoStat-B LymphoStat-B LymphoStat-Bs LymphoStat-B LymphoStat-B


4



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##### 



LymphoStat-B


LymphoStat-B LymphoStat-B LymphoStat-B LymphoStat-B LymphoStat-B


LymphoStat-B LymphoStat-B,




| |                            
| | ---------------------------
| | ABthraxTM
    (raxibacumab)

Bacillus
anthracis








| |                       
| | ----------------------
| | HGS-ETR1 (mapatumumab)



5



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HGS-ETR1




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

HGS-ETR2 receptor-2 receptor-2


HGS-ETR2 HGS-ETR2 10-mg/kg HGS-ETR2 HGS-ETR2






| |         
| | --------
| | CCR5 mAb

HIV-1 HIV-1 HIV-1


HIV-1




| |                                      
| | -------------------------------------
| | Genomics-Derived Small Molecule Drugs



| |                       
| | ----------------------
| | Darapladib (GSK480848)

(Lp-PLA2). Lp-PLA2


6



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Lp-PLA2,






| |                      
| | ---------------------
| | Relacatib (GSK462795)







| |             
| | ------------
| | Gene Therapy



| |                                                  
| | -------------------------------------------------
| | VEGF-2 (vascular
    endothelial growth factor-2)

VEGF-2 VEGF-2 VEGF-2 VEGF-2 VEGF-2 VEGF-2


VEGF-2, VEGF-2 VEGF-2


Preclinical Programs




7



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Research and Development






| |                                            
| | -------------------------------------------
| | Gene, Protein and Human Antibody Technology





Albumin Fusion Technology




Drug Development




8



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Clinical Research. The clinical research group is
    responsible for the design, planning and analysis of clinical
    trials, and matches novel biological molecules emerging from our
    protein and antibody discovery programs to unmet medical needs.
    The group includes our biostatistics team.                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Clinical Operations. The clinical operations group
    executes clinical trials and is responsible for managing
    clinical trial sites and ensuring that all proper procedures are
    followed during the collection of clinical data. The group
    includes our data management team.                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Project Management. Our project management team oversees
    the process of development of a drug from the earliest stages of
    research through the conduct of clinical development and
    regulatory filings.                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Regulatory Affairs. The regulatory affairs group manages
    communications with and submissions to regulatory authorities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Drug Safety. As our products advance in clinical testing,
    our medical affairs group collects and analyzes information on
    drug experience and safety, and ensures that accurate medical
    information is distributed.                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Quality Assurance.The quality assurance group ensures
    compliance with all regulatory requirements for the clinical
    development and manufacture of new products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Bioanalytical Sciences. The bioanalytical sciences group
    develops highly specialized assays that are used during
    monitoring of preclinical tests and clinical trials. Other
    assays help to ensure the quality and consistency of our
    products.                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Manufacturing. We have manufacturing capability for the
    production of protein and antibody drugs for our clinical
    trials, as well as for preclinical studies. We have expanded our
    manufacturing facilities as our development pipeline has
    progressed to allow us to produce larger quantities of protein
    and antibody drugs for clinical development. We have completed
    the construction of a large-scale manufacturing facility to
    support our increasing needs for protein and antibody drug
    production capacity related to the continuing progress of our
    product candidates and, eventually, the commercialization of our
    products.

Collaborative Arrangements


Human
Gene Therapeutic Consortium, Product Collaborations Technology Collaborations.


Human Gene Therapeutic Consortium




GlaxoSmithKline.


9



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##### 





Takeda.


Product Collaborations


GlaxoSmithKline. tm


Kirin.


CoGenesys.


10



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##### 





Corautus. VEGF-2


diaDexus. tm


Amgen.


Genentech.


MedImmune. Streptococcus
pneumoniae Streptococcus
pneumoniae Streptococcus
pneumoniae


Biosite.


11



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##### 





PDL BioPharma.


Technology Collaborations




| |                        
| | -----------------------
| | Antibodies and Peptides

Abgenix.


