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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




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FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934




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|                                            |                               
|------------------------------------------- | ------------------------------
|For the fiscal year ended December 31, 2004 | Commission File Number 0-22962

HUMAN GENOME SCIENCES, INC.

(Exact name of registrant)


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

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

(address of principal executive offices and zip
code )


(301) 309-8504

(Registrants telephone number)


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

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


Common stock, par value $0.01 per share


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

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

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Exchange Act
Rule 12b-2).     Yes þ          No o

The number of shares of the registrants
common stock outstanding on January 31, 2005 was
130,618,047. As of June 30, 2004, the aggregate market
value of the common stock held by non-affiliates of the
registrant based on the closing price reported on the National
Association of Securities Dealers Automated Quotations System
was approximately $1,086,285,426.*

DOCUMENTS INCORPORATED BY REFERENCE

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



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Excludes 36,794,671 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, 2004. 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

Human Genome Sciences is a biopharmaceutical
company with a pipeline of novel protein and antibody drugs
directed toward large markets that have significant unmet
medical need. Our goal is to build a global biopharmaceutical
company that discovers, develops, manufactures and markets
gene-based protein and antibody drugs to treat and cure disease.

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

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



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

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

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

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


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

Strategy

Our goal is to build a global biopharmaceutical
company that discovers, develops, manufactures and markets
gene-based protein and antibody drugs to treat and cure disease.
Our strategy consists of the following key elements:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Concentrate on new protein and antibody drugs
    and on long-acting versions of existing protein drugs.We concentrate our internal product
    development efforts on novel human protein and antibody drugs
    discovered through genomics-based research, and on new
    long-acting versions of existing protein drugs created using our
    albumin fusion technology. Novel human protein and 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 new drugs we intend to develop are
    designed to meet unmet medical needs representing significant
    markets. We will select a limited number of products to develop,
    manufacture and market either by ourselves or with partners. We
    also intend to 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
    will 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.                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Continue to expand our understanding of
    medically useful genes.We have
    created a set of integrated skills that allow us to understand
    the natural function of new genes. We test the effects of the
    proteins encoded by these genes on human cells whose behavior we
    wish to change for medical benefit. Proteins selected for
    further study are made and purified, then subjected to continued
    evaluation.                                                                                                                                                                                                                                                                                                                                       
|
| |  | 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, 2005, we had
    432 issued U.S. patents covering genes, proteins and antibodies,
    and had filed U.S. patent applications covering many more human
    genes, the proteins they encode, antibodies, and proprietary
    technologies.                                                                                                                                                                                                                                                                                  

Products

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

Our drugs in clinical development are:
LymphoStat-BTM (human monoclonal antibody to
B-lymphocyte stimulator, BLySTM) for the treatment of
lupus and rheumatoid arthritis; AlbuferonTM
(albumin-interferon

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alpha) for the treatment of chronic hepatitis C;
HGS-ETR1 (agonistic human monoclonal antibody to TRAIL receptor
1), HGS-ETR2 (agonistic human monoclonal antibody to TRAIL
receptor 2), HGS-TR2J (agonistic human monoclonal antibody to
TRAIL receptor 2) for the treatment of solid and hematopoietic
cancers; CCR5 mAb (human monoclonal antibody to the CCR5
receptor) for the treatment of HIV/ AIDS; and
ABthraxTM (human monoclonal antibody to Bacillus
anthracis protective antigen) for the treatment of anthrax
infection.


Our partners have advanced a number of products
derived from our technology to clinical development.
GlaxoSmithKline (GSK) has entered several small-molecule
drugs into clinical development that were discovered by GSK
using our technology, including 480848, an inhibitor of Lp-PLA2
(lipoprotein-associated phospholipase A2) for the control and
treatment of cardiovascular disease, and 462795, an inhibitor of
cathepsin K for the treatment of osteoporosis. Corautus Genetics
has entered VEGF-2 gene therapy into clinical trials for the
treatment of severe cardiovascular disease.

We also have additional products in discovery and
preclinical drug development. For example, we licensed
AlbugonTM, a novel long-acting form of glucagon-like
peptide-1 (GLP-1) for potential use in treating diabetes, to GSK
under an agreement whereby GSK has acquired exclusive worldwide
rights to develop and commercialize Albugon for all human and
therapeutic applications (announced in October 2004 and
described below under Collaborative Arrangements).

Clinical Programs

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

Genomics-Derived Human Monoclonal Antibody
Drugs



| |                         
| | ------------------------
| | LymphoStat-B (belimumab)

LymphoStat-B is a fully human monoclonal antibody
designed to inhibit the biological activity of B-lymphocyte
stimulator, or BLyS. Preclinical studies indicate that higher
than normal levels of BLyS may trigger autoimmune diseases by
stimulating production of autoantibodies  antibodies
that attack and destroy the bodys own healthy tissues.
Over-production of autoantibodies may be counteracted by
reducing BLyS levels with LymphoStat-B. We are developing
LymphoStat-B as a potential treatment for autoimmune diseases,
such as systemic lupus erythematosus (SLE) and rheumatoid
arthritis (RA). LymphoStat-B has received a Fast Track Product
designation from the FDA for the treatment of systemic lupus
erythematosus, and has been selected for inclusion in the
FDAs Continuous Marketing Application Pilot 2 Program. The
Pilot 2 program provides for frequent scientific feedback and
interactions based on a prospectively defined agreement between
the FDA and participating companies.

In July 2004, we completed the enrollment,
randomization and initiation of dosing for separate Phase 2
clinical trials of LymphoStat-B in RA and SLE. Each trial is
designed to evaluate safety, tolerability and efficacy. A total
of 283 patients with active moderate-to-severe rheumatoid
arthritis who have failed prior treatment have been enrolled in
the RA trial. A total of 449 patients with active systemic lupus
erythematosus have been enrolled in the SLE trial. It is
anticipated that the results of both of the Phase 2 studies of
LymphoStat-B will be available in 2005, with the RA results
expected in the Spring and the SLE results expected in the Fall.
Based on the Phase 2 results, we plan to reach go/no go
decisions regarding Phase 3 development of the compound in both
indications. Assuming that the data emerging from the Phase 2
study in RA are sufficiently positive, we could initiate a Phase
3 clinical trial of LymphoStat-B in patients with rheumatoid
arthritis in the second half of 2005.



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

HGS-ETR1 is a novel anticancer drug that
specifically recognizes, binds to and activates the TRAIL (tumor
necrosis factor-related apoptosis-inducing ligand) receptor-1
protein. This protein was discovered by

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Human Genome Sciences and is found on the surface
of a number of solid tumor and hematopoietic cancer cells.


In June and September 2004, we reported the
interim results of two ongoing Phase 1 clinical trials of
HGS-ETR1. The interim results demonstrate the safety and
tolerability of HGS-ETR1 in patients with advanced solid tumors
or non-Hodgkins lymphoma, and support further evaluation
of HGS-ETR1 in Phase 2 clinical trials, both as a single agent
and in combination with chemotherapy. Preliminary evidence of
biological activity was reported.

In November 2004, we completed the enrollment and
initial dosing of patients in an ongoing Phase 2 clinical trial
of HGS-ETR1 to evaluate its efficacy, safety and tolerability in
patients with advanced non-small cell lung cancer. In February
2005 and March 2005, respectively, we announced the completion
of enrollment and initial dosing of patients in separate Phase 2
clinical trials of HGS-ETR1 for the treatment of colorectal
cancer and non-Hodgkins lymphoma. Each of the trials is
designed to evaluate the efficacy, safety and tolerability of
HGS-ETR1 in patients with refractory or relapsed malignancies.
In 2005, we plan to complete all three of the ongoing Phase 2
clinical trials of HGS-ETR1. In the second half of 2004, we also
initiated two Phase 1b clinical trials to evaluate the safety
and tolerability of HGS-ETR1 in combination with
chemotherapeutic agents (with gemcitabine and cisplatin and with
paclitaxel and carboplatin). Both studies are in patients with
advanced solid malignancies. Based on the Phase 2 and Phase 1b
data, we plan to reach go/no go decisions regarding single-agent
and chemotherapy combination development of HGS-ETR1 as a
treatment for cancer.



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

HGS-ETR2 and HGS-TR2J are novel anticancer drugs
that specifically recognize and bind to the TRAIL receptor-2
protein. The TRAIL receptor-2 protein was originally identified
by Human Genome Sciences, and is found on the surface of a
number of solid tumor and hematopoietic cancer cells.

In September 2004, we reported the interim
results of an ongoing Phase 1 clinical trial of HGS-ETR2. The
interim results demonstrate that HGS-ETR2 can be administered
safely and repetitively to patients with advanced solid tumors,
and support continued dose-escalation of HGS-ETR2 in these
patients. Stable disease was observed in some patients. In 2005,
we plan to initiate Phase 2 clinical trials of HGS-ETR2 as a
single agent, and to initiate Phase 1b clinical trials of
HGS-ETR2 in combination with chemotherapeutic agents.

We began dosing patients for a Phase 1 clinical
trial of HGS-TR2J in August 2004. The primary objectives of the
study are to assess safety and tolerability. Pharmacokinetics
and disease response also are being evaluated. Based on the
results of the current Phase 1 clinical trial, we will make a
decision regarding further clinical development of TR2J.



| |                      
| | ---------------------
| | CCR5 mAb (CCR5mAb004)

CCR5 mAb is entering Phase 1 clinical development
as a treatment for HIV/ AIDS. We received clearance of this IND
(Investigational New Drug) from the FDA in December 2004, and we
now plan to proceed with a randomized, placebo-controlled,
dose-escalation, multi-center Phase 1 clinical trial to evaluate
the safety, tolerability and pharmacology of CCR5 mAb in
patients who are infected with HIV-1.

The CCR5 receptor is a co-receptor on the cell
surface that, together with CD4, mediates the binding of HIV-1
and its entry into the cell. Research has shown that the CCR5
receptor is the primary co-receptor for enabling HIV-1
transmission and replication from the early stages of disease
through progression to AIDS. Preclinical studies demonstrate
that CCR5 mAb binds specifically and with high affinity to human
CCR5, prevents HIV-entry, demonstrates no agonistic activity or
effector functions, and has a prolonged serum half-life.



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

ABthrax is a novel drug developed by Human Genome
Sciences for the prevention and treatment of anthrax infections.
ABthrax is a human monoclonal antibody that blocks the binding
to cell surfaces of

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Bacillus anthracis protective antigen, the key facilitator of anthrax infection.
ABthrax has received a Fast Track Product designation from the
FDA for its potential use in preventing and treating anthrax
infections. In March 2004, we reported the results of a Phase 1
clinical trial of ABthrax in 105 healthy adult volunteers. The
results demonstrate that ABthrax is safe and well tolerated, and
achieves the blood levels predicted by relevant animal models as
necessary to afford significant protection from the lethal
effects of the anthrax toxin. In addition, in accordance with
the FDA guidance that emerged following the Bioterrorism Act of
2002, we have conducted preclinical studies in multiple relevant
animal models of inhalational anthrax, which demonstrate that
ABthrax administered either prior to or following anthrax spore
challenge increases survival significantly. Preclinical studies
also demonstrate the dose-related efficacy of ABthrax in both
prevention and treatment of anthrax infections. In October 2004,
we submitted a proposal in response to a U.S. government Request
for Proposals (RFP) for the Acquisition of
Therapeutic Products for Treatment of Inhalational Anthrax
Disease for the Strategic National Stockpile. Further
development of ABthrax will depend on a government commitment to
purchase the product.


Albumin Fusion Protein Drugs



| |                                     
| | ------------------------------------
| | Albuferon (albumin-interferon alpha)

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

In November 2004, we reported the results of a
Phase 1/2 clinical trial of Albuferon in treatment-experienced
adults with chronic hepatitis C. The data, which were presented
on 119 patients treated in the study, demonstrate that Albuferon
is well tolerated, has a prolonged half-life, and is
biologically active and able to reduce viral load with
dose-dependent magnitude and durability. Immunogenicity data
show that the vast majority of Albuferon antibody titers were
low (<100 ng/mL), consistent with rates reported for
pegylated interferons, and that there is no apparent correlation
between the emergence of these antibodies and adverse events,
antiviral response or pharmacokinetics. Albuferon exhibits a
median half-life of 140 hours, supporting dosing at intervals of
2-4 weeks. This compares to a reported mean elimination
half-life of 80 hours (50-140 hours) for Pegasys and 40 hours
(22-60 hours) for PEG-Intron.

In November 2004, we began dosing patients in a
Phase 2 study of Albuferon in combination with ribavirin to
evaluate the safety, tolerability and efficacy of Albuferon in
patients with chronic hepatitis C who have failed to respond to
previous interferon alpha-based treatment regimens. In February
2005, we announced the completion of enrollment and dosing in a
Phase 2 clinical trial of Albuferon to evaluate its safety,
tolerability, pharmacology and optimal dosing in patients with
chronic hepatitis C who are naïve to interferon-alpha
treatments. In 2005, we plan to complete the ongoing Phase 2
clinical trial in patients who are naïve to
interferon-alpha treatments, and plan to complete an interim
safety analysis of data from the ongoing Phase 2 trial of
Albuferon in combination with ribavirin in
interferon-experienced patients. We also plan to initiate and
complete the enrollment of a Phase 2b clinical trial of
Albuferon in combination with ribavirin in patients who are
naïve to interferon-alpha treatments.

Genomics-Derived Small Molecule
Drugs



| |                                                   
| | --------------------------------------------------
| | GSK Lp-PLA2 Inhibitor (480848, 659032,
    677116)

The first genomics-derived small molecule drug to
enter clinical trials was discovered by our partner,
GlaxoSmithKline, using Human Genome Sciences technology.
480848 is an inhibitor of lipoprotein-associated phospholipase
A2 (Lp-PLA2). Lp-PLA2 is an enzyme associated with the formation
of atherosclerotic plaques. In 2003, GlaxoSmithKline announced
that it had completed a Phase 2 clinical trial of 480848. In
November 2004, GSK indicated that it plans to advance 480848 to
Phase 3 clinical trials for the treatment of cardiovascular
disease in the coming months. Using our technology, GSK also has
discovered two additional small-molecule inhibitors of Lp-PLA2,
659032 and 677116, which are in clinical development by GSK for
the treatment of cardiovascular disease.

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Under the terms of an agreement signed in 1993,
as amended in 1996, Human Genome Sciences is entitled to receive
clinical development milestone payments and royalties for
compounds discovered by GSK through the use of our technology
and intellectual property. In September 2001, we received a
$1.0 million milestone payment from GlaxoSmithKline in
connection with the initiation of Phase 1 clinical trials of
480848 to investigate its potential use in the treatment of
cardiovascular disease. In February 2003 and March 2004, we
received $1.0 million milestone payments from GSK in
connection with the initiation of clinical trials of 659032 and
677116, respectively. We are entitled to receive an additional
milestone payment if 480848, 659032, or 677116 moves through
clinical development into registration, and we will receive
royalties if a compound is commercialized. In addition, we have
an option to co-promote an approved drug in North America and
Europe.



| |                                   
| | ----------------------------------
| | GSK Cathepsin K Inhibitor (462795)

462795 is a genomics-derived small-molecule
compound that inhibits the activity of cathepsin K, an enzyme
that appears to be implicated in osteoporosis and certain other
disorders causing bone degradation. 462795 was discovered by
GlaxoSmithKline using Human Genome Sciences technology.
GlaxoSmithKline has entered 462795 into clinical trials to
evaluate its potential use in the treatment of patients with
osteoporosis.

Under the terms of the 1993 agreement, Human
Genome Sciences received a $1.0 million milestone payment
from GlaxoSmithKline in 2002, in connection with the initiation
of clinical trials of 462795. We are entitled to receive an
additional milestone payment if 462795 moves through clinical
development into registration and will receive royalties if the
compound is commercialized. In addition, we have an option to
co-promote an approved drug in North America and Europe.

Gene Therapy



| |                                                  
| | -------------------------------------------------
| | VEGF-2 (Vascular Endothelial Growth
    Factor-2)

VEGF-2 is a novel gene that was discovered and
characterized by Human Genome Sciences. The VEGF-2 gene encodes
the VEGF-2 protein, which scientists believe signals the body to
grow new blood vessels. We licensed VEGF-2 to Corautus for use
in the field of gene therapy. Corautus was formed in February
2003 from the merger of Vascular Genetics and GenStar
Therapeutics. As of December 31, 2004, we owned
approximately 11% of Corautus. VEGF-2 gene therapy is being
developed for the treatment of cardiovascular disease.

Corautus has completed Phase 1/2 clinical trials
of VEGF-2, and announced in July 2004 that it has received FDA
clearance to begin Phase 2b clinical trials of VEGF-2 in
patients with severe cardiovascular disease. Human Genome
Sciences is entitled to receive up to a 10% royalty on net sales
of any product brought to market by Corautus that is based on
the VEGF-2 gene.

Preclinical Programs

Human Genome Sciences has a pipeline of compounds
in preclinical development, including novel human protein and
antibody drugs discovered through genomics-based research, and
new long-acting versions of existing proteins created using our
albumin fusion technology.

Research and Development
Capabilities

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

Gene and Protein Discovery
Technology

We have created a set of skills that allow us to
discover new genes and to understand their natural function. We
have isolated a large collection of human genes in their useful
messenger RNA form. A gene in

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the form of messenger RNA can be used to make one
protein that carries out a specific function in the human body.
We have developed methods to make small quantities of proteins.
We have developed automated systems to analyze the effects of
these proteins on human cells and tissues. Collectively, these
methods make up our Functional Proteomics Program. We select a
set of genes that produce proteins that we predict should be
located on the outside of human cells. Such proteins are called
secreted proteins. We test the effects of the secreted proteins
by placing each of them on an individual culture of a human cell
whose behavior we wish to change for medical benefit. In the
course of these experiments, we monitor many parameters of
change in each cell culture at intervals. We have developed an
informatics system to store and integrate the biological data
points that result from these experiments. Proteins selected for
further study are made and purified, then subjected to
preclinical evaluation.


Human Antibody Discovery and
Development

We have acquired rights to a variety of human
antibody technologies. We use our own set of antibody targets
arising from our collection of human secreted proteins. We have
integrated these technologies into our internal research and
development program. We also continue to collaborate with a
number of leading antibody companies.

Many medical conditions are the result of an
excess of a specific protein in the body. Some antibody drugs
can inactivate such proteins and bring therapeutic benefits to
patients. Such drugs are known as antagonistic antibodies. For
example, LymphoStat-B, which is currently in Phase 2 trials for
the treatment of systemic lupus erythematosus and rheumatoid
arthritis, is an antagonistic human monoclonal antibody. All
currently marketed antibody drugs are antagonistic antibodies.
In certain medical conditions, it may be desirable to stimulate
artificially a specific biological activity. Antibodies that
stimulate biological activity are known as agonistic antibodies.
Human Genome Sciences has three such drugs in clinical
trials  HGS-ETR1 (TRAIL-R1 mAb), HGS-ETR2 (TRAIL-R2
mAb) and HGS-TR2J (TRAIL-R2 mAb). HGS-ETR1 is currently in Phase
2 clinical trials for the treatment of non-small cell lung
cancer, colorectal cancer and non-Hodgkins lymphoma.
HGS-ETR1 recognizes the TRAIL receptor-1 protein, while HGS-ETR2
and HGS-TR2J recognize the TRAIL receptor-2 protein. Binding of
the antibodies to their respective TRAIL receptor triggers cell
death. HGS-ETR1, HGS-ETR2 and HGS-TR2J are agonistic human
monoclonal antibodies that mimic the cancer-killing activity of
the natural TRAIL ligand. We believe that they are the first
human agonistic antibodies to enter clinical trials.

Albumin Fusion Technology

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

Albumin fusion technology also provides for
efficient manufacture and purification of the product in our
existing facilities.

Drug Development

For the past several years, we have concentrated
on building drug development and regulatory expertise. We seek
to gather, document and analyze clinical trial data in such a
way that they can be submitted to

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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 are now in the
    construction phase 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 initial
    commercialization of our products.

Collaborative Arrangements


Human
Gene Therapeutic Consortium, Product Collaborations and
Technology Collaborations.


Human Gene Therapeutic Consortium




GlaxoSmithKline.


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GSK or its licensees. We also are entitled to
milestone payments in connection with the development of these
products. We hold an option to co-promote any products sold by
GSK in the U.S., Canada, Mexico and Europe, subject to the
rights granted to Takeda and other collaborators. Our
collaboration agreements with GSK include an option for GSK to
co-develop and co-commercialize certain Human Genome Sciences
products, including LymphoStat-B, HGS-ETR1 and HGS-ETR2 if we
develop these products through Phase 2. GSK also would be
entitled to share in license fees, milestone payments and
royalty payments for certain products if we license the products
to a third party.


Takeda.GlaxoSmithKline and Takeda entered
into a license agreement relating to the development and sale of
products in GSKs field based upon rights licensed from us.
We are entitled to all royalty payments and one-half of the
milestone payments due from Takeda to GSK under this license
agreement on sales of products developed by Takeda. We entered
into an option and license agreement with Takeda pursuant to
which we granted Takeda an exclusive option to license rights
under our patents and technology in the field of human health
care, other than gene therapy, antisense and diagnostics, in
order to make and sell up to three products in Japan. Pursuant
to that agreement, Takeda has exercised its option to develop
and commercialize TRAIL-R1 mAb in Japan.

Schering-Plough.In
June 1996, we entered into a collaboration agreement under which
Schering-Plough has the right to discover, develop and
commercialize products using our technology and biological
information developed by us and GSK. Schering-Plough was also
granted an option to co-develop and co-commercialize up to two
of our therapeutic protein products to which we have exclusive
development and commercialization rights under our agreements
with GSK. In 2000, Schering-Plough exercised one of its two
options with the selection of a novel interferon discovered by
us. We will receive milestones and royalty payments for any
product developed from this protein. In 2002, we granted
Schering-Plough exclusive rights to two human antigens in lieu
of its remaining option. Schering-Plough is obligated to pay
license fees, research payments and milestone payments in
connection with the development of products. We also have a
collaboration with Schering-Plough related to gene therapy by
which Schering-Plough was granted a non-exclusive license to use
our human gene technology to conduct research and an option to
obtain an exclusive license to specific genes in the field of
gene therapy.

Sanofi-Synthelabo.In June 1996, we entered into a
collaboration agreement with Sanofi-Synthelabo under which
Sanofi-Synthelabo has the right to discover, develop and
commercialize products using our technology and biological
information developed by us and GSK. Sanofi-Synthelabo is
obligated to pay license fees, research payments and milestone
payments in connection with the development of products. We
share equally with GSK any license fees and product-development
milestone payments made under our Human Gene Therapeutic
Consortium, but we receive all royalty and research support
payments under those agreements.

Merck KGaA.In July
1996, we entered into a collaboration agreement with Merck KGaA
under which Merck KGaA has the right to discover, develop and
commercialize products using our technology and biological
information developed by us and GSK. Merck KGaA is obligated to
pay license fees, research payments, and milestone payments in
connection with the development of products. We share equally
with GSK any license fees and product-development milestone
payments made under our Human Gene Therapeutic Consortium, but
we receive all royalty and research support payments under those
agreements.

Product Collaborations

GlaxoSmithKline.In
October 2004, we announced an agreement with GlaxoSmithKline
under which GSK has acquired exclusive worldwide rights to
develop and commercialize Albugon (albumin-GLP-1) for all human
therapeutic and prophylactic applications. Albugon, a novel
long-acting form of glucagon-like peptide-1 (GLP-1), was created
using Human Genome Sciences proprietary albumin fusion
technology, and was brought to late-stage preclinical
development by our scientists for potential use in the treatment
of diabetes. GLP-1 is a peptide hormone that acts to help
maintain healthy blood sugar levels and to control appetite. The
primary obstacle to the use of GLP-1 as a therapeutic for
diabetes is its extremely short half-life of about five minutes
in the body. Preclinical studies show that Albugon retains the
anti-diabetic and other

9



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beneficial activities of GLP-1, but with a
substantially prolonged half-life. Under the agreement, Human
Genome Sciences is entitled to clinical development and
commercial milestone payments that could amount to as much as
$183.0 million, as well as additional milestones for other
indications developed. We also will receive royalties on the
annual net sales of any products developed and commercialized
under the agreement. In 2004, we received an up-front fee and
are recognizing this revenue ratably over the clinical
development period, which is approximately seven years.


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

Corautus.In
February 2003, we obtained approximately an 18% equity interest
in Corautus Genetics Inc., a publicly traded company that
resulted from the merger of Vascular Genetics, Inc.
(VGI) and GenStar Therapeutics Corporation. Corautus
assumed the exclusive license in the field of gene therapy for
our VEGF-2 gene, previously granted to VGI. As of
December 31, 2004, we owned approximately 11% of Corautus.

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

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

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

Technology Collaborations



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

Abgenix.In November
1999, we entered into a collaboration and license agreement with
Abgenix relating to the field of fully human antibody drug
candidates, which was amended in 2001. Pursuant to this
agreement, as amended, we licensed technology from Abgenix that
we can use to generate fully human antibody drug candidates. We
will independently develop and seek to commercialize
antibody-based drugs from this collaboration. Abgenix also has
an option to develop and commercialize products derived from our
antigens. The research term of this agreement will expire on
November 30, 2005. We and Abgenix will pay

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reciprocal milestone and royalty payments for
products developed and commercialized. In May 2003, Human Genome
Sciences announced that we had acquired an exclusive worldwide
license from Abgenix to develop and commercialize a fully human
monoclonal antibody to the CCR5 receptor. We received clearance
from the FDA to initiate clinical development of CCR5 mAb in
December 2004 and plan to initiate a Phase 1 clinical trial in
patients infected with HIV-1 in the first half of 2005.


Cambridge Antibody Technology (CAT).In August 1999, we entered into an
antibody license agreement with CAT for the development of fully
human antibody therapeutics for up to three of our target human
proteins. Pursuant to this agreement, we have entered into an
exclusive license agreement for Lymphostat-B, which was
discovered in collaboration with CAT. Under this 1999 agreement,
we have paid CAT $2.3 million for one milestone and fees
through the end of 2004. In February 2000, we entered into a
broader agreement with CAT that provides us with the right to
use their technology to develop and sell an unlimited number of
fully human antibodies for therapeutic and diagnostic purposes.
Under this same agreement, we made an equity investment in CAT.
We have sold a portion of this equity investment and as of
December 31, 2004, we owned approximately 3% of CAT. Under
this 2000 agreement, we paid CAT $12.0 million for ten
years of committed research support. We also plan to combine our
resources to develop and sell a number of therapeutic antibody
products. CAT has the right to select up to twenty-four of our
proprietary antigens for preclinical development. We have the
option to share clinical development costs and to share the
profits equally with them on up to eighteen such products. CAT
has rights to develop six such products on their own. We are
entitled to clinical development milestone and royalty payments
on those six products. We have exercised our option with respect
to TRAIL receptor 1, TRAIL receptor 2 and ABthrax. Under the
2000 agreement, we have paid to CAT $4.5 million in
milestone payments through the end of 2004.

Dyax.In March 2000,
we entered into a license agreement with Dyax relating to
Dyaxs phage display and peptide technology, which was
amended in 2001. Under the agreement, as amended, we have the
right to use Dyaxs phage display technology to develop an
unlimited number of therapeutic and diagnostic products that we
may sell or outlicense. We will provide milestone and royalty
payments to Dyax on products we develop and sell or will share
revenue we receive from outlicensees. The licensed technologies
include Dyaxs phage display technology to create peptide
drugs, human monoclonal antibody drugs and in vitrodiagnostic products. In addition, we have the right to
require that Dyax perform research in the fields of protein
separation and high-throughput screening technology. We also
have rights to improvements in Dyaxs phage display
technology.

Medarex.In July
2001, we entered into a collaboration agreement with Medarex
relating to the creation of fully human monoclonal antibodies.
Under the agreement, Medarex plans to use its technology to
create antibody leads that are specific for target proteins that
we discovered. We have the option to license exclusively
therapeutic and diagnostic antibody products and Medarex is
entitled to receive license fees, milestone payments and
royalties on any commercial sales of products resulting from the
collaboration.

Other

Transgene.In
February 1998, we entered into an agreement with Transgene
relating to the field of human gene therapy, including gene
therapy vaccines, to the extent that it will not conflict with
our other collaboration agreements. Under this agreement, we
granted Transgene the right to license exclusively up to 10
genes. We obtained a 10% equity interest in Transgene, which has
subsequently been diluted down to approximately 6.0%, and
certain co-development and co-marketing rights. Transgene
selected two genes from our database, CTGF-2 and TIMP-4, as its
first two exclusive gene therapy products. CTGF-2 stimulates the
formation of blood vessels and could be an effective tool in the
control of coronary artery disease. TIMP-4 prevents restenosis,
which is the growth of blood-vessel obstruction following an
angioplasty. Our collaboration with Transgene will end in 2008.

Patents and Proprietary Rights

We seek U.S. and foreign patent protection for
the genes, proteins and antibodies that we discover, as well as
patents on therapeutic and diagnostic products and processes,
screening and manufacturing

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


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

We have filed U.S. patent applications with
respect to many human genes and their corresponding proteins. We
have also filed U.S. patent applications with respect to all or
portions of the genomes of several infectious and non-infectious
microorganisms. As of March 1, 2005, we had 432 U.S.
patents covering genes and proteins. Our remaining applications
may not result in the issuance of any patents. Our applications
may not be sufficient to meet the statutory requirements for
patentability in all cases. In certain instances, we will be
dependent upon our collaborators to file and prosecute patent
applications.

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

We also are aware that others, including
universities and companies working in the biotechnology and
pharmaceutical fields, have filed patent applications and have
been granted patents in the U.S. and in other countries that
cover subject matter potentially useful or necessary to our
business. Some of these patents and patent applications claim
only specific products or methods of making products, while
others claim more general processes or techniques useful in the
discovery and manufacture of a variety of products. The risk of
additional patents and patent applications will continue to
increase as the biotechnology industry expands. We cannot
predict the ultimate scope and validity of existing patents and
patents that have been or may be granted to third parties, nor
can we predict the extent to which we may wish or be required to
obtain licenses to such patents, or the availability and cost of
acquiring such licenses. To the extent that licenses are
required, the owners of the patents could bring legal actions
against us to claim damages or to stop our manufacturing and
marketing of the affected products.

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

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

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not be able to prevent their disclosure of these
data or materials. Others may independently develop
substantially equivalent information and techniques.


Competition

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

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



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

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

Products.We are
aware of products in research or development by our competitors
that address all of the diseases we are targeting. Any of these
products may compete with our product candidates. Our
competitors may succeed in developing their products before we
do, obtaining approvals from the FDA or other regulatory
agencies for their products more rapidly than we do, or
developing products that are more effective than our products.
These products or technologies might render our technology
obsolete or noncompetitive. In addition, our albumin fusion
protein products are designed to be long-acting versions of
existing products. While we believe our albumin fusion protein
products will be a more attractive alternative to the existing
products, the existing product in many cases has an established
market that may make the introduction of our product more
difficult. Competition is based primarily on product efficacy,
safety, timing and scope of regulatory approvals, availability
of supply, marketing and sales capability, reimbursement
coverage, price and patent position.

Government Regulation

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

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

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



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

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

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

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

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

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

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

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

Sources of Supply

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

Manufacturing

We are able to manufacture multiple protein and
antibody drugs for use in research and clinical activities. We
produce and purify these protein and antibody drugs within
process development and manufacturing facilities that now total
approximately 333,000 square feet. We do not manufacture any
products for commercial use and do not have any experience in
manufacturing materials suitable for commercial use.

We are building our manufacturing organization
and facilities with the intent of manufacturing our own
commercial materials. Our long-range plan is to establish
additional manufacturing capabilities to allow us to meet our
commercial manufacturing requirements. We are currently
expanding the capacity of our existing process development and
manufacturing facility. In 2004, we completed construction and
commissioning of approximately 28,200 square feet of
manufacturing space at our Traville site. We are constructing a
291,000 square foot large-scale manufacturing facility to allow
for the production of protein and antibody drugs for both
clinical and commercial use. We plan to complete the
construction of this facility in mid-2005 and to complete the
validation process in 2006. The FDA must inspect and license
these facilities to determine compliance with cGMP requirements
for commercial production. We may not be able successfully to
establish manufacturing capabilities or manufacture our products
economically or in compliance with cGMPs and other regulatory
requirements. For a description of the financing arrangements
for these facilities, see Managements Discussion and
Analysis of Financial Condition and Results of
Operations  Liquidity and Capital Resources.

In June 2004, we entered into an agreement with
Diosynth Biotechnology, a unit of Akzo Nobel, for process
development and the production of clinical supplies for an
undisclosed therapeutic monoclonal antibody. While we are
expanding our manufacturing capabilities, we may contract with
additional third party manufacturers or develop products with
partners and use the partners manufacturing capabilities.
If we use others to manufacture our products, we will depend on
those parties to comply with cGMPs and other regulatory
requirements, and to deliver materials on a timely basis. These
parties may not perform adequately. Any failures by these third
parties may delay our development of products or the submission
of these products for regulatory approval.