Cambridge Antibody Technology (CAT).


Dyax. in vitro


Medarex.


12



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##### 





Other


Transgene.


Patents and Proprietary Rights












13



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##### 









Competition


General.


Basis of Competition.




| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the quality and breadth of an organizations technology;                                                                                          
|
| |  | the skill of an organizations employees and its ability to
    recruit and retain skilled employees;                                             
|
| |  | an organizations intellectual property estate;                                                                                                   
|
| |  | the range of capabilities, from target identification and
    validation to drug discovery and development to manufacturing
    and marketing; and
|
| |  | the availability of substantial capital resources to fund
    discovery, development and commercialization activities.                            



Products.


14



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Government Regulation




Preclinical Testing.


Clinical Testing.




| |   |                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Phase 1 clinical trials are conducted with a small number of
    subjects to determine the early safety profile and the pattern
    of drug distribution and metabolism.                                                                         
|
| |  | Phase 2 clinical trials are conducted with groups of patients
    afflicted with a specified disease in order to provide enough
    data to evaluate preliminary efficacy and optimal dosages
    statistically and to expand evidence of safety.
|
| |  | Phase 3 clinical trials are large-scale, multi-center,
    comparative trials, which are designed to gather additional
    information for proper dosage and labeling of the drug and to
    demonstrate its overall safety and efficacy.        



Marketing Approvals.




15



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Other Regulation.




Foreign Regulation.


Possible Pricing Restrictions.


Sources of Supply




Manufacturing






16



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Marketing




Employees




ITEM 1A.     RISK FACTORS


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


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




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




17



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| |   |                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | these technologies or any or all of the products based on these
    technologies will be ineffective or toxic, or otherwise fail to
    receive necessary regulatory clearances;
|
| |  | the products, if safe and effective, will be difficult to
    manufacture on a large scale or uneconomical to market;                                                           
|
| |  | proprietary rights of third parties will prevent us or our
    collaborators from exploiting technologies or marketing
    products; and                                        
|
| |  | third parties will market superior or equivalent products.                                                                                                                      

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


mid-stage


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






spin-off


18



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PRODUCT DEVELOPMENT RISKS


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






| |   |                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | develop products internally;                                                                                                                                                     
|
| |  | complete laboratory testing and human studies;                                                                                                                                   
|
| |  | obtain and maintain necessary intellectual property rights to
    our products;                                                                                                  
|
| |  | obtain and maintain necessary regulatory approvals related to
    the efficacy and safety of our products;                                                                       
|
| |  | develop and expand production facilities meeting all regulatory
    requirements or enter into arrangements with third parties to
    manufacture our products on our behalf; and
|
| |  | deploy sales and marketing resources effectively or enter into
    arrangements with third parties to provide these functions.                                                   



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










| |   |                                                                                                   
| | - | --------------------------------------------------------------------------------------------------
| |  | our inability to manufacture sufficient quantities of materials
    for use in clinical trials;   
|
| |  | variability in the number and types of patients available for
    each study;                     
|
| |  | difficulty in maintaining contact with patients after treatment,
    resulting in incomplete data;
|
| |  | unforeseen safety issues or side effects;                                                         
|
| |  | poor or unanticipated effectiveness of products during the
    clinical trials; or                
|
| |  | government or regulatory delays.                                                                  



19



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131


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


two-phase tm in vitro in vivo


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




20



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RISK FROM COLLABORATION RELATIONSHIPS AND STRATEGIC
ACQUISITIONS


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


day-to-day


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


co-development LymphoStat-B HGS-ETR1


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




21



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






| |   |                                                    
| | - | ---------------------------------------------------
| |  | develop marketable products;                       
|
| |  | obtain regulatory approvals for products; or       
|
| |  | successfully market products based on our research.