Marketing

We do not have any marketed products. We have a
strategic marketing group to analyze the commercial value of our
product portfolio and the competitive environment. The strategic
marketing group also analyzes patient needs and customer
preferences with respect to our product development and
planning. If we develop products that can be marketed, we intend
to market the products either independently or together with

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Employees




FACTORS THAT MAY AFFECT OUR BUSINESS


There are a number of important 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.


Because our business strategy is still largely untested, we
cannot be certain that we will be able to commercialize any of
our products or to what extent we will generate revenue.






| |   |                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------
| |  | rapidly identify the function of, and obtain proprietary rights
    to, a substantial number of genes; and
|
| |  | select genes with the greatest potential for the treatment and
    diagnosis of human disease.            



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.




16



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##### 



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




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

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

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

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

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

During the first quarter of 2004, we announced
plans to sharpen our focus on our most promising drug
candidates. We have reduced the number of drugs in early
development and are focusing our resources on the drugs that
address the greatest unmet medical needs with substantial growth
potential. In order to reduce significantly our expenses, and
thus enable us to dedicate more resources to the most promising
drugs, we have reduced staff, are streamlining operations and
are consolidating facilities.

Because we have limited resources for
discovering and developing new early stage pre-clinical
products, we may be unsuccessful in our efforts to do
so.

Our ability to discover and develop new early
stage pre-clinical products will depend on our internal research
capability. Our internal research capability was substantially
reduced as a result of our first quarter of 2004 reduction in
staff. Although we continue to conduct discovery and development
efforts on early stage products, our limited resources for
discovering and developing early stage pre-clinical products may
not be sufficient to discover new pre-clinical drug candidates.

17



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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.

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



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

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

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

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

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

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



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

To date, data obtained from our clinical trials
have been insufficient to demonstrate safety and efficacy under
applicable FDA guidelines and are not sufficient to support an
application for regulatory approval

18



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##### 



without further studies. Studies conducted by us
or by third parties on our behalf may not demonstrate sufficient
effectiveness and safety to obtain the requisite regulatory
approvals for these or any other potential products. Based on
the results of a human study for a particular product candidate,
regulatory authorities may not permit us to undertake any
additional clinical trials for that product candidate. The
clinical trial process may also be accompanied by substantial
delay and expense and there can be no assurance that the data
generated in these studies will ultimately be sufficient for
marketing approval by the FDA.


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

Our entry into the biodefense field with the
development of ABthrax presents risks beyond those associated
with the development of our other products. Numerous other
companies and governmental agencies, including the U.S. Army,
are known to be developing biodefense pharmaceuticals and
related products to combat anthrax. These competitors may have
financial or other resources greater than ours, and may have
easier or preferred access to the likely distribution channels
for biodefense products. In addition, since the primary
purchaser of biodefense products is the U.S. government and its
agencies, the success of ABthrax will depend on government
spending policies and pricing restrictions. The funding of
government biodefense programs is dependent, in part, on
budgetary constraints, political considerations and military
developments. Moreover, even if ABthrax is approved by the FDA,
the revenues available for the sale of ABthrax could be
significantly curtailed by the efforts of government payors to
limit the selling price of ABthrax. In the case of the U.S.
government, executive or legislative action could attempt to
impose production and pricing requirements on us. Moreover, we
do not know whether the U.S. government will purchase ABthrax,
and if it does, the timing, extent and amount of such purchases.

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

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

RISKS FROM COLLABORATION RELATIONSHIPS AND
STRATEGIC ACQUISITIONS

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

As part of our strategy, we intend to continue to
evaluate strategic partnership opportunities and consider
acquiring complementary technologies and businesses. In order
for our future collaboration efforts to be successful, we must
first identify partners whose capabilities complement and
integrate well with ours. Technologies to which we gain access
may prove ineffective or unsafe. Our partners may prove
difficult to work with or less skilled than we originally
expected. In addition, any past collaborative successes are no
indication of potential future success in this area. In order to
achieve the anticipated benefits of an acquisition, we must
integrate the acquired companys business, technology and
employees in an efficient and effective manner. The successful
combination of companies in a rapidly changing biotechnology and
genomics industry

19



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##### 



may be more difficult to accomplish than in other
industries. The combination of two companies requires, among
other things, integration of the companies respective
technologies and research and development efforts. We cannot
assure you that this integration will be accomplished smoothly
or successfully. The difficulties of integration are increased
by the necessity of coordinating geographically separated
organizations and addressing possible differences in corporate
cultures and management philosophies. The integration of certain
operations will require the dedication of management resources
which may temporarily distract attention from the day-to-day
operations of the combined companies. The business of the
combined companies may also be disrupted by employee retention
uncertainty and lack of focus during integration. The inability
of management to integrate successfully the operations of the
two companies, in particular, to integrate and retain key
scientific personnel, or the inability to integrate successfully
two technology platforms, could have a material adverse effect
on our business, results of operations and financial condition.


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

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



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

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

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

FINANCIAL AND MARKET RISKS

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

As of December 31, 2004, we had long-term
obligations of approximately $505.1 million. We also had a
future guarantee obligation of $175.5 million under the
current terms of one facility lease. Our substantial debt and
future guarantee will have several important consequences for
our future operations. For instance:



| |   |                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------
| |  | payments of interest on, and principal of, our
    indebtedness will be substantial, and may exceed then current
    revenues and available cash;
|
| |  | we may be unable to obtain additional future
    financing for 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.                  

20



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##### 



We have entered into a facility lease
arrangement that is not required to be reflected on our balance
sheet but that constitutes a significant financial obligation
and possible risks.

In the second quarter of 2003, we entered into a
facility lease with respect to our research and development and
administrative facility. Under accounting principles generally
accepted in the United States, this lease was treated as an
operating lease. In the event we default on our obligation under
the lease, we may be responsible for up to $200.0 million
of the cost of the facility because of a guarantee we made in
connection with the lease. This obligation is not required to be
reflected as a liability on our balance sheet, but is described
in footnotes to our financial statements. We are required to
pledge marketable securities as security for our obligation
under the lease and the related documents. As of
December 31, 2004, we included approximately
$215.2 million of restricted investments on our balance
sheet, of which approximately $202.7 million was held as
restricted investments providing collateral for our obligation
with respect to this facility. We expect that we will include
approximately $219.0 million in restricted investments on
our balance sheet when the final payments are made with respect
to this and other facility obligations. If the value of our
pledged investments declines, because of an increase in interest
rates or otherwise, we would need to pledge additional
investments, which would further reduce our working capital. The
rent under this lease is based on a floating interest rate, but
the lessors at our request can lock in a fixed interest rate at
an interest rate premium. To the extent the lessors do not lock
in a fixed interest rate, if interest rates increase, our rent
obligation would also increase. The lease has a term of seven
years. If we desire to remain in the facility upon lease
expiration, we would need to refinance or buy the facility at
the financed project cost. We cannot assure you that refinancing
will be available on comparable terms, if at all. Further, in
the event the facility is sold, we have a guarantee obligation
which makes us responsible to the extent that the value of the
facility is less than the financed project cost and which will
reach a maximum guarantee obligation of approximately
$175.5 million if the value of the facility declined below
approximately 15% of the financed project cost. While we believe
that this lease provides a useful financing mechanism for the
facility, adverse public perception of such lease arrangements
and the associated risks may cause our stock price to decline.
See Managements Discussion and Analysis of Financial
Condition and Results of Operations  Off-Balance
Sheet Arrangements.

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

Since inception, we have expended, and will
continue to expend, substantial funds to continue our research
and development programs. We are likely to need additional
financing to fund our operating expenses and capital
requirements. We may not be able to obtain additional financing
on acceptable terms. If we raise additional funds by issuing
equity securities, the new securities may dilute the interests
of our existing stockholders or contain restrictive financial
covenants.

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



| |   |                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the amount of revenue, if any, that we are able
    to obtain from 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 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;                                                                                                        

21



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##### 





| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | the costs involved in filing, prosecuting and
    enforcing patent claims; and
|
| |  | scientific progress in our research and
    development programs.             

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



| |   |                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------
| |  | delay, scale back or eliminate some or all of our
    research and development programs;                                         
|
| |  | delay, scale back or eliminate some or all of our
    commercialization activities;                                              
|
| |  | lose rights under existing licenses;                                                                                             
|
| |  | relinquish more of, or all of, our rights to
    product candidates on less favorable terms than we would
    otherwise seek; and
|
| |  | be unable to operate as a going concern.                                                                                         

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

Our stock price, like the stock prices of other
biotechnology companies, has been highly volatile. Since
January 1, 2004, the closing price of our common stock has
been as low as $8.54 per share and as high as $14.55 per share.
The market price of our common stock could fluctuate widely
because of:



| |   |                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | future announcements about our company or our
    competitors, including the results of testing, technological
    innovations or new commercial products;
|
| |  | negative regulatory actions with respect to our
    potential products or regulatory approvals with respect to our
    competitors products;             
|
| |  | changes in government regulations;                                                                                                                        
|
| |  | developments in our relationships with our
    collaboration partners;                                                                                    
|
| |  | developments affecting our collaboration partners;                                                                                                        
|
| |  | announcements relating to health care reform and
    reimbursement levels for new drugs, particularly oncology drugs;                                     
|
| |  | our failure to acquire or maintain proprietary
    rights to the gene sequences we discover or the products we
    develop;                               
|
| |  | litigation; and                                                                                                                                           
|
| |  | public concern as to the safety of our products.                                                                                                          

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

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

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

22



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INTELLECTUAL PROPERTY RISKS

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

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

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

Our pending patent applications, including those
covering full-length genes and their corresponding proteins, may
not result in the issuance of any patents. Our applications may
not be sufficient to meet the statutory requirements for
patentability in all cases or may be the subject of interference
proceedings by the Patent and Trademark Office. These
proceedings determine the priority of inventions and, thus, the
right to a patent for technology in the U.S. We are involved in
interference proceedings and may be involved in other
interference proceedings in the future. We are also involved in
opposition proceedings in connection with foreign patent filings
and may be involved in other opposition proceedings in the
future.

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

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

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

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

23



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

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

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

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

REGULATORY RISKS

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

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

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

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

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

24



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Negative public opinion and increased
regulatory scrutiny of gene therapy, genetic testing and genetic
research could prevent us from commercializing our
products.

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

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

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

OTHER RISKS RELATED TO OUR BUSINESS

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

We face intense competition from a wide range of
pharmaceutical and biotechnology companies, as well as academic
and research institutions and government agencies.

Principal competitive factors in our industry
include:



| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the quality and breadth of an organizations
    technology;                                                                                      
|
| |  | the skill of an organizations employees and
    its ability to recruit and retain skilled employees;                                             
|
| |  | an organizations intellectual property
    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.                            

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

We are aware of products in research or
development by our competitors that address all of the diseases
we are targeting. Any of these products may compete with our
product candidates. Our competitors may succeed in developing
their products before we do, obtaining approvals from the FDA or
other regulatory agencies for their products more rapidly than
we do, or developing products that are more effective than our
products. These products or technologies might render our
technology or drugs under development obsolete or
noncompetitive. In addition, our fusion protein products are
designed to be longer-acting versions of existing products. The
existing product in many cases has an established market that
may make the introduction of our product more difficult.

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

We depend on our senior executive officers as
well as key scientific and other personnel. If any key employee
decides to terminate his or her employment with us, this
termination could delay the commercialization of our products or
prevent us from becoming profitable. Further, we have not
purchased key-man life insurance on any of our executive
officers or key personnel, and therefore may not have adequate
funds to find

25



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##### 



acceptable replacements for them. Competition for
qualified employees is intense among pharmaceutical and
biotechnology companies, and the loss of qualified employees, or
an inability to attract, retain and motivate additional highly
skilled employees required for the expansion of our activities,
could hinder our ability to complete human studies successfully
and develop marketable products.


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

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

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

We do not manufacture any products for commercial
use and do not have any experience in manufacturing materials
suitable for commercial use. We currently are having facilities
constructed to establish additional manufacturing capabilities
to allow us to meet our increasing clinical development needs
and future commercial manufacturing requirements. The FDA must
inspect and license these facilities to determine compliance
with cGMP requirements for commercial production. We may not be
able successfully to establish manufacturing capabilities or
manufacture our products economically or in compliance with
cGMPs and other regulatory requirements.

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

Because we currently have only a limited
marketing capability, we may be unable to commercialize our
products.

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

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

We are dependent on third-party research
organizations to design and conduct some of our laboratory
testing and human studies. If we are unable to obtain any
necessary testing services on acceptable terms, we

26



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##### 



may not complete our product development efforts
in a timely manner. If we rely on third parties for laboratory
testing and human studies, we may lose some control over these
activities and become too dependent upon these parties. These
third parties may not complete testing activities on schedule or
when we request.


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

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



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

27



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##### 



ITEM
2.     PROPERTIES

We currently lease and occupy approximately
1,018,000 square feet of laboratory, manufacturing and office
space in Rockville, Maryland. Our space includes approximately
376,000 square feet of laboratory space, approximately 333,000
of manufacturing and manufacturing support space predominantly
secured through long-term leases and approximately 309,000
square feet of office space. During 2005, we plan to exit from
approximately 110,000 square feet of space, substantially all of
which is laboratory space.

In addition, we are constructing a 291,000 square
foot large-scale manufacturing facility that we expect to occupy
in 2005.

For additional discussion of the financing of one
of our leases, see Managements Discussion and
Analysis of Financial Condition and Results of
Operations  Off-Balance Sheet Arrangements.

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

ITEM 3.     LEGAL
PROCEEDINGS

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

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

No matters were submitted to a vote of our
security holders during the fourth quarter of the fiscal year
ended December 31, 2004.

28



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##### 



PART II



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

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

|               |  |      |       |  |     |   |       | 
|-------------- |  | ---- | ----- |  | --- | - | ----- | 
|2003           |  | High |       |  | Low |  
|First Quarter  |  | $    | 9.36  |  |     | $ | 6.34  | 
|Second Quarter |  | $    | 16.30 |  |     | $ | 8.51  | 
|Third Quarter  |  | $    | 16.36 |  |     | $ | 12.26 | 
|Fourth Quarter |  | $    | 15.47 |  |     | $ | 11.81 | 

|               |  |      |       |  |     |   |       | 
|-------------- |  | ---- | ----- |  | --- | - | ----- | 
|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  | 

As of January 31, 2005, there were
approximately 820 holders of record of our common stock. We have
never declared or paid any cash dividends. We do not anticipate
declaring or paying cash dividends for the foreseeable future,
in part because existing contractual agreements prohibit such
dividends. Instead, we will retain our earnings, if any, for the
future operation and expansion of our business.

29



---



##### 





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



|                                                                                           |                                |                                                 |                                               |         |          |         |          |         |          |         |          |         |          |         |          |         |          |         |          |         |          |         | 
|------------------------------------------------------------------------------------------ | ------------------------------ | ----------------------------------------------- | --------------------------------------------- | ------- | -------- | ------- | -------- | ------- | -------- | ------- | -------- | ------- | -------- | ------- | -------- | ------- | -------- | ------- | -------- | ------- | -------- | ------- | 
|                                                                                           |                                | Years Ended December 31,                        |                                              
|                                                                                           |                                |                                                 |                                              
|                                                                                           |                                | 2004                                            |                                               |         | 2003     |         |          | 2002    |          |         | 2001     |         |          | 2000    |         
|                                                                                           |                                |                                                 |                                               |         |          |         |          |         |          |         |          |         |          |         |         
|                                                                                           |                                | (In thousands, except per share and ratio data) |                                              
|Statement of Operations Data:                                                              |                                |                                                 |                                               |         |          |         |          |         |          |         |          |         |          |         |          |         |          |         |          |        
|                                                                                          
|Revenue  research and development collaborative
    contracts                             |                                | $                                               | 3,831                                         |         |          | $       | 8,168    |         |          | $       | 3,568    |         |          | $       | 12,818   |         |          | $       | 22,068   |        
|                                                                                           |                                |                                                 |                                               |         |          |         |          |         |          |         |          |         |          |         |         
|Costs and expenses:                                                                        |                                |                                                 |                                               |         |          |         |          |         |          |         |          |         |          |         |          |         |          |         |          |        
|                                                                                           | Research and development:      |                                                 |                                               |         |          |         |          |         |          |         |          |         |          |         |          |         |          |         |          |         |         
|                                                                                           |                                |                                                 | Direct expenditures                           |         |          | 219,549 |          |         |          | 191,483 |          |         |          | 191,162 |          |         |          | 146,276 |          |         |          | 91,456  | 
|                                                                                           |                                |                                                 | Charge for construction design changes        |         |          |        |          |         |          |        |          |         |          | 14,238  |          |         |          |        |          |         |          |        | 
|                                                                                           |                                |                                                 | Purchased in-process research and development |         |          |        |          |         |          |        |          |         |          |        |          |         |          |        |          |         |          | 134,050 | 
|                                                                                           |                                |                                                 |                                               |         |          |         |          |         |          |         |          |         |          |         |         
|                                                                                           | Total research and development |                                                 |                                               | 219,549 |          |         |          | 191,483 |          |         |          | 205,400 |          |         |          | 146,276 |          |         |          | 225,506 |         
|                                                                                           | General and administrative     |                                                 |                                               | 35,728  |          |         |          | 43,608  |          |         |          | 44,175  |          |         |          | 38,714  |          |         |          | 27,083  |         
|                                                                                           | Charge for restructuring       |                                                 |                                               | 15,408  |          |         |          |        |          |         |          |        |          |         |          |        |          |         |          |        |         
|                                                                                           |                                |                                                 |                                               |         |          |         |          |         |          |         |          |         |          |         |         
|Total costs and expenses                                                                   |                                |                                                 | 270,685                                       |         |          |         | 235,091  |         |          |         | 249,575  |         |          |         | 184,990  |         |          |         | 252,589  |        
|                                                                                           |                                |                                                 |                                               |         |          |         |          |         |          |         |          |         |          |         |         
|                                                                                           |                                | Income (loss) from operations                   |                                               |         | (266,854 | )       |          |         | (226,923 | )       |          |         | (246,007 | )       |          |         | (172,172 | )       |          |         | (230,521 | )      
|                                                                                          
|Net investment income                                                                      |                                |                                                 | 21,523                                        |         |          |         | 41,599   |         |          |         | 58,449   |         |          |         | 81,228   |         |          |         | 46,008   |        
|Gain on extinguishment of debt                                                             |                                |                                                 | 2,433                                         |         |          |         |         |         |          |         |         |         |          |         |         |         |          |         |         |        
|Charge for impaired investments                                                            |                                |                                                 |                                              |         |          |         |         |         |          |         | (32,158  | )       |          |         | (22,314  | )       |          |         |         |        
|Debt conversion expenses                                                                   |                                |                                                 |                                              |         |          |         |         |         |          |         |         |         |          |         | (3,894   | )       |          |         | (50,818  | )      
|                                                                                           |                                |                                                 |                                               |         |          |         |          |         |          |         |          |         |          |         |         
|Income (loss) before taxes and cumulative effect of change
    in accounting principle (1) |                                |                                                 | (242,898                                      | )       |          |         | (185,324 | )       |          |         | (219,716 | )       |          |         | (117,152 | )       |          |         | (235,331 | )      
|Provision for income taxes                                                                 |                                |                                                 |                                              |         |          |         |         |         |          |         |         |         |          |         |         |         |          |         | 225      |        
|                                                                                           |                                |                                                 |                                               |         |          |         |          |         |          |         |          |         |          |         |         
|Net income (loss) before cumulative effect of change in
    accounting principle (1)       |                                |                                                 | (242,898                                      | )       |          |         | (185,324 | )       |          |         | (219,716 | )       |          |         | (117,152 | )       |          |         | (235,556 | )      
|Cumulative effect of change in accounting principle (2)                                    |                                |                                                 |                                              |         |          |         |         |         |          |         |         |         |          |         |         |         |          |         | (8,250   | )      
|                                                                                           |                                |                                                 |                                               |         |          |         |          |         |          |         |          |         |          |         |         
|Net income (loss) (1)                                                                      |                                | $                                               | (242,898                                      | )       |          | $       | (185,324 | )       |          | $       | (219,716 | )       |          | $       | (117,152 | )       |          | $       | (243,806 | )      
|                                                                                           |                                |                                                 |                                               |         |          |         |          |         |          |         |          |         |          |         |         

30



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##### 



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

|                                                                                                                          |                                                            |                                                 |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |          |  
|------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ----------------------------------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | - |  | ---- | -------- | - |  | - | -------- | -------- | -
|                                                                                                                          |                                                            |                                                
|                                                                                                                          |                                                            | Years Ended December 31,                        |         
|                                                                                                                          |                                                            |                                                 |         
|                                                                                                                          |                                                            | 2004                                            |          |   | 2003 |   |          | 2002 |  |   | 2001     |   |  | 2000 |         
|                                                                                                                          |                                                            |                                                 |          |   |      |   |          |      |  |   |          |   |  |      |         
|                                                                                                                          |                                                            |                                                
|                                                                                                                          |                                                            | (In thousands, except per share and ratio data) |         
|Statement of Operations Data:                                                                                             |                                                            |                                                 |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |         
|Net income (loss) per share before
    cumulative effect of change in accounting principle, basic and
    diluted (1) (3) |                                                            | $                                               | (1.87    | ) |      | $ | (1.44    | )    |  | $ | (1.71    | ) |  | $    | (0.92    | ) |  | $ | (2.12    | )       
|Cumulative effect of change in accounting
    principle (2) (3)                                                           |                                                            |                                                 |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   | (0.08    | )       
|                                                                                                                          |                                                            |                                                 |          |   |      |   |          |      |  |   |          |   |  |      |         
|Net income (loss) per share, basic and
    diluted (1) (3)                                                                |                                                            | $                                               | (1.87    | ) |      | $ | (1.44    | )    |  | $ | (1.71    | ) |  | $    | (0.92    | ) |  | $ | (2.20    | )       
|                                                                                                                          |                                                            |                                                 |          |   |      |   |          |      |  |   |          |   |  |      |         
|Pro forma amounts assuming the accounting change
    is applied retroactively:                                            |                                                            |                                                 |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |         
|                                                                                                                          | Net income (loss) (4)                                      |                                                 |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   | $        | (235,556 | )
|                                                                                                                          |                                                            |                                                 |          |   |      |   |          |      |  |   |          |   |  |      |         
|                                                                                                                          | Net income (loss) per share, basic and
    diluted (3) (4) |                                                 |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   | $        | (2.12    | )
|                                                                                                                          |                                                            |                                                 |          |   |      |   |          |      |  |   |          |   |  |      |         
|Other Data:                                                                                                               |                                                            |                                                 |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |         
|Ratio of earnings to fixed charges                                                                                        |                                                            |                                                 |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |         
|Coverage deficiency (1)                                                                                                   |                                                            | $                                               | (242,898 | ) |      | $ | (185,324 | )    |  | $ | (219,716 | ) |  | $    | (117,152 | ) |  | $ | (235,331 | )       
|                                                                                                                          |                                                            |                                                 |          |   |      |   |          |      |  |   |          |   |  |      |         

|                                                                      |  |                    |            |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|--------------------------------------------------------------------- |  | ------------------ | ---------- | - | ---- | - | --------- | ---- |  | - | --------- | - |  | ---- | --------- | - |  | - | --------- | -
|                                                                      |  |                   
|                                                                      |  | As of December 31, |           
|                                                                      |  |                    |           
|                                                                      |  | 2004               |            |   | 2003 |   |           | 2002 |  |   | 2001      |   |  | 2000 |          
|                                                                      |  |                    |            |   |      |   |           |      |  |   |           |   |  |      |          
|                                                                      |  |                   
|                                                                      |  | (In thousands)     |           
|Balance Sheet Data:                                                   |  |                    |            |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Cash, cash equivalents, short-term and restricted
    investments (5) |  | $                  | 952,686    |   |      | $ | 1,262,458 |      |  | $ | 1,491,740 |   |  | $    | 1,689,311 |   |  | $ | 1,774,640 |  
|Total assets (6)                                                      |  |                    | 1,249,385  |   |      |   | 1,466,204 |      |  |   | 1,662,187 |   |  |      | 1,865,004 |   |  |   | 1,948,525 |  
|Total debt and capital lease, less current
    portion (6)            |  |                    | 505,131    |   |      |   | 503,664   |      |  |   | 503,281   |   |  |      | 503,970   |   |  |   | 533,146   |  
|Accumulated deficit                                                   |  |                    | (1,129,769 | ) |      |   | (886,871  | )    |  |   | (701,547  | ) |  |      | (481,831  | ) |  |   | (364,679  | )
|Total stockholders equity                                            |  |                    | 656,047    |   |      |   | 903,333   |      |  |   | 1,100,553 |   |  |      | 1,304,463 |   |  |   | 1,362,955 |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | 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.
    For 2000, amounts include charges aggregating $184,868, or $1.67
    per share, arising from purchased in-process research and
    development and debt conversion expenses of $134,050, or $1.21
    per share, and $50,818, or $0.46 per share, respectively.
|   
|(2) | The cumulative effect of change in accounting
    principle is a one-time, non-cash charge relating to our
    implementation of Staff Accounting Bulletin No. 101
    (SAB 101). SAB 101 was issued by the
    Securities and Exchange Commission (SEC) in
    December 1999. SAB 101 provided guidance related to
    revenue recognition policies based on interpretations and
    practices followed by the SEC. The impact of our implementation
    of SAB 101 was to defer revenue recognition for certain
    portions of the revenue we previously recognized under our
    collaborative agreements into future accounting periods. The SEC
    issued Staff Accounting Bulletin No. 104
    (SAB 104) in December 2003. SAB 104
    superseded SAB 101 but the revenue recognition principles
    of SAB 101 remain largely unchanged by the issuance of
    SAB 104.                                                                                                                                                                     
|   
|(3) | 2000 amounts restated to reflect two two-for-one
    stock splits paid in the form of a stock dividend on
    January 28, 2000 and on October 5, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(4) | Pro forma presentation of the accounting change
    is not applicable for 2004, 2003, 2002 and 2001 as the change
    was implemented in 2000, retroactive to January 1, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(5) | Cash, cash equivalents, short-term and
    restricted investments for 2004, 2003, 2002, 2001 and 2000
    includes $215,236, $280,776, $205,352, $144,901 and $12,332,
    respectively, of restricted investments relating to certain
    operating leases.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(6) | Total assets for 2004, 2003, 2002,
    2001 and 2000 includes $215,236, $280,776, $205,352, $144,901
    and $12,332, respectively, of restricted investments relating to
    certain operating leases. Total debt and capital lease,
    less current portion for 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

31



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##### 





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

Overview

Human Genome Sciences is a biopharmaceutical
company with a pipeline of novel protein and antibody drugs
directed toward large markets that have significant unmet
medical need. Our goal is to build a global biopharmaceutical
company that discovers, develops, manufactures and markets
gene-based protein and antibody drugs to treat and cure disease.

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

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

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

We have not received any significant product
sales revenue or royalties from product sales and any
significant revenue from product sales or from royalties on
product sales in the next several years is uncertain. To date,
all of our revenue relates to payments made under our
collaboration agreements with GlaxoSmithKline and, to a lesser
extent, other agreements. The initial research term associated
with the GlaxoSmithKline collaboration agreement and many of our
other collaboration agreements expired in 2001 and those
agreements will only generate additional milestone and royalty
payments if our collaborators successfully develop drugs based
on our technology. We may not receive any of these payments and
may not be able to enter into additional collaboration
agreements.

We expect that any significant revenue or income
for at least the next several years may be limited to investment
income, payments under various collaboration agreements to the
extent milestones are met, payments from the sale of product
rights and other payments from other collaborators and licensees
under existing or future arrangements, to the extent that we
enter into any future arrangements. We expect to continue to
incur substantial expenses relating to our research and
development efforts, as we focus on clinical trials required for
the development of therapeutic protein, antibody and fusion
protein product candidates. As a result, we expect to incur
continued and significant losses over the next several years
unless we are able to realize additional revenues under existing
or new collaboration agreements. The timing and amounts of such
revenues, if any, cannot be predicted with certainty and will
likely fluctuate sharply. Results of operations for any period
may be unrelated to the results of operations for any other
period. In addition, historical results should not be viewed as
indicative of future operating results.

Critical Accounting Policies and the Use of
Estimates

A critical accounting policy is one
that is both important to the portrayal of our financial
condition and results and that requires managements most
difficult, subjective or complex judgments. Such judgments are
often the result of a need to make estimates about the effect of
matters that are inherently uncertain. The preparation of our
financial statements in conformity with accounting principles
generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ

32



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##### 



Critical Accounting Policies and the Use of
Estimates (continued)


materially from those estimates. See Note B
of the Notes to our Consolidated Financial Statements for
further discussion.

We currently believe the following accounting
policies to be critical:

We carry our cash, cash equivalents, investments,
other assets, accounts payable and certain other accrued
liabilities at their respective fair values. We periodically
evaluate the fair values of our investments to determine whether
any declines in the fair value of investments represent an
other-than-temporary impairment. This evaluation consists of a
review of several factors and is subjective in nature. If
management determines that such an impairment exists we would
recognize an impairment charge. Because we may determine that
market or business conditions may lead us to sell a short-term
investment prior to maturity, we classify our short-term
investments as available-for-sale. Investments in
securities that are classified as available-for-sale and have
readily determinable fair values are measured at fair market
value in the balance sheets, and unrealized holding gains and
losses for these investments are reported as a separate
component of stockholders equity until realized. If we
held investments that were classified as
held-to-maturity securities, these would be carried
at amortized cost rather than at fair market value. If we held
investments that were classified as trading
securities, these would be carried at fair market value, with a
corresponding adjustment to earnings for any change in fair
market value.

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

We recognize revenue from non-refundable up-front
license fees where we have continuing involvement to provide
access to our technology ratably over the period of obligation
in accordance with the guidance provided in the SECs Staff
Accounting Bulletin No. 104
(SAB 104). SAB 104 supersedes Staff
Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements. We recognize deferred revenues related
to these obligations on a straight-line basis over the life of
the obligation. Our revenues with Transgene, S.A.
(Transgene), are being recognized on a straight-line
basis over the shorter of the ten-year term of the agreement or
prorated upon the selection of genes by Transgene. Our up-front
license fee with GlaxoSmithKline (GSK) in connection
with our Albugon product (GSK Albugon Agreement) is
being recognized ratably over the estimated approximately
seven-year clinical development period. Our other revenues in
2004 have been recognized in full upon receipt as we have no
continuing obligation.

Revenue associated with performance milestones is
recognized upon achievement of the milestones, as defined in the
applicable agreement.

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

33



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##### 



Critical Accounting Policies and the Use of Estimates
(continued)


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




Results of Operations




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

Revenues.


Expenses.






34



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##### 



Results of Operations (continued)




| |                                                   
| | --------------------------------------------------
| | Years Ended December 31, 2004 and 2003 (continued)

















35



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##### 



Results of Operations (continued)




| |                                                   
| | --------------------------------------------------
| | Years Ended December 31, 2004 and 2003 (continued)





Net Income (Loss).






| |                                       
| | --------------------------------------
| | Years Ended December 31, 2003 and 2002

Revenues.


Expenses.








36



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##### 



Results of Operations (continued)




Years Ended
December 31, 2003 and 2002 (continued)
















Net Income (Loss).