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




FINANCIAL AND MARKET RISKS


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






| |   |                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | payments of interest on, and principal of, our indebtedness will
    be substantial, and may exceed then current revenues and
    available cash;                                         
|
| |  | a default under the terms of these existing obligations could
    result in the termination of certain leases and the acceleration
    of the maturity of our other financial obligations;
|
| |  | we may be unable to obtain additional future financing for
    continued clinical trials, capital expenditures, acquisitions or
    general corporate purposes;                           
|
| |  | we may be unable to withstand changing competitive pressures,
    economic conditions and governmental regulations; and                                                                   
|
| |  | we may be unable to make acquisitions or otherwise take
    advantage of significant business opportunities that may arise.                                                               

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




22



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Off-Balance


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


1 4






| |   |                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the amount of revenue, if any, that we are able to obtain from
    our collaborations, any approved products, and the time and
    costs required to achieve those revenues;
|
| |  | the timing, scope and results of preclinical studies and
    clinical trials;                                                                                               
|
| |  | the size and complexity of our development programs;                                                                                                                        
|
| |  | the time and costs involved in obtaining regulatory approvals;                                                                                                              
|
| |  | the cost of launching our products;                                                                                                                                         
|
| |  | the costs of commercializing our products, including marketing,
    promotional and sales costs;                                                                            
|
| |  | our ability to establish and maintain collaboration partnerships;                                                                                                           
|
| |  | competing technological and market developments;                                                                                                                            
|
| |  | the costs involved in filing, prosecuting and enforcing patent
    claims; and                                                                                              
|
| |  | scientific progress in our research and development programs.                                                                                                               





| |   |                                                                                         
| | - | ----------------------------------------------------------------------------------------
| |  | delay, scale back or eliminate some or all of our research and
    development programs;
|
| |  | delay, scale back or eliminate some or all of our
    commercialization activities;     

23



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| |   |                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------
| |  | lose rights under existing licenses;                                                                                         
|
| |  | relinquish more of, or all of, our rights to product candidates
    on less favorable terms than we would otherwise seek; and
|
| |  | be unable to operate as a going concern.                                                                                     

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




INTELLECTUAL PROPERTY RISKS


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




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




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




24



---



##### 





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




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




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




REGULATORY RISKS


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




25



---



##### 



Marketing Approvals.




Foreign Regulation.


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




OTHER RISKS RELATED TO OUR BUSINESS


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






| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the quality and breadth of an organizations technology;                                                                                          
|
| |  | the skill of an organizations employees and its ability to
    recruit and retain skilled employees;                                             
|
| |  | an organizations intellectual property portfolio;                                                                                                
|
| |  | the range of capabilities, from target identification and
    validation to drug discovery and development to manufacturing
    and marketing; and
|
| |  | the availability of substantial capital resources to fund
    discovery, development and commercialization activities.                            





26



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##### 





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


.


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




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






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




27



---



##### 





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




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






| |   |                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | authorize the issuance of up to 20,000,000 shares of blank
    check preferred stock that could be issued by our board of
    directors to increase the number of outstanding shares and
    discourage a takeover attempt;
|
| |  | classify the directors of our board with staggered, three-year
    terms, which may lengthen the time required to gain control of
    our board of directors;                                                                
|
| |  | limit who may call special meetings of stockholders; and                                                                                                                                                                     
|
| |  | establish advance notice requirements for nomination of
    candidates for election to the board of directors or for
    proposing matters that can be acted upon by stockholders at
    stockholder meetings.               