37



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##### 



Results of Operations (continued)




Years Ended
December 31, 2003 and 2002 (continued)




Liquidity and Capital Resources








38



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##### 



Liquidity and Capital Resources (continued)




|                         |  |                      |  |                                            |  |         |  |        
|------------------------ |  | -------------------- |  | ------------------------------------------ |  | ------- |  | -------
|                         |  |                      |  | Clinical Trial Status(2)as of December 31,
|                         |  |                      |  |                                           
|Product Candidate(1)     |  | Indication           |  | 2004                                       |  | 2003    |  | 2002   
|                         |  |                      |  |                                            |  |         |  |        
|ACTIVE CANDIDATES:       |  |                      |  |                                            |  |         |  |        
|Antibodies:              |  |                      |  |                                            |  |         |  |        
|LymphoStat-B             |  | Rheumatoid Arthritis |  | Phase 2                                    |  | Phase 2 |  |       
|LymphoStat-B             |  | Systemic Lupus       |  |                                            |  |         |  |        
|                         |  | Erythmatosus         |  | Phase 2                                    |  | Phase 2 |  | Phase 1
|HGS-ETR1                 |  | Cancer               |  | Phase 2                                    |  | Phase 1 |  | Phase 1
|HGS-ETR2                 |  | Cancer               |  | Phase 1                                    |  | Phase 1 |  |       
|HGS-TR2J                 |  | Cancer               |  | Phase 1                                    |  |        |  |       
|CCR5 mAb                 |  | HIV                  |  | (3)                                        |  |        |  |       
|ABthrax                  |  | Anthrax              |  | (4)                                        |  | Phase 1 |  |       
|Albumin Fusion Proteins: |  |                      |  |                                            |  |         |  |        
|Albuferon                |  | Hepatitis C          |  | Phase 2                                    |  | Phase 1 |  | Phase 1
|INACTIVE CANDIDATES:     |  |                      |  |                                            |  |        
|Therapeutic Proteins:    |  |                      |  |                                            |  |         |  |        
|BlyS                     |  | Immunodeficiency     |  | (5)                                        |  | Phase 1 |  | Phase 1
|Mirostipen               |  | Cancer               |  | (5)                                        |  | Phase 2 |  | Phase 2
|Repifermin               |  | Mucositis            |  | (5)                                        |  | Phase 2 |  | Phase 2
|Repifermin               |  | Wound Healing        |  | (5)                                        |  | Phase 2 |  | Phase 2
|Albumin Fusion Proteins: |  |                      |  |                                            |  |         |  |        
|Albuleukin               |  | Cancer               |  | (5)                                        |  | Phase 1 |  | Phase 1
|Albutropin               |  | Growth deficiency    |  | (5)                                        |  | (5)     |  | Phase 1
|Other:                   |  |                      |  |                                            |  |         |  |        
|LymphoRad131             |  | Cancer               |  | Phase 1 (6)                                |  | Phase 1 |  | Phase 1



|    |                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------
|(1) | Includes only those candidates for which an Investigational New
    Drug application has been filed with the FDA
|   
|(2) | Clinical Trial Status defined as when patients are being dosed                                                  
|   
|(3) | IND filed in 2004; patient dosing anticipated to begin in 2005                                                  
|   
|(4) | Further clinical development pending and dependent on U.S.
    Government commitment to purchase                
|   
|(5) | Clinical development discontinued in 2004 or prior                                                              
|   
|(6) | Further clinical development anticipated to be discontinued in
    2005                                         





39



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##### 



Liquidity and Capital Resources (continued)














40



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##### 



Liquidity and Capital Resources (continued)




|                                                                               |  |                        |       |          |         |   |        |             |  |         |            |  |       |            |      |  |  |   |       | 
|------------------------------------------------------------------------------ |  | ---------------------- | ----- | -------- | ------- | - | ------ | ----------- |  | ------- | ---------- |  | ----- | ---------- | ---- |  |  | - | ----- | 
|                                                                               |  | Payments Due by Period |      
|                                                                               |  | (dollars in millions)  |      
|                                                                               |  |                        |      
|                                                                               |  |                        |       | One year |         |   | Two to |             |  | Four to |            |  | After |           
|                                                                               |  | Total                  |       |          | or less |   |        | three years |  |         | five years |  |       | five years |     
|Contractual Obligations                                                        |  |                        |       |          |         |   |        |             |  |         |            |  |       |            |     
|Long-term debt                                                                 |  | $                      | 504.8 |          |         | $ |       |             |  | $       | 224.8      |  |       | $          |     |  |  | $ | 280.0 | 
|Capital lease obligation                                                       |  |                        | 0.7   |          |         |   | 0.4    |             |  |         | 0.3        |  |       |            |     |  |  |   |      | 
|Operating leases                                                               |  |                        | 124.8 |          |         |   | 17.8   |             |  |         | 32.6       |  |       |            | 22.2 |  |  |   | 52.2  | 
|Rental obligation for facility lease with residual value
    guarantee (1) (2) |  |                        | 28.7  |          |         |   | 5.3    |             |  |         | 10.6       |  |       |            | 10.6 |  |  |   | 2.2   | 
|Unconditional purchase obligations (3)                                         |  |                        | 13.4  |          |         |   | 13.4   |             |  |         |           |  |       |            |     |  |  |   |      | 
|Other long-term liabilities reflected on
    our balance sheets (4)            |  |                        |      |          |         |   |       |             |  |         |           |  |       |            |     |  |  |   |      | 
|                                                                               |  |                        |       |          |         |   |        |             |  |         |            |  |       |            |     
|Total contractual cash obligations (5)                                         |  | $                      | 672.4 |          |         | $ | 36.9   |             |  | $       | 268.3      |  |       | $          | 32.8 |  |  | $ | 334.4 | 
|                                                                               |  |                        |       |          |         |   |        |             |  |         |            |  |       |            |     



|    |                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Certain of our current or future lease payments are based upon
    currently applicable interest rates. See additional discussion
    of this facility lease below.                                                                                                                                                                                                                                               
|   
|(2) | One of our operating leases contains a residual value guarantee
    described below.                                                                                                                                                                                                                                                                                                                              
|   
|(3) | Our unconditional purchase obligations relate primarily to
    commitments for capital expenditures, consisting primarily of
    manufacturing space build-out and equipment. The amounts exclude
    anticipated, but not yet obligated costs, estimated at
    approximately $71.3 million associated with the completion
    of construction of our construction of our large-scale
    manufacturing facility.
|   
|(4) | 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.                                                                                                                                                                                  
|   
|(5) | 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






41



---



##### 



Off-Balance Sheet Arrangements (continued)










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




42



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##### 





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













43



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##### 





|        |                                            
|------- | -------------------------------------------
|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




Changes in Internal Control




Management Report on Internal Control Over Financial
Reporting






| |   |                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                                                                                                       





44



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##### 



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

set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework.

Based on our assessment, management believes
that, as of December 31, 2004, the Companys internal
control over financial reporting is effective based on those
criteria.

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



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

None.

45



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##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


ON INTERNAL CONTROL OVER FINANCIAL REPORTING






















46



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##### 



PART III



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

We incorporate herein by reference the
information concerning directors and executive officers in our
Notice of Annual Stockholders Meeting and Proxy Statement
to be filed within 120 days after the end of our fiscal
year (the 2005 Proxy Statement).



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

We incorporate herein by reference the
information concerning executive compensation to be contained in
the 2005 Proxy Statement.



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

We incorporate herein by reference the
information concerning security ownership of certain beneficial
owners and management to be contained in the 2005 Proxy
Statement.



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

We incorporate herein by reference the
information concerning certain relationships and related
transactions to be contained in the 2005 Proxy Statement.



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

We incorporate herein by reference the
information concerning certain relationships and related
transactions to be contained in the 2005 Proxy Statement.

47



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##### 



PART IV



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

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

(1) Index to Consolidated Financial
Statements

|                                                                                                         |  |        |     | 
|-------------------------------------------------------------------------------------------------------- |  | ------ | --- | 
|                                                                                                         |  | Page   |    
|                                                                                                         |  | Number |    
|                                                                                                         |  |        |    
|Report of Ernst & Young LLP, Independent
    Registered Public Accounting Firm                           |  |        | F-2 | 
|Consolidated Balance Sheets at December 31,
    2004 and 2003                                            |  |        | F-3 | 
|Consolidated Statements of Operations for the
    years ended December 31, 2004, 2003 and 2002           |  |        | F-4 | 
|Consolidated Statements of Stockholders
    Equity for the years ended December 31, 2004, 2003 and 2002 |  |        | F-5 | 
|Consolidated Statements of Cash Flows for the
    years ended December 31, 2004, 2003 and 2002           |  |        | F-6 | 
|Notes to Consolidated Financial Statements                                                               |  |        | F-8 | 

(2) Financial Statement Schedules

Financial statement
schedules are omitted because they are not required.

(3) Exhibits

|            |    |     |  |                                                                                                                                                                                                                                                                                                                                                             
|----------- | -- | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    |     | 
|            |    |     | 
|            | 3  | .1* |  | Certificate of Incorporation of the Registrant
    (Filed as Exhibit 3.1 to the Registrants Form 10-K
    for the fiscal year ended December 31, 1993,
    Exhibit 3.3 to the Form 10-K for the fiscal year ended
    December 31, 1997, Exhibit 3.1 to the Form 8-K filed
    December 16, 1999 and Exhibit 3.1 to the Form 10-Q
    filed July 31, 2001).
|            | 3  | .2* |  | By-laws of the Registrant (Filed as
    Exhibit 3.2 to the Registrants Form 10-Q filed
    August 3, 2000).                                                                                                                                                                                                                                                
|            | 4  | .1* |  | Form of Common Stock Certificate (Filed as
    Exhibit 4.1 to the Registrants Form S-3
    Registration Statement, as amended (Commission File
    No. 333-45272), filed September 6, 2000).                                                                                                                                                               
|            | 4  | .2* |  | Rights Agreement between the Registrant and
    American Stock Transfer & Trust Company, as Rights
    Agent, dated as of May 20, 1998 (Filed as Exhibit 4 to
    the Registrants Form 8-K filed May 28, 1998).                                                                                                                                            
|            | 4  | .3* |  | Indenture dated as of June 25, 1999 between
    the Registrant and The Bank of New York, as trustee, including
    the form of 5 1/2% 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 February 1, 2000
    between the Registrant and The Bank of New York, as trustee,
    including the form of 5% Convertible Subordinated Notes due
    2007 (Filed as Exhibit 4.1 to the Registrants Form
    8-K filed February 2, 2000).                                                                                            
|            | 4  | .5* |  | Indenture dated as of March 10, 2000 between
    the Registrant and The Bank of New York, as trustee, including
    the form of 3 3/4% Convertible Subordinated Notes due 2007
    (Filed as Exhibit 4.1 to the Registrants Form 8-K
    filed March 13, 2000).                                                                                            
|            | 4  | .6* |  | Indenture dated as of October 4, 2004
    between the Registrant and The Bank of New York, as trustee,
    including the form of 2 1/4% Convertible Subordinated Notes
    due 2011 (Filed as Exhibit 4.1 to the Registrants
    Form 8-K filed October 4, 2004).                                                                                          
|            | 10 | .1* |  | Employment Agreement, dated February 25,
    1997, with William A. Haseltine, Ph.D. (Filed as
    Exhibit 10.44 to the Registrants Form 10-K for
    the fiscal year ended December 31, 1996).                                                                                                                                                             
|            | 10 | .2* |  | 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).                                                                                                                                                                                         

48



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##### 



|            |    |      |  |                                                                                                                                                                                                                                                                                                                                               
|----------- | -- | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    |      | 
|            |    |      | 
|            | 10 | .3*  |  | 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).                                                                                                                                                                                       
|            | 10 | .4*  |  | 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 | .5   |  | 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 | .6*  |  | 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 | .7*  |  | 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 | .8*  |  | 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 | .9*  |  | 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 | .10* |  | 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 | .11* |  | 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 | .12* |  | 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 | .13* |  | 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 | .14* |  | 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 | .15* |  | 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.                                                                            
|            | 10 | .16* |  | 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 | .17* |  | 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 | .18* |  | 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 | .19* |  | 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).              

49



---



##### 



|            |    |      |  |                                                                                                                                                                                                                                                                             
|----------- | -- | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    |      | 
|            |    |      | 
|            | 10 | .20* |  | 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).
|            | 12 | .1   |  | Ratio of Earnings to Fixed Charges.                                                                                                                                                                                                                                         
|            | 21 | .1   |  | Subsidiaries.                                                                                                                                                                                                                                                               
|            | 23 | .1   |  | Consent of Ernst & Young LLP,
    Independent Registered Public Accounting Firm.                                                                                                                                                                                            
|            | 31 | .1   |  | Rule 13a-14(a) Certification of Principal
    Executive Officer.                                                                                                                                                                                                            
|            | 31 | .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.

50



---



##### 



SIGNATURES






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



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

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





|                                                               |  |                                                                                                       |  |               
|-------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------- |  | --------------
|Signature                                                      |  | Title                                                                                                 |  | Date          
|                                                               |  |                                                                                                       |  |               
|/s/ H. Thomas WatkinsH.
    Thomas Watkins                     |  | Chief Executive Officer and Director                                                                  |  | March 15, 2005
|                                                              
|/s/ Craig A. Rosen, Ph.D.Craig
    A. Rosen, Ph.D.             |  | President and Chief Scientific Officer and Director                                                   |  | March 15, 2005
|                                                              
|/s/ Steven C. MayerSteven
    C. Mayer                         |  | Executive Vice President and Chief Financial Officer (principal
    financial and accounting officer) |  | March 15, 2005
|                                                              
|/s/ Argeris N. Karabelas, Ph.D.Argeris
    N. Karabelas, Ph.D. |  | Chairman of the Board                                                                                 |  | March 15, 2005
|                                                              
|/s/ Betsy S. AtkinsBetsy
    S. Atkins                         |  | Director                                                                                              |  | March 15, 2005
|                                                              
|/s/ Richard J. DanzigRichard
    J. Danzig                     |  | Director                                                                                              |  | March 15, 2005
|                                                              
|/s/ Jürgen Drews, M.D.Jürgen
    Drews, M.D.                   |  | Director                                                                                              |  | March 15, 2005
|                                                              
|/s/ Kathryn E. FalbergKathryn
    E. Falberg                   |  | Director                                                                                              |  | March 15, 2005
|                                                              
|/s/ Augustine LawlorAugustine
    Lawlor                       |  | Director                                                                                              |  | March 15, 2005
|                                                              
|/s/ Max Link, Ph.D.Max
    Link, Ph.D.                         |  | Director                                                                                              |  | March 15, 2005
|                                                              
|/s/ William D. YoungWilliam
    D. Young                       |  | Director                                                                                              |  | March 15, 2005

51



---



##### 



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, 2004 and 2003                                                |  |        | F-3 | 
|Consolidated Statements of Operations for the years ended
    December 31, 2004, 2003 and 2002           |  |        | F-4 | 
|Consolidated Statements of Stockholders Equity for the
    years ended December 31, 2004, 2003 and 2002 |  |        | F-5 | 
|Consolidated Statements of Cash Flows for the years ended
    December 31, 2004, 2003 and 2002           |  |        | 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,                               |        
|                                                                                     |                                                                                                                                                                   |                                            |        
|                                                                                     |                                                                                                                                                                   | 2004                                       |         |            | 2003      | 
|                                                                                     |                                                                                                                                                                   |                                            |         |            |           | 
|                                                                                     |                                                                                                                                                                   |                                           
|                                                                                     |                                                                                                                                                                   | (dollars in thousands, except              |        
|                                                                                     |                                                                                                                                                                   | share and per share amounts)               |        
|Assets                                                                               |                                                                                                                                                                   |                                            |         |            |           |  |         |          
|Current assets:                                                                      |                                                                                                                                                                   |                                            |         |            |           |  |         |          
|                                                                                     | Cash and cash equivalents                                                                                                                                         |                                            | $       | 24,075     |           |  | $       | 33,269    |          
|                                                                                     | Short-term investments                                                                                                                                            |                                            |         | 713,375    |           |  |         | 948,413   |          
|                                                                                     | Prepaid expenses and other current assets                                                                                                                         |                                            |         | 5,678      |           |  |         | 6,297     |          
|                                                                                     |                                                                                                                                                                   |                                            |         |            |           | 
|                                                                                     |                                                                                                                                                                   | Total current assets                       |         |            | 743,128   |  |         |           | 987,979   | 
|                                                                                    
|Long-term investments                                                                |                                                                                                                                                                   |                                            | 27,081  |            |           |  | 24,055  |          
|Property, plant and equipment (net of accumulated
    depreciation and amortization) |                                                                                                                                                                   |                                            | 243,741 |            |           |  | 154,717 |          
|Restricted investments                                                               |                                                                                                                                                                   |                                            | 215,236 |            |           |  | 280,776 |          
|Other assets                                                                         |                                                                                                                                                                   |                                            | 20,199  |            |           |  | 18,677  |          
|                                                                                     |                                                                                                                                                                   |                                            |         |            |           | 
|                                                                                     |                                                                                                                                                                   | TOTAL ASSETS                               |         | $          | 1,249,385 |  |         | $         | 1,466,204 | 
|                                                                                     |                                                                                                                                                                   |                                            |         |            |           | 
|Liabilities and Stockholders
    Equity                                             |                                                                                                                                                                   |                                            |         |            |           |  |         |          
|Current liabilities:                                                                 |                                                                                                                                                                   |                                            |         |            |           |  |         |          
|                                                                                     | Current portion of capital lease obligation                                                                                                                       |                                            | $       | 328        |           |  | $       | 338       |          
|                                                                                     | Accounts payable and accrued expenses                                                                                                                             |                                            |         | 63,127     |           |  |         | 32,121    |          
|                                                                                     | Accrued payroll and related taxes                                                                                                                                 |                                            |         | 6,229      |           |  |         | 9,060     |          
|                                                                                     | Deferred revenues                                                                                                                                                 |                                            |         | 3,309      |           |  |         | 2,568     |          
|                                                                                     |                                                                                                                                                                   |                                            |         |            |           | 
|                                                                                     |                                                                                                                                                                   | Total current liabilities                  |         |            | 72,993    |  |         |           | 44,087    | 
|                                                                                    
|Long-term debt                                                                       |                                                                                                                                                                   |                                            | 504,815 |            |           |  | 503,020 |          
|Capital lease obligation, net of current portion                                     |                                                                                                                                                                   |                                            | 316     |            |           |  | 644     |          
|Deferred revenues, net of current portion                                            |                                                                                                                                                                   |                                            | 9,210   |            |           |  | 7,703   |          
|Other liabilities                                                                    |                                                                                                                                                                   |                                            | 6,004   |            |           |  | 7,417   |          
|                                                                                     |                                                                                                                                                                   |                                            |         |            |           | 
|                                                                                     |                                                                                                                                                                   | Total liabilities                          |         |            | 593,338   |  |         |           | 562,871   | 
|                                                                                     |                                                                                                                                                                   |                                            |         |            |           | 
|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 130,527,029
    and 129,433,448 at December 31, 2004 and 2003, respectively |                                            |         | 1,305      |           |  |         | 1,294     |          
|                                                                                     | Additional paid-in capital                                                                                                                                        |                                            |         | 1,775,005  |           |  |         | 1,762,191 |          
|                                                                                     | Accumulated other comprehensive income                                                                                                                            |                                            |         | 9,506      |           |  |         | 26,719    |          
|                                                                                     | Accumulated deficit                                                                                                                                               |                                            |         | (1,129,769 | )         |  |         | (886,871  | )        
|                                                                                     |                                                                                                                                                                   |                                            |         |            |           | 
|                                                                                     |                                                                                                                                                                   | Total stockholders equity                 |         |            | 656,047   |  |         |           | 903,333   | 
|                                                                                     |                                                                                                                                                                   |                                            |         |            |           | 
|                                                                                     |                                                                                                                                                                   | TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |         | $          | 1,249,385 |  |         | $         | 1,466,204 | 
|                                                                                     |                                                                                                                                                                   |                                            |         |            |           | 