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






| |   |                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | future announcements about our company or our competitors,
    including the results of testing, technological innovations or
    new commercial products;
|
| |  | negative regulatory actions with respect to our potential
    products or regulatory approvals with respect to our
    competitors products;             
|
| |  | changes in government regulations;                                                                                                                        
|
| |  | developments in our relationships with our collaboration
    partners;                                                                                    
|
| |  | developments affecting our collaboration partners;                                                                                                        
|
| |  | announcements relating to health care reform and reimbursement
    levels for new drugs, particularly oncology drugs;                                     

28



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| |   |                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------
| |  | our failure to acquire or maintain proprietary rights to the
    gene sequences we discover or the products we develop;
|
| |  | litigation; and                                                                                                        
|
| |  | public concern as to the safety of our products.                                                                       



29



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ITEM 2.     PROPERTIES










ITEM 3.     LEGAL PROCEEDINGS




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




30



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PART II




|        |                                                                            
|------- | ---------------------------------------------------------------------------
|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
    STOCKHOLDERS MATTERS



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

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



31



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|        |                                     
|------- | ------------------------------------
|ITEM 6. | SELECTED CONSOLIDATED FINANCIAL DATA



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

32



---



##### 



|        |                                                
|------- | -----------------------------------------------
|ITEM 6. | SELECTED CONSOLIDATED FINANCIAL DATA, CONTINUED

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

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






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

33



---



##### 





|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS

Overview




out-licensed


large-scale




co-commercialize LymphoStat-B HGS-ETR1. co-development


tm in vitro in
vivo




34



---



##### 



Overview (continued)




Critical Accounting Policies and the Use of Estimates






Investments. Accounting for Certain
Investments in Debt and Equity Securities


Leases.


35



---



##### 



Critical Accounting Policies and the Use of Estimates
(continued)




Revenue. Revenue Recognition, straight-line seven-year


Research and Development.


Stock Compensation. Accounting for Stock Issued to
Employees Share-Based Payment Accounting for Stock-Based
Compensation. Accounting for Stock Issued to Employees.


36



---



##### 



Critical Accounting Policies and the Use of Estimates
(continued)


Use of Estimates.


Results of Operations




| |                                       
| | --------------------------------------
| | Years Ended December 31, 2005 and 2004

Revenues. tm


Expenses.


HGS-ETR2, LymphoStat-B


LymphoStat-B, HGS-TR2J HGS-ETR1, 


LymphoStat-B HGS-TR2J, HGS-ETR2,








37



---



##### 



Results of Operations (continued)




| |                                                   
| | --------------------------------------------------
| | Years Ended December 31, 2005 and 2004 (continued)





short-term short-term




1 4 3 4






Net Income (Loss).


38



---



##### 



Results of Operations (continued)




| |                                                   
| | --------------------------------------------------
| | Years Ended December 31, 2005 and 2004 (continued)





| |                                       
| | --------------------------------------
| | Years Ended December 31, 2004 and 2003

Revenues. up-front


Expenses.




LymphoStat-B.


HGS-TR2J third-party LymphoStat-B


LymphoStat-B


per-project per-project






39



---



##### 



Results of Operations (continued)


Years Ended
December 31, 2004 and 2003 (continued)




large-scale




Net Income (Loss).


Liquidity and Capital Resources


non-current






40



---



##### 



Liquidity and Capital Resources (continued)








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






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

41



---



##### 



Liquidity and Capital Resources (continued)














1 4






42



---



##### 



Liquidity and Capital Resources (continued)




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



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





Off-Balance Sheet Arrangements






43



---



##### 



Off-Balance Sheet Arrangements (continued)


short-term








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


forward-looking forward-looking


44



---



##### 





|         |                                                           
|-------- | ----------------------------------------------------------
|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

low-risk high-grade












45



---



##### 





|        |                                            
|------- | -------------------------------------------
|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





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





|         |                        
|-------- | -----------------------
|ITEM 9A. | CONTROLS AND PROCEDURES

Disclosure Controls and Procedures


10-K


Changes in Internal Control




Management Report on Internal Control over Financial
Reporting


13a-15(f) 15d-15(f)




| |   |                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | pertain to the management of records that in reasonable detail
    accurately and fairly reflect the transactions and dispositions
    of the assets of the Company;                                                                                                                                                                                           
|
| |  | provide reasonable assurance that transactions are recorded as
    necessary to permit preparation of financial statements in
    accordance with generally accepted accounting principles, and
    that receipts and expenditures of the Company are being made
    only in accordance with authorizations of management and
    directors of the Company; and
|
| |  | provide reasonable assurance regarding prevention or timely
    detection of unauthorized acquisition, use or disposition of the
    Companys assets that could have a material effect on the
    financial statements.                                                                                                                                       



46



---



##### 



|         |                                    
|-------- | -----------------------------------
|ITEM 9A. | CONTROLS AND PROCEDURES (continued)



Management Report on Internal
Control over Financial Reporting (continued)










|         |                  
|-------- | -----------------
|ITEM 9B. | OTHER INFORMATION



47



---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


ON INTERNAL CONTROL OVER FINANCIAL REPORTING






















48



---



##### 



PART III




|         |                                                   
|-------- | --------------------------------------------------
|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT





|         |                       
|-------- | ----------------------
|ITEM 11. | EXECUTIVE COMPENSATION





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





|         |                                               
|-------- | ----------------------------------------------
|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS





|         |                                       
|-------- | --------------------------------------
|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES



49



---



##### 



PART IV




|         |                                           
|-------- | ------------------------------------------
|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES





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







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

50



---



##### 



|            |    |      |  |                                                                                                                                                                                                                                                                                                                                                   
|----------- | -- | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    |     
|            |    |     
|            | 10 | .3*  |  | Employment Agreement, dated November 21, 2004, with H.
    Thomas Watkins (Filed as Exhibit 10.1 to the
    Registrants Form 8-K filed November 23, 2004).                                                                                                                                                                                       
|            | 10 | .4*  |  | Form of Executive Agreement, dated December 21, 2004,
    individually with Steven C. Mayer, James H. Davis, Ph.D., David
    C. Stump, M.D. and Susan Bateson McKay.                                                                                                                                                                             
|            | 10 | .5*  |  | 2000 Stock Incentive Plan, as amended (Filed as Exhibit A
    to the Registrants Definitive Proxy Statement on
    Schedule 14A filed April 18, 2001 and Annexes A
    and B to the Registrants Definitive Proxy Statement
    on Schedule 14A filed April 16, 2004).                                                                           
|            | 10 | .6*  |  | Amended and Restated 2000 Employee Stock Purchase Plan dated
    May 21, 2003 (Filed as Exhibit 10.7 to the
    Registrants Form 10-Q file on August 11, 2003).                                                                                                                                                                                  
|            | 10 | .7*  |  | Lease Agreement between Maryland Economic Development
    Corporation and Human Genome Sciences, Inc., dated
    December 1, 1997 (Filed as Exhibit 10.67 to the
    Registrants Form 10-K for the fiscal year ended
    December 31, 1997).                                                                                                     
|            | 10 | .8*  |  | Lease Agreement between Maryland Economic Development
    Corporation and Human Genome Sciences, Inc. dated
    December 1, 1999 (Filed as Exhibit 10.43 to the
    Registrants Form 10-K for the fiscal year ended
    December 31, 1999).                                                                                                      
|            | 10 | .9*  |  | Amended and Restated Participation Agreement and Appendix A
    to the Amended and Restated Participation Agreement between
    Human Genome Sciences, Inc., Wachovia Development Corporation
    and the other parties named therein dated June 30, 2003
    (Filed as Exhibit 10.2 to the Registrants
    Form 10-Q filed August 11, 2003).    
|            | 10 | .10* |  | Amended and Restated Lease Agreement between Wachovia
    Development Corporation and Human Genome Sciences, Inc. dated
    June 30, 2003 (Filed as Exhibit 10.3 to the
    Registrants Form 10-Q filed August 11, 2003).                                                                                                                        
|            | 10 | .11* |  | Amended and Restated Agency Agreement between Wachovia
    Development Corporation and Human Genome Sciences, Inc. dated
    June 30, 2003 (Filed as Exhibit 10.4 to the
    Registrants Form 10-Q filed August 11, 2003).                                                                                                                       
|            | 10 | .12* |  | Amended and Restated Security Agreement between Wachovia
    Development Corporation and Wachovia Bank, National Association,
    and accepted and agreed to by Human Genome Sciences, Inc., dated
    June 30, 2003 (Filed as Exhibit 10.5 to the
    Registrants Form 10-Q filed August 11, 2003).                                             
|            | 10 | .13* |  | Amended and Restated Assignment of Liquid Collateral Agreement
    between Human Genome Sciences, Inc. and Wachovia Development
    Corporation dated June 30, 2003 (Filed as Exhibit 10.6
    to the Registrants Form 10-Q filed August 11,
    2003).                                                                                          
|            | 10 | .14* |  | Omnibus Agreement between Maryland Economic Development
    Corporation, Wells Fargo Bank Northwest, National Association,
    Human Genome Sciences, Inc., Allfirst Bank, a division of
    M&T Bank and the other parties named therein dated
    June 26, 2003 (Filed as Exhibit 10.1 to the
    Registrants Form 10-Q filed August 11, 2003).
|            | 10 | .15* |  | Lease Agreement between Wells Fargo Bank Northwest, National
    Association as Trustee under Trust Agreement and Human Genome
    Sciences, Inc. dated October 25, 2001 (Filed as
    Exhibit 10.22 to the Registrants Form 10-K for
    the fiscal year ended December 31, 2001 and amended by
    Exhibit 10.15 hereto).                      
|            | 10 | .16* |  | Cash Collateral Pledge Agreement between Human Genome Sciences,
    Inc., Allfirst Bank and Allfirst Trust Company National
    Association dated October 25, 2001 (Filed as
    Exhibit 10.23 to the Registrants Form 10-K for
    the fiscal year ended December 31, 2001).                                                                    
|            | 10 | .17* |  | Guarantee by Human Genome Sciences, Inc. as Guarantor in favor
    of Allfirst Bank, as Agent dated October 25, 2001 (Filed as
    Exhibit 10.24 to the Registrants Form 10-K for
    the fiscal year ended December 31, 2001 and amended by
    Exhibit 10.15 hereto).                                                                          
|            | 10 | .18* |  | Amendment No. 1 dated March 29, 2002 to Lease
    Agreement between Wells Fargo Bank Northwest, National
    Association as Trustee under Trust Agreement and Human Genome
    Sciences, Inc. dated October 25, 2001 (Filed as
    Exhibit 10.25 to the Registrants Form 10-K for
    the fiscal year ended December 31, 2001).                  