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

F-3



---



##### 



HUMAN GENOME SCIENCES, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                           |                            |                                                            |                                |        |         |         |             |        |         |         |             |        |         |         | 
|-------------------------------------------------------------------------- | -------------------------- | ---------------------------------------------------------- | ------------------------------ | ------ | ------- | ------- | ----------- | ------ | ------- | ------- | ----------- | ------ | ------- | ------- | 
|                                                                           |                            |                                                           
|                                                                           |                            | Year Ended December 31,                                    |                               
|                                                                           |                            |                                                            |                               
|                                                                           |                            | 2004                                                       |                                |        | 2003    |         |             | 2002   |        
|                                                                           |                            |                                                            |                                |        |         |         |             |        |        
|                                                                           |                            |                                                           
|                                                                           |                            | (dollars in thousands, except share and per share amounts) |                               
|Revenue  research and development
    collaborative contracts             |                            | $                                                          | 3,831                          |        |         | $       | 8,168       |        |         | $       | 3,568       |       
|                                                                           |                            |                                                            |                                |        |         |         |             |        |        
|Costs and expenses:                                                        |                            |                                                            |                                |        |         |         |             |        |         |         |             |       
|                                                                           | Research and development:  |                                                            |                                |        |         |         |             |        |         |         |             |        |        
|                                                                           |                            | Direct expenditures                                        |                                |        | 219,549 |         |             |        | 191,483 |         |             |        | 191,162 |        
|                                                                           |                            | Charge for construction design changes                     |                                |        |        |         |             |        |        |         |             |        | 14,238  |        
|                                                                           |                            |                                                            |                                |        |         |         |             |        |        
|                                                                           |                            |                                                            | Total research and development |        |         | 219,549 |             |        |         | 191,483 |             |        |         | 205,400 | 
|                                                                           | General and administrative |                                                            |                                | 35,728 |         |         |             | 43,608 |         |         |             | 44,175 |        
|                                                                           | Charge for restructuring   |                                                            |                                | 15,408 |         |         |             |       |         |         |             |       |        
|                                                                           |                            |                                                            |                                |        |         |         |             |        |        
|                                                                           |                            |                                                            | Total costs and expenses       |        |         | 270,685 |             |        |         | 235,091 |             |        |         | 249,575 | 
|                                                                           |                            |                                                            |                                |        |         |         |             |        |        
|Income (loss) from operations                                              |                            |                                                            | (266,854                       | )      |         |         | (226,923    | )      |         |         | (246,007    | )     
|Investment income                                                          |                            |                                                            | 40,553                         |        |         |         | 64,297      |        |         |         | 82,195      |       
|Interest expense                                                           |                            |                                                            | (19,030                        | )      |         |         | (22,698     | )      |         |         | (23,746     | )     
|Gain on extinguishment of debt                                             |                            |                                                            | 2,433                          |        |         |         |            |        |         |         |            |       
|Charge for impaired investment                                             |                            |                                                            |                               |        |         |         |            |        |         |         | (32,158     | )     
|                                                                           |                            |                                                            |                                |        |         |         |             |        |        
|Income (loss) before taxes                                                 |                            |                                                            | (242,898                       | )      |         |         | (185,324    | )      |         |         | (219,716    | )     
|Provision for income taxes                                                 |                            |                                                            |                               |        |         |         |            |        |         |         |            |       
|                                                                           |                            |                                                            |                                |        |         |         |             |        |        
|Net income (loss)                                                          |                            | $                                                          | (242,898                       | )      |         | $       | (185,324    | )      |         | $       | (219,716    | )     
|                                                                           |                            |                                                            |                                |        |         |         |             |        |        
|                                                                          
|Basic and diluted net income (loss) per share                              |                            | $                                                          | (1.87                          | )      |         | $       | (1.44       | )      |         | $       | (1.71       | )     
|                                                                           |                            |                                                            |                                |        |         |         |             |        |        
|Weighted average shares of common stock
    outstanding, basic and diluted |                            |                                                            | 130,041,071                    |        |         |         | 129,112,670 |        |         |         | 128,591,153 |       
|                                                                           |                            |                                                            |                                |        |         |         |             |        |        

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

F-4



---



##### 



HUMAN GENOME SCIENCES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

(dollars in thousands, except share amounts)

|                                                                                                                           |                                       |              |             |   |            |            |       |              |       |   |               |   |  |             |        |   |         |   |        |         |   |   |            |          |   |   |           |          |  
|-------------------------------------------------------------------------------------------------------------------------- | ------------------------------------- | ------------ | ----------- | - | ---------- | ---------- | ----- | ------------ | ----- | - | ------------- | - |  | ----------- | ------ | - | ------- | - | ------ | ------- | - | - | ---------- | -------- | - | - | --------- | -------- | -
|                                                                                                                           |                                       |              |             |   |            |            |       | Unearned     |       |   | Accumulated   |   |  |             |        |  
|                                                                                                                           |                                       |              |             |   |            | Portion of |       |              | Other |   |               |   |  |            
|                                                                                                                           |                                       | Common Stock |             |   | Additional |            |       | Compensatory |       |   | Comprehensive |   |  |             |        |  
|                                                                                                                           |                                       |              |             |   | Paid-In    |            |       | Stock        |       |   | Income        |   |  | Accumulated |        |   |        
|                                                                                                                           |                                       | Shares       |             |   | Amount     |            |       | Capital      |       |   | Options       |   |  | (Loss)      |        |   | Deficit |   |        | Total   |  
|                                                                                                                           |                                       |              |             |   |            |            |       |              |       |   |               |   |  |             |        |   |         |   |        |         |  
|Balance  December 31, 2001                                                                                                |                                       |              | 128,278,407 |   |            | $          | 1,283 |              |       | $ | 1,753,235     |   |  | $           | (294   | ) |         | $ | 32,070 |         |   | $ | (481,831   | )        |   | $ | 1,304,463 |         
|                                                                                                                          
|Comprehensive income (loss):                                                                                               |                                       |              |             |   |            |            |       |              |       |   |               |   |  |             |        |   |         |   |        |         |   |   |            |          |   |   |           |         
|                                                                                                                           | Net loss                              |              |             |  |            |            |       |             |       |   |               |  |  |             |        |  |         |   |        |        |   |   |            | (219,716 | ) |   |           | (219,716 | )
|                                                                                                                           | Unrealized gain on investments        |              |             |  |            |            |       |             |       |   |               |  |  |             |        |  |         |   |        | 11,285  |   |   |            |         |   |   |           | 11,285   |  
|                                                                                                                           |                                       |              |             |   |            |            |       |              |       |   |               |   |  |             |        |   |         |   |        |         |  
|Comprehensive income (loss)                                                                                                |                                       |              |             |   |            |            |       |              |       |   |               |   |  |             |        |   |         |   |        |         |   |   |            |          |   |   | (208,431  | )       
|Exercises of 495,207 and 76,937 options relating
    to employee stock option and stock purchase plans, respectively       |                                       |              | 572,144     |   |            |            | 6     |              |       |   | 4,250         |   |  |             |       |   |         |   |       |         |   |   |           |          |   |   | 4,256     |         
|Compensatory stock options issued                                                                                          |                                       |              |            |   |            |            |      |              |       |   | 200           |   |  |             | (200   | ) |         |   |       |         |   |   |           |          |   |   |          |         
|Compensatory stock options earned                                                                                          |                                       |              |            |   |            |            |      |              |       |   |              |   |  |             | 265    |   |         |   |       |         |   |   |           |          |   |   | 265       |         
|                                                                                                                           |                                       |              |             |   |            |            |       |              |       |   |               |   |  |             |        |   |         |   |        |         |  
|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   |         
|                                                                                                                           |                                       |              |             |   |            |            |       |              |       |   |               |   |  |             |        |   |         |   |        |         |  

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

F-5



---



##### 



HUMAN GENOME SCIENCES, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                         |                                                                                                            |                                                                  |                                           |          |          |        |        |          |          |         |         |          |          |        |  
|-------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ----------------------------------------- | -------- | -------- | ------ | ------ | -------- | -------- | ------- | ------- | -------- | -------- | ------ | -
|                                                         |                                                                                                            |                                                                 
|                                                         |                                                                                                            | Year Ended December 31,                                          |                                          
|                                                         |                                                                                                            |                                                                  |                                          
|                                                         |                                                                                                            | 2004                                                             |                                           |          | 2003     |        |        | 2002     |         
|                                                         |                                                                                                            |                                                                  |                                           |          |          |        |        |          |         
|                                                         |                                                                                                            |                                                                 
|                                                         |                                                                                                            | (dollars in thousands)                                           |                                          
|Cash flows from operating
    activities:                |                                                                                                            |                                                                  |                                           |          |          |        |        |          |          |         |         |         
|                                                         | Net income (loss)                                                                                          |                                                                  | $                                         | (242,898 | )        |        | $      | (185,324 | )        |         | $       | (219,716 | )       
|                                                         | Adjustments to reconcile net income
    (loss) to net cash provided by (used in) operating
    activities: |                                                                  |                                           |          |          |        |        |          |          |         |         |          |         
|                                                         |                                                                                                            | Accrued interest on short-term investments                       |                                           |          | 7,501    |        |        |          | 7,088    |         |         |          | 12,050   |       
|                                                         |                                                                                                            | Depreciation and amortization                                    |                                           |          | 21,579   |        |        |          | 22,477   |         |         |          | 18,837   |       
|                                                         |                                                                                                            | (Gain) Loss due to disposal of property, plant
    and equipment |                                           |          | (7,189   | )      |        |          | 456      |         |         |          | 214      |       
|                                                         |                                                                                                            | Compensation expense related to stock options                    |                                           |          | 4,151    |        |        |          | 229      |         |         |          | 265      |       
|                                                         |                                                                                                            | Gain on extinguishment of long-term debt                         |                                           |          | (2,433   | )      |        |          |         |         |         |          |         |       
|                                                         |                                                                                                            | Gain on sale of investments                                      |                                           |          | (4,900   | )      |        |          | (9,424   | )       |         |          | (7,253   | )     
|                                                         |                                                                                                            | Charge for impaired investment                                   |                                           |          |         |        |        |          |         |         |         |          | 32,158   |       
|                                                         |                                                                                                            | Charge for construction design changes                           |                                           |          |         |        |        |          |         |         |         |          | 14,238   |       
|                                                         |                                                                                                            | Changes in operating assets and liabilities:                     |                                           |          |          |        |        |          |          |         |         |          |          |       
|                                                         |                                                                                                            |                                                                  | Prepaid expenses and other current assets |          |          | 619    |        |          |          | 4,132   |         |          |          | (281   | )
|                                                         |                                                                                                            |                                                                  | Other assets                              |          |          | 5,195  |        |          |          | 1,558   |         |          |          | 5,948  |  
|                                                         |                                                                                                            |                                                                  | Accounts payable and accrued expenses     |          |          | 8,471  |        |          |          | (10,333 | )       |          |          | (2,097 | )
|                                                         |                                                                                                            |                                                                  | Accrued restructuring charges             |          |          | 14,468 |        |          |          |        |         |          |          |       |  
|                                                         |                                                                                                            |                                                                  | Accrued payroll and related taxes         |          |          | (2,831 | )      |          |          | 1,149   |         |          |          | 2,311  |  
|                                                         |                                                                                                            |                                                                  | Deferred revenues                         |          |          | 2,248  |        |          |          | (2,568  | )       |          |          | (2,568 | )
|                                                         |                                                                                                            |                                                                  | Other liabilities                         |          |          | (4,843 | )      |          |          | (644    | )       |          |          | 373    |  
|                                                         |                                                                                                            |                                                                  |                                           |          |          |        |        |          |         
|                                                         |                                                                                                            | Net cash provided by (used in) operating
    activities          |                                           |          | (200,862 | )      |        |          | (171,204 | )       |         |          | (145,521 | )     
|                                                         |                                                                                                            |                                                                  |                                           |          |          |        |        |          |         
|Cash flows from investing
    activities:                |                                                                                                            |                                                                  |                                           |          |          |        |        |          |          |         |         |         
|                                                         | Capital expenditures  property, plant
    and equipment                                                   |                                                                  |                                           | (109,589 | )        |        |        | (67,801  | )        |         |         | (58,704  | )       
|                                                         | Proceeds from sale of property, plant and
    equipment                                                    |                                                                  |                                           | 16,600   |          |        |        | 29,157   |          |         |         |         |         
|                                                         | Purchase of investments                                                                                    |                                                                  |                                           | (417,536 | )        |        |        | (702,894 | )        |         |         | (548,018 | )       
|                                                         | Proceeds from sale and maturities of investments                                                           |                                                                  |                                           | 634,452  |          |        |        | 993,195  |          |         |         | 744,139  |         
|                                                         |                                                                                                            |                                                                  |                                           |          |          |        |        |          |         
|                                                         |                                                                                                            | Net cash provided by investing activities                        |                                           |          | 123,927  |        |        |          | 251,657  |         |         |          | 137,417  |       
|                                                         |                                                                                                            |                                                                  |                                           |          |          |        |        |          |         
|Cash flows from financing
    activities:                |                                                                                                            |                                                                  |                                           |          |          |        |        |          |          |         |         |         
|                                                         | Proceeds from long-term debt                                                                               |                                                                  |                                           | 271,483  |          |        |        |         |          |         |         |         |         
|                                                         | Release of restricted investments                                                                          |                                                                  |                                           | 80,706   |          |        |        |         |          |         |         |         |         
|                                                         | Restricted investments                                                                                     |                                                                  |                                           | (19,891  | )        |        |        | (98,488  | )        |         |         | (58,581  | )       
|                                                         | Proceeds from sale of restricted investments                                                               |                                                                  |                                           |         |          |        |        | 22,247   |          |         |         |         |         
|                                                         | Proceeds from issuance of common stock                                                                     |                                                                  |                                           | 8,673    |          |        |        | 4,511    |          |         |         | 4,256    |         
|                                                         | Extinguishment of long-term debt                                                                           |                                                                  |                                           | (272,892 | )        |        |        |         |          |         |         |         |         
|                                                         | Repayment of long-term debt                                                                                |                                                                  |                                           |         |          |        |        | (448     | )        |         |         | (444     | )       
|                                                         | Payments on capital lease                                                                                  |                                                                  |                                           | (338     | )        |        |        | (211     | )        |         |         | (241     | )       
|                                                         |                                                                                                            |                                                                  |                                           |          |          |        |        |          |         
|                                                         |                                                                                                            | Net cash provided by (used in) financing
    activities          |                                           |          | 67,741   |        |        |          | (72,389  | )       |         |          | (55,010  | )     
|                                                         |                                                                                                            |                                                                  |                                           |          |          |        |        |          |         
|Net (decrease) increase in cash and cash
    equivalents |                                                                                                            |                                                                  | (9,194                                    | )        |          |        | 8,064  |          |          |         | (63,114 | )       
|Cash and cash equivalents  beginning
    of year        |                                                                                                            |                                                                  | 33,269                                    |          |          |        | 25,205 |          |          |         | 88,319  |         
|                                                         |                                                                                                            |                                                                  |                                           |          |          |        |        |          |         
|Cash and cash equivalents  end of
    year              |                                                                                                            | $                                                                | 24,075                                    |          |          | $      | 33,269 |          |          | $       | 25,205  |         
|                                                         |                                                                                                            |                                                                  |                                           |          |          |        |        |          |         
|Supplemental disclosures of cash flow information:       |                                                                                                            |                                                                  |                                           |          |          |        |        |          |          |         |         |         
|                                                         | Cash paid during the year for:                                                                             |                                                                  |                                           |          |          |        |        |          |          |         |         |          |         
|                                                         |                                                                                                            |                                                                  | Interest                                  |          | $        | 22,760 |        |          | $        | 21,486  |         |          | $        | 21,574 |  
|                                                         |                                                                                                            |                                                                  | Income taxes                              |          | $        |       |        |          | $        |        |         |          | $        |       |  

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

F-6



---



##### 



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

During 2003, the Company terminated an existing
capital lease for computer equipment with a remaining obligation
and net book value of $269 and $254, respectively. Principal
payments of $211 and $241 were made for 2003 and 2002,
respectively. The Company also entered into a capital lease for
computer equipment with an aggregate value of $982, with
thirty-six monthly payments of $29 of principal and interest.
Principal payments of $353 were made during 2004. No principal
payments were made during 2003. In 2003, the Company tendered
its equity interest in Vascular Genetics, Inc.
(VGI), a privately-held company, in exchange for
approximately an 18% equity interest, as of 2003, in Corautus
Genetics Inc. (Corautus), a publicly-traded company
that resulted from the merger of VGI and GenStar Therapeutics
Corporation. As of the date of this exchange, the Company had no
carrying value in its equity interest in VGI. Immediately
following this transaction, the market value of the
Companys investment in Corautus was approximately $5,659.