51



---



##### 



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






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

52



---



##### 



SIGNATURES






| |                            
| | ---------------------------
| | HUMAN GENOME SCIENCES, INC.



| |     |                      
| | --- | ---------------------
| | By: | /s/ H. Thomas Watkins

| |                                                                       
| | ----------------------------------------------------------------------
| | H. Thomas Watkins 
          Chief Executive Officer and
    President





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

53



---



##### 



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


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

F-1



---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



















F-2



---



##### 



HUMAN GENOME SCIENCES, INC.


CONSOLIDATED BALANCE SHEETS


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



F-3



---



##### 



HUMAN GENOME SCIENCES, INC.


CONSOLIDATED STATEMENTS OF OPERATIONS


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



F-4



---



##### 



HUMAN GENOME SCIENCES, INC.


CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY




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



F-5



---



##### 



HUMAN GENOME SCIENCES, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS


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



F-6



---



##### 



SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES






F-7



---



##### 









(NOTE A)  The Company




out-licensed




co-development,


(NOTE B)  Summary of Significant
Accounting Policies


Use of Estimates




Principles of Consolidation




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




F-8



---



##### 











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




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




Investment Risk




Other-than-Temporary Impairment of Investments


Accounting for
Certain Investments in Debt and Equity Securities


Depreciation and Amortization




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

Impairment of Long-Lived Assets


Accounting
for the Impairment or Disposal of Long-Lived Assets


F-9



---



##### 











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


Fair Value of Financial Instruments




Long-Term


Leases


Accounting for Leases,


Stock-Based Compensation


Accounting for Stock Issued to
Employees Accounting for
Stock-Based Compensation non-employees 96-18, Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services