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

F-7



---



##### 









(NOTE A)  The Company










(NOTE B)  Summary of Significant Accounting
Policies


Use of Estimates




Principles of Consolidation




Cash Equivalents and Short-term and Long-term Investments






F-8



---



##### 











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




Cash Equivalents and Short-Term and Long-Term Investments
(continued)




Investment Risk




Other-than-Temporary Impairment of Investments


Accounting for
Certain Investments in Debt and Equity Securities The Meaning
of Other-Than-Temporary Impairment and Its Application to
Certain Investments


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


Fair Value of Financial Instruments




F-9



---



##### 



HUMAN GENOME SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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




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




Fair Value of Financial Instruments
(continued)


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

Stock-Based Compensation

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

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

|                                                                                                                                                    |                                 |                         |          |       |      |   |          |       |   |   |          |       |  
|--------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------- | ----------------------- | -------- | ----- | ---- | - | -------- | ----- | - | - | -------- | ----- | -
|                                                                                                                                                    |                                 |                        
|                                                                                                                                                    |                                 | Year Ended December 31, |         
|                                                                                                                                                    |                                 |                         |         
|                                                                                                                                                    |                                 | 2004                    |          |       | 2003 |   |          | 2002  |  
|                                                                                                                                                    |                                 |                         |          |       |      |   |          |       |  
|Net income (loss), as reported                                                                                                                      |                                 | $                       | (242,898 | )     |      | $ | (185,324 | )     |   | $ | (219,716 | )    
|Deduct: Total stock-based employee compensation
    expense determined under fair value based method for all awards,
    net of related tax effects |                                 |                         | (110,562 | )     |      |   | (109,152 | )     |   |   | (118,897 | )    
|Add: Stock-based compensation included in
    net income (loss)                                                                                     |                                 |                         | 4,151    |       |      |   | 229      |       |   |   | 265      |      
|                                                                                                                                                    |                                 |                         |          |       |      |   |          |       |  
|Pro forma net income (loss)                                                                                                                         |                                 | $                       | (349,309 | )     |      | $ | (294,247 | )     |   | $ | (338,348 | )    
|                                                                                                                                                    |                                 |                         |          |       |      |   |          |       |  
|Net income (loss) per share:                                                                                                                        |                                 |                         |          |       |      |   |          |       |   |   |          |      
|                                                                                                                                                    | Basic and diluted  as reported |                         | $        | (1.87 | )    |   | $        | (1.44 | ) |   | $        | (1.71 | )
|                                                                                                                                                    |                                 |                         |          |       |      |   |          |       |  
|                                                                                                                                                    | Basic and diluted  pro forma   |                         | $        | (2.69 | )    |   | $        | (2.28 | ) |   | $        | (2.63 | )
|                                                                                                                                                    |                                 |                         |          |       |      |   |          |       |  

For the years ended December 31, 2004, 2003
and 2002, diluted net income (loss) per share is the same as
basic net income (loss) per share as the inclusion of
outstanding stock options and convertible debt would be
antidilutive.

The effect of applying SFAS No. 123 on
2004, 2003 and 2002 pro forma net loss and net loss per share as
stated above is not necessarily representative of the effects on
reported net loss for future years due to, among other things,
(1) the vesting period of the stock options and
(2) the fair value of additional stock option grants in
future years. See Note B, Summary of Significant Accounting
Policies, Recent Accounting Pronouncements, for additional
discussion of revisions to SFAS 123 effective in 2005.

F-10



---



##### 



HUMAN GENOME SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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




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


Revenue Recognition

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

The Company recognizes nonrefundable fees related
to certain arrangements monthly over the term of the related
research collaboration agreement.

Research and Development

Research and development costs, including
internal expenditures, as well as contracted research and
development, are charged to expense as incurred. Research and
development costs include salaries and related benefits, outside
services, materials and supplies, building costs and allocations
of certain support costs. Research and development direct
expenditures were $219,549, $191,483 and $191,162 for 2004, 2003
and 2002, respectively.

Financing Costs Related to Long-term
Debt

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

Patent Application Costs

Patent application costs are charged to expense
as incurred.

Capitalization of Interest

Interest costs associated with the construction
of significant facilities are capitalized as part of the cost of
the facilities using the Companys weighted-average
borrowing rate. Capitalized interest costs were $3,839 and
$1,025 for 2004 and 2003, respectively. There were no
capitalized interest costs for 2002.

Net Income (Loss) Per Share

The Company follows the provisions of
SFAS No. 128, Earnings Per Share, which
requires the Company to present basic and diluted earnings per
share. The Companys basic and diluted loss per share are
calculated by dividing the net loss by the weighted average
number of shares of common stock outstanding during all periods

F-11



---



##### 



HUMAN GENOME SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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




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




Net Income (Loss) Per Share
(continued)


presented. Options to purchase stock and
convertible debt are included in diluted earnings per share
calculations, unless the effects are anti-dilutive.

Comprehensive Income (Loss)

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

Comprehensive income (loss) amounted to:

|                                  |                                                                              |                         |          |         |         |   |          |         |        |   |          |         |         |  
|--------------------------------- | ---------------------------------------------------------------------------- | ----------------------- | -------- | ------- | ------- | - | -------- | ------- | ------ | - | -------- | ------- | ------- | -
|                                  |                                                                              |                        
|                                  |                                                                              | Year Ended December 31, |         
|                                  |                                                                              |                         |         
|                                  |                                                                              | 2004                    |          |         | 2003    |   |          | 2002    |       
|                                  |                                                                              |                         |          |         |         |   |          |         |       
|Net income (loss)                 |                                                                              | $                       | (242,898 | )       |         | $ | (185,324 | )       |        | $ | (219,716 | )      
|                                  |                                                                              |                         |          |         |         |   |          |         |       
|Net unrealized gains (losses):    |                                                                              |                         |          |         |         |   |          |         |        |   |          |        
|                                  | Short-term investments                                                       |                         |          | (15,018 | )       |   |          | (17,161 | )      |   |          | 13,264  |        
|                                  | Long-term investments                                                        |                         |          | 7,370   |         |   |          | 10,765  |        |   |          | (28,754 | )      
|                                  | Restricted investments                                                       |                         |          | (4,725  | )       |   |          | (434    | )      |   |          | 1,817   |        
|                                  | Foreign currency translation                                                 |                         |          | 7       |         |   |          |        |        |   |          |        |        
|                                  |                                                                              |                         |          |         |         |   |          |         |       
|                                  |                                                                              | Subtotal                |          |         | (12,366 | ) |          |         | (6,830 | ) |          |         | (13,673 | )
|                                  |                                                                              |                         |          |         |         |   |          |         |       
|                                  | Reclassification adjustments for realized
    gains
    included in net loss |                         |          | (4,847  | )       |   |          | (9,806  | )      |   |          | (7,200  | )      
|                                  | Impairment charge relating to investment in CAT                              |                         |          |        |         |   |          |        |        |   |          | 32,158  |        
|                                  |                                                                              |                         |          |         |         |   |          |         |       
|Total comprehensive income (loss) |                                                                              | $                       | (260,111 | )       |         | $ | (201,960 | )       |        | $ | (208,431 | )      
|                                  |                                                                              |                         |          |         |         |   |          |         |       

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

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

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

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

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

F-12



---



##### 



HUMAN GENOME SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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




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




Comprehensive Income (Loss)
(continued)


During the third quarter of 2002, the Company
recorded an impairment charge relating to its investment in CAT
in the amount of $32,158 due to the significant reduction in
market value of CATs shares that the Company believed may
not be temporary and reversed the previously-recorded unrealized
loss relating to this investment. As a result, the Company had
an adjusted cost of $13,079, as determined by the current market
value of CATs publicly-traded common stock, and no
unrealized loss as of the date of the charge. As of
December 31, 2004, the Companys remaining investment
in CAT had a market value of $13,691 and an unrealized gain of
$4,323.

Related Parties

The Companys equity investments in
Transgene, CAT and Corautus make them related parties with the
Company. In 2004, 2003 and 2002, the Company recognized revenue
of $2,568 each year relating to a 1998 collaboration agreement
with Transgene. In 2004, 2003 and 2002, the Company amortized
$1,200 each year for research support costs paid to CAT in
connection with a 2000 collaboration agreement. In 2003 and
2002, the Company paid $1,000 and $4,000, respectively, to CAT,
in connection with two collaboration agreements. The Company
made no payments to CAT in 2004. The Company had no other
material related party transactions during 2004, 2003 or 2002.

Recent Accounting Pronouncements

In March 2004, the Financial Accounting Standards
Board (FASB) ratified the recognition and
measurement guidance and certain disclosure requirements for
impaired securities as described in EITF No. 03-1. The
recognition and measurement guidance has been applied to
other-than-temporary impairment evaluations in reporting periods
beginning after June 30, 2004. The adoption of EITF
No. 03-1 did not have a material effect on the
Companys results of operations, financial condition or
liquidity.

In December 2004, the Financial Accounting
Standards Board issued SFAS 123 (revised 2004),
Share-Based Payment(SFAS 123(R)), which
is a revision of SFAS No. 123. SFAS 123(R)
supersedes APB No. 25 and amends SFAS No. 95,
Statement of Cash Flows. Generally, the approach in
SFAS 123(R) is similar to the approach described in
SFAS 123. However, SFAS 123(R) requiresall
share-based payments to employees, including grants of employee
stock options, to be recognized in the statement of operations
based on their fair values. Pro forma disclosure is no longer an
alternative.

SFAS 123(R) must be adopted no later than
July 1, 2005. Early adoption will be permitted in periods
in which financial statements have not yet been issued. The
Company expects to adopt SFAS 123(R) on July 1, 2005.

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

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

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

F-13



---



##### 









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


Recent Accounting Pronouncements (continued)








Sources of Supply




F-14



---



##### 









(NOTE C)  Investments




|                           |                                   |                   |         |         |            |   |       |            |  |   |            |        |   |   |         |         | 
|-------------------------- | --------------------------------- | ----------------- | ------- | ------- | ---------- | - | ----- | ---------- |  | - | ---------- | ------ | - | - | ------- | ------- | 
|                           |                                   | December 31, 2004 |        
|                           |                                   |                   |        
|                           |                                   |                   |         | Gross   |            |   | Gross |            |  |  
|                           |                                   | Amortized         |         |         | Unrealized |   |       | Unrealized |  |   |           
|Available for Sale         |                                   | Cost              |         |         | Gains      |   |       | Losses     |  |   | Fair 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 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 | 
|                           |                                   |                   |         |         |            |   |       |            |  |   |            |       

|                           |                                   |                   |         |           |            |   |        |            |  |   |            |        |   |   |         |           | 
|-------------------------- | --------------------------------- | ----------------- | ------- | --------- | ---------- | - | ------ | ---------- |  | - | ---------- | ------ | - | - | ------- | --------- | 
|                           |                                   | December 31, 2003 |        
|                           |                                   |                   |        
|                           |                                   |                   |         | Gross     |            |   | Gross  |            |  |  
|                           |                                   | Amortized         |         |           | Unrealized |   |        | Unrealized |  |   |           
|Available for Sale         |                                   | Cost              |         |           | Gains      |   |        | Losses     |  |   | Fair Value |       
|                           |                                   |                   |         |           |            |   |        |            |  |   |            |       
|U.S. Treasury and agencies |                                   | $                 | 315,090 |           |            | $ | 4,528  |            |  | $ | (473       | )      |   | $ | 319,145 |          
|Corporate debt securities  |                                   |                   | 618,132 |           |            |   | 11,993 |            |  |   | (857       | )      |   |   | 629,268 |          
|                           |                                   |                   |         |           |            |   |        |            |  |   |            |       
|                           | Subtotal  Short-term investments |                   |         | 933,222   |            |   |        | 16,521     |  |   |            | (1,330 | ) |   |         | 948,413   | 
|                           |                                   |                   |         |           |            |   |        |            |  |   |            |       
|Investment in Transgene    |                                   |                   | 3,365   |           |            |   | 1,187  |            |  |   |           |        |   |   | 4,552   |          
|Investment in CAT          |                                   |                   | 13,079  |           |            |   |       |            |  |   | (1,472     | )      |   |   | 11,607  |          
|Investment in Ciphergen    |                                   |                   | 311     |           |            |   | 452    |            |  |   |           |        |   |   | 763     |          
|Investment in Corautus     |                                   |                   |        |           |            |   | 7,133  |            |  |   |           |        |   |   | 7,133   |          
|                           |                                   |                   |         |           |            |   |        |            |  |   |            |       
|                           | Subtotal  Long-term investments  |                   |         | 16,755    |            |   |        | 8,772      |  |   |            | (1,472 | ) |   |         | 24,055    | 
|                           |                                   |                   |         |           |            |   |        |            |  |   |            |       
|Cash and cash equivalents  |                                   |                   | 8,907   |           |            |   |       |            |  |   |           |        |   |   | 8,907   |          
|U.S. Treasury and agencies |                                   |                   | 110,982 |           |            |   | 1,612  |            |  |   | (96        | )      |   |   | 112,498 |          
|Corporate debt securities  |                                   |                   | 156,659 |           |            |   | 2,948  |            |  |   | (236       | )      |   |   | 159,371 |          
|                           |                                   |                   |         |           |            |   |        |            |  |   |            |       
|                           | Subtotal  Restricted investments |                   |         | 276,548   |            |   |        | 4,560      |  |   |            | (332   | ) |   |         | 280,776   | 
|                           |                                   |                   |         |           |            |   |        |            |  |   |            |       
|                           | Total                             |                   | $       | 1,226,525 |            |   | $      | 29,853     |  |   | $          | (3,134 | ) |   | $       | 1,253,244 | 
|                           |                                   |                   |         |           |            |   |        |            |  |   |            |       