Accounting for
Stock-Based Compensation  Transition and
Disclosure


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

F-10



---



##### 











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




Stock-Based Compensation (continued)






Revenue Recognition




Research and Development




F-11



---



##### 











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


Financing Costs Related to Long-term Debt




Patent Application Costs




Capitalization of Interest




Net Income (Loss) Per Share


Earnings Per Share,


Comprehensive Income (Loss)


Reporting Comprehensive Income,




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





F-12



---



##### 











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




Comprehensive Income (Loss) (continued)










Recent Accounting Pronouncements


Share-Based Payment requires














F-13



---



##### 











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




Recent Accounting Pronouncements (continued)






The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments


Reclassifications




Sources of Supply




F-14



---



##### 









(NOTE C)  Investments




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

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

F-15



---



##### 











(NOTE C)  Investments (continued)




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

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

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




F-16



---



##### 









(NOTE C)  Investments (continued)


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




Other Information




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







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



F-17



---



##### 









(NOTE C)  Investments (continued)




Other Information (continued)






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


Agreements with GlaxoSmithKline (formerly SmithKline Beecham
Corporation)






tm


Other Collaboration Agreements related to the 1996 GSK
Agreement




F-18



---



##### 











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




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






Other Collaborative and License Agreements










F-19



---



##### 











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




Other Collaborative and License Agreements (continued)












F-20



---



##### 









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


Other Collaborative and License Agreements (continued)








U.S. Government Agreement


tm in vitro in
vivo


(NOTE E)  Property, Plant and Equipment




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

F-21



---



##### 











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






(NOTE F)  Other Assets




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





Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others


F-22



---



##### 









(NOTE G)  Accounts Payable and Accrued
Expenses




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







(NOTE H)  Long-Term Debt




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






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

F-23



---



##### 











(NOTE H)  Long-Term Debt (continued)


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



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

1 2 1 2 1 2


3 4 3 4 3 4 3 4 3 4


F-24



---



##### 











(NOTE H)  Long-Term Debt (continued)




1 4 1 4 1 4 1 4 1 4 1 4 1 4 1 4


1 4 1 4 1 4 1 4 1 4 1 4 1 4 1 4




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



F-25



---



##### 









(NOTE I)  Commitments and Other Matters


Leases




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

Consolidation of Variable
Interest Entities .






F-26



---



##### 











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




Leases (continued)












Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others


F-27



---



##### 









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


Leases (continued)












Capital Expenditures




401(k) Plan




(NOTE J)  Stockholders Equity


Stock Option and Employee Stock Purchase Plans








F-28



---



##### 











(NOTE J)  Stockholders Equity
(continued)




Stock Option and Employee Stock Purchase Plans (continued)






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



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



F-29



---



##### 









(NOTE J)  Stockholders Equity
(continued)


Stock Option and Employee Stock Purchase Plans (continued)








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









F-30



---



##### 











(NOTE J)  Stockholders Equity
(continued)




Stock Option and Employee Stock Purchase Plans (continued)




Non-vested Common Stock




(NOTE K)  Preferred Share Purchase
Rights








F-31



---



##### 









(NOTE L)  Income Taxes




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



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

F-32



---



##### 











(NOTE L)  Income Taxes (continued)


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





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



(NOTE M)  Charge for Restructuring




F-33



---



##### 











(NOTE M)  Charge for Restructuring
(continued)










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



F-34



---



##### 











(NOTE M)  Charge for Restructuring
(continued)








(NOTE N)  CoGenesys






seven-year




F-35



---



##### 









(NOTE O)  Net Loss Per Share




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



(NOTE P)  Related Parties








F-36



---



##### 









(NOTE Q)  Quarterly Financial Information
(unaudited)




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







F-37