F-15



---



##### 









(NOTE C)  Investments (continued)




|                           |                                   |                   |         |         |                  |   |       |       |  |   |            |        |  |       |     |       |            |   |         |         |  |   |       |       | 
|-------------------------- | --------------------------------- | ----------------- | ------- | ------- | ---------------- | - | ----- | ----- |  | - | ---------- | ------ |  | ----- | --- | ----- | ---------- | - | ------- | ------- |  | - | ----- | ----- | 
|                           |                                   | December 31, 2004 |        
|                           |                                   |                   |        
|                           |                                   | Loss Position     |         |         | Loss Position    |   |       |      
|                           |                                   | For Less Than     |         |         | For Greater Than |   |       |      
|                           |                                   | Twelve Months     |         |         | Twelve Months    |   |       | Total | 
|                           |                                   |                   |         |         |                  |   |       |       | 
|                           |                                   | Fair              |         |         | Unrealized       |   |       | Fair  |  |   | Unrealized |        |  | Fair  |     |       | Unrealized |  
|                           |                                   | Value             |         |         | Losses           |   |       | Value |  |   | Losses     |        |  | Value |     |       | Losses     |  
|                           |                                   |                   |         |         |                  |   |       |       |  |   |            |        |  |       |     |       |            |  
|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 | 
|                           |                                   |                   |         |         |                  |   |       |       |  |   |            |        |  |       |     |       |            |  

|                           |                                   |                   |         |         |                  |   |     |       |  |   |            |        |  |       |       |       |            |   |         |         |  |   |       |       | 
|-------------------------- | --------------------------------- | ----------------- | ------- | ------- | ---------------- | - | --- | ----- |  | - | ---------- | ------ |  | ----- | ----- | ----- | ---------- | - | ------- | ------- |  | - | ----- | ----- | 
|                           |                                   | December 31, 2003 |        
|                           |                                   |                   |        
|                           |                                   | Loss Position     |         |         | Loss Position    |   |     |      
|                           |                                   | For Less Than     |         |         | For Greater Than |   |     |      
|                           |                                   | Twelve Months     |         |         | Twelve Months    |   |     | Total | 
|                           |                                   |                   |         |         |                  |   |     |       | 
|                           |                                   | Fair              |         |         | Unrealized       |   |     | Fair  |  |   | Unrealized |        |  | Fair  |       |       | Unrealized |  
|                           |                                   | Value             |         |         | Losses           |   |     | Value |  |   | Losses     |        |  | Value |       |       | Losses     |  
|                           |                                   |                   |         |         |                  |   |     |       |  |   |            |        |  |       |       |       |            |  
|U.S. Treasury and agencies |                                   | $                 | 52,683  |         |                  | $ | 473 |       |  | $ |           |        |  | $     |      |       |            | $ | 52,683  |         |  | $ | 473   |      
|Corporate debt securities  |                                   |                   | 106,853 |         |                  |   | 857 |       |  |   |           |        |  |       |      |       |            |   | 106,853 |         |  |   | 857   |      
|                           |                                   |                   |         |         |                  |   |     |       |  |   |            |        |  |       |       |       |            |  
|                           | Subtotal  Short-term investments |                   |         | 159,536 |                  |   |     | 1,330 |  |   |            |       |  |       |       |      |            |   |         | 159,536 |  |   |       | 1,330 | 
|                           |                                   |                   |         |         |                  |   |     |       |  |   |            |        |  |       |       |       |            |  
|Investment in CAT          |                                   |                   |        |         |                  |   |    |       |  |   | 11,607     |        |  |       | 1,472 |       |            |   | 11,607  |         |  |   | 1,472 |      
|                           |                                   |                   |         |         |                  |   |     |       |  |   |            |        |  |       |       |       |            |  
|                           | Subtotal  Long-term investments  |                   |         |        |                  |   |     |      |  |   |            | 11,607 |  |       |       | 1,472 |            |   |         | 11,607  |  |   |       | 1,472 | 
|                           |                                   |                   |         |         |                  |   |     |       |  |   |            |        |  |       |       |       |            |  
|U.S. Treasury and agencies |                                   |                   | 23,393  |         |                  |   | 96  |       |  |   |           |        |  |       |      |       |            |   | 23,393  |         |  |   | 96    |      
|Corporate debt securities  |                                   |                   | 32,810  |         |                  |   | 236 |       |  |   |           |        |  |       |      |       |            |   | 32,810  |         |  |   | 236   |      
|                           |                                   |                   |         |         |                  |   |     |       |  |   |            |        |  |       |       |       |            |  
|                           | Subtotal  Restricted investments |                   |         | 56,203  |                  |   |     | 332   |  |   |            |       |  |       |       |      |            |   |         | 56,203  |  |   |       | 332   | 
|                           |                                   |                   |         |         |                  |   |     |       |  |   |            |        |  |       |       |       |            |  
|                           | Total                             |                   | $       | 215,739 |                  |   | $   | 1,662 |  |   | $          | 11,607 |  |       | $     | 1,472 |            |   | $       | 227,346 |  |   | $     | 3,134 | 
|                           |                                   |                   |         |         |                  |   |     |       |  |   |            |        |  |       |       |       |            |  

Short-term and Restricted investments  unrealized
losses






F-16



---



##### 



HUMAN GENOME SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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




(NOTE C)  Investments
(continued)




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


all amounts due according to the contractual
terms of these investments. Therefore, it is not expected that
all the securities would be settled at a price less than the
amortized cost of the investments. Because the Company has the
ability and intent to hold these investments until a recovery of
fair value, which may be maturity, the Company does not believe
these investments to be other-than-temporarily impaired as of
December 31, 2004 and 2003.

Long-term investments  unrealized
losses

The unrealized loss on the Companys
investment in CAT, a biotechnology company, as of
December 31, 2003 was due to a general decline in equity
values that began in 2000. In 2002, the Company determined that
its investment in CAT had incurred an other-than-temporary
impairment, and accordingly, made an adjustment to the carrying
value of this investment. While the fair value of CAT continued
to decline during 2003, the Company evaluated the near-term
prospects of CAT and given the Companys ability and intent
to hold this investment for a reasonable period of time
sufficient for a forecasted recovery of fair value, the Company
did not consider this investment to be other-than-temporarily
impaired as of December 31, 2003. During 2004, the fair
value of CAT has increased such that the Company has an
unrealized gain on its investment in CAT, based upon its
adjusted carrying value, as of December 31, 2004.

The following table summarizes maturities of the
Companys short-term and restricted investment securities
at December 31, 2004:

|                                   |       |             |         |         |             |   |         |           |  |   |         |         |  |   |         |         | 
|---------------------------------- | ----- | ----------- | ------- | ------- | ----------- | - | ------- | --------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                   |       |             |         |        
|                                   |       | Short-term  |         |         | Restricted  |  
|                                   |       | Investments |         |         | Investments |  
|                                   |       |             |         |         |             |  
|                                   |       | Amortized   |         |         | Fair        |   |         | Amortized |  |   | Fair    |        
|                                   |       | Cost        |         |         | Value       |   |         | Cost      |  |   | Value   |        
|                                   |       |             |         |         |             |   |         |           |  |   |         |        
|Less than one year                 |       | $           | 101,267 |         |             | $ | 101,578 |           |  | $ | 63,926  |         |  | $ | 64,071  |        
|Due in year two through year three |       |             | 544,334 |         |             |   | 540,438 |           |  |   | 122,084 |         |  |   | 120,765 |        
|Due in year four though year five  |       |             | 57,656  |         |             |   | 57,318  |           |  |   | 30,391  |         |  |   | 30,400  |        
|Due after five years               |       |             | 13,868  |         |             |   | 14,041  |           |  |   |        |         |  |   |        |        
|                                   |       |             |         |         |             |   |         |           |  |   |         |        
|                                   | Total |             | $       | 717,125 |             |   | $       | 713,375   |  |   | $       | 216,401 |  |   | $       | 215,236 | 
|                                   |       |             |         |         |             |   |         |           |  |   |         |        

The Companys short-term investments include
mortgage-backed securities with an aggregate cost of $127,900
and an aggregate fair value of $126,160 at December 31,
2004. The Companys restricted investments include
mortgage-backed securities with an aggregate cost of $40,556 and
an aggregate fair value of $40,037 at December 31, 2004.
These securities have no single maturity date and, accordingly,
have been allocated on a pro rata basis to each maturity range
based on each maturity ranges percentage of the total
value.

The Companys restricted investments with
respect to certain leases will reach a maximum of approximately
$219,000. At December 31, 2004 and 2003, the Company had
pledged $215,236 and $280,776, respectively, in connection with
its leases, which is classified as Restricted investments on the
consolidated balance sheets. As a result of the lease
restructurings in June 2003 and December 2004, the Company no
longer maintains any restricted investments with respect to the
large-scale manufacturing facility and the research facility
located at 9800 Medical Center Drive. See Note I,
Commitments and Other Matters, for additional discussion. In
addition, as described in Note H, Long-Term Debt, the
Company had pledged $651 as of December 31, 2003 in
connection with a 1994 loan agreement, which was fully repaid in
2003.

F-17



---



##### 



HUMAN GENOME SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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




(NOTE C)  Investments
(continued)




Long-term investments  unrealized
losses (continued)


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

|                |  |                         |         |   |      |   |         |      |  |   |         |  
|--------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                |  |                        
|                |  | Year Ended December 31, |        
|                |  |                         |        
|                |  | 2004                    |         |   | 2003 |   |         | 2002 | 
|                |  |                         |         |   |      |   |         |      | 
|Gross proceeds  |  | $                       | 688,802 |   |      | $ | 814,492 |      |  | $ | 483,061 |  
|Realized gains  |  | $                       | 6,543   |   |      | $ | 11,338  |      |  | $ | 7,782   |  
|Realized losses |  | $                       | (1,696  | ) |      | $ | (1,532  | )    |  | $ | (582    | )

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

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

(NOTE D)  Collaboration
Agreements

Agreements with GlaxoSmithKline (formerly
SmithKline Beecham Corporation)

In May 1993, the Company entered into a
collaboration agreement as amended, providing GlaxoSmithKline
(GSK), formerly SmithKline Beecham Corporation, a
first right to develop and market products in human and animal
healthcare (GSK Products), based upon human genes
identified by the Company. In June 1996, this agreement was
substantially amended (the 1996 GSK Agreement).
Under the 1996 GSK Agreement, the Company is entitled to
(1) royalties on the net sales of certain GSK Products
developed pursuant to the agreement, (2) product
development progress payments and (3) the option to
co-promote up to 20% of any product developed by GSK under the
collaboration agreement. In each of 2004, 2003 and 2002, the
Company received $1,000 from GSK in connection with development
milestones met by GSK during the year. The Company has been
informed that GSK is pursuing research programs involving
specific genes for the creation of small molecule, protein and
antibody drugs. The Company cannot provide any assurance that
any of these programs will be continued or result in any
approved drugs.

In October 2004, the Company entered into an
agreement with GSK under which GSK acquired exclusive worldwide
rights to develop and commercialize Albugon, a drug currently in
late-stage preclinical development by the Company for potential
use in the treatment of diabetes. The Company received an
up-front fee and is recognizing this revenue ratably over the
clinical development period, which is approximately seven years.
The Company recognized $185 as revenue for the year ended
December 31, 2004. The Company is also entitled to receive
milestone payments and royalties under this agreement.

Other Collaboration Agreements related to the
1996 GSK Agreement

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

F-18



---



##### 



HUMAN GENOME SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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




(NOTE D)  Collaboration
Agreements (continued)




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


respect to the 1996 agreement among the
Additional Collaboration Partners, the Company is entitled to
license fees, research payments, milestone payments and
royalties. The initial research term associated with this 1996
agreement expired in June 2001.

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

Other Collaborative and License
Agreements

Since 1995, the Company has entered into a number
of other agreements. These include a 1995 collaboration and
license agreement with MedImmune, Inc., which was amended in
1996 and 1997, as well as collaborative agreements with Pioneer
Hi-Bred International, Inc., Pharmacia & Upjohn Company,
Schering-Plough Ltd. and F. Hoffman-La Roche, Ltd. In 2003,
Pfizer Corporation (which acquired Pharmacia & Upjohn) and
the Company amended the Pharmacia agreement. The Company
received and recognized in full the license fee paid as a result
of the amendment. The Company received no other payments and did
not recognize any revenues in 2004, 2003 or 2002 pursuant to
these other agreements.

In March 1998, the Company entered into a gene
therapy collaboration agreement with Transgene, of Strasbourg,
France. Under this agreement, the Company received a 10% equity
interest in Transgene, valued at $25,679 based on the quoted
market value of Transgenes common stock in exchange for
giving Transgene the right to develop and co-market gene therapy
products from ten genes selected by Transgene from the
Companys database. The Company initially recorded its
investment in Transgene at its market value, with a
corresponding entry to deferred revenue. The Company is
recognizing the $25,679 of revenue from this transaction over
the shorter of the ten-year term of the agreement or prorated
upon the selection of genes by Transgene. Deferred revenue
remaining for Transgene was $7,703 and $10,271 as of
December 31, 2004 and 2003, respectively. The Company
recognized $2,568 as revenue in each of 2004, 2003 and 2002.

In August 1999, the Company entered into a
collaborative agreement with Cambridge Antibody Technology Ltd.
of Melbourn, United Kingdom to jointly pursue the development of
fully human monoclonal antibody therapeutics. Under the
agreement, CAT will conduct research to identify fully human
monoclonal antibodies specific for the Companys
proprietary proteins. CAT will receive milestone payments from
the Company in connection with the development of any such
antibodies as well as royalty payments on the Companys net
sales of such licensed product following regulatory approval.
During 2002, the Company paid CAT $1,500 for one milestone
payment pursuant to this agreement. The agreement provides for
additional payments to CAT for each product relating to the
achievement of milestones corresponding to the regulatory
approval process. In the event of the achievement of other
milestones or successful product launch, the Company would be
obligated to pay CAT additional compensation and royalties.
Subject to early termination under certain circumstances, this
agreement will expire on the later of the expiration date of
certain CAT patents or ten years after the date of first
commercial sale of a product licensed by the Company.

In December 1999, the Company entered into a
collaborative agreement, which was amended in 2001, with
Abgenix, Inc. (ABX), of Fremont, California to
exchange technology to identify novel human antibody drug
candidates for development and commercialization. The Company
has the right to use ABXs proprietary technology to
generate fully human antibody drug candidates. During 2003, the
Company exercised its option to develop a fully human antibody
and paid $100 to ABX in accordance with the terms of this
agreement. During 2004, the Company paid ABX $400 for one
milestone payment pursuant to this agreement. In

F-19



---



##### 



HUMAN GENOME SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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




(NOTE D)  Collaboration
Agreements (continued)




Other Collaborative and License Agreements
(continued)


addition, ABX has a future option to develop and
commercialize products derived from the Companys pool of
novel human antibody drug candidates. Under this reciprocal
agreement, depending upon which partys product moves
through the regulatory approval process, the Company or ABX
would be obligated to the other for milestone payments for each
therapeutic product or each diagnostic product along with
royalties in the event of a successful product launch. Subject
to early termination under certain circumstances, this agreement
will expire upon the satisfaction of each partys royalty
obligations.

In February 2000, the Company entered into a
second agreement with Cambridge Antibody Technology. The
ten-year agreement provides the Company with rights to use CAT
technology to develop and sell an unlimited number of fully
human antibodies for therapeutic and diagnostic purposes. The
Company also has rights to use CAT antibody technology for the
use and sale of research tools, for which the Company will pay
CAT a share of revenues received. The Company will also pay CAT
clinical development milestones and royalties based on product
sales. The Company and CAT may also plan to combine resources to
develop and sell therapeutic antibody products. CAT has the
right to select up to twenty-four of the Companys
proprietary antigens for laboratory development. The Company has
the option to share clinical development costs and to share the
profits equally with CAT on up to eighteen such products. CAT
has rights to develop six such products on its own. The Company
is entitled to clinical development milestones and royalty
payments on the products developed by CAT. Under this same
agreement, the Company paid CAT $12,000 for future research
support and made an equity investment in CAT. The Company has
sold a portion of this equity investment and as of
December 31, 2004, owned approximately 3% of CAT. In 2001,
the Company exercised an option to enter into an exclusive
development partnership with CAT relating to a fully human
monoclonal antibody and paid $1,000 to CAT in accordance with
the terms of this agreement. During 2002, the Company paid CAT
an aggregate of $2,500 relating to the exercise of two options
and one clinical milestone payment pursuant to this agreement.
During 2003, the Company paid CAT an aggregate of $1,000
relating to two clinical milestones reached pursuant to this
agreement. No milestone payments were made in 2004.

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

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

The Company has other ongoing technology
collaborations and agreements as of December 31, 2004 with
Kirin Brewery Company, Ltd., MDS Nordion, DakoCytomation Denmark
A/ S and others. During 2004, 2003 and 2002, the Company paid an
aggregate of $2,123, $1,577 and $2,753, respectively, for
research services to certain of these collaborators. While
license or royalty payments may occur in the future in

F-20



---



##### 



HUMAN GENOME SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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




(NOTE D)  Collaboration
Agreements (continued)




Other Collaborative and License Agreements
(continued)


connection with these collaborations, no license
or royalty payments were made or received during 2004, 2003 or
2002.

(NOTE E)  Property, Plant and
Equipment



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

|                                                |  |              |         |   |      |   |         |  
|----------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                                |  |             
|                                                |  | December 31, |        
|                                                |  |              |        
|                                                |  | 2004         |         |   | 2003 |  
|                                                |  |              |         |   |      |  
|Laboratory equipment                            |  | $            | 61,033  |   |      | $ | 56,670  |  
|Leasehold improvements                          |  |              | 32,148  |   |      |   | 39,216  |  
|Computer equipment and software                 |  |              | 26,821  |   |      |   | 24,610  |  
|Land and improvements                           |  |              | 22,982  |   |      |   | 22,492  |  
|Furniture and office equipment                  |  |              | 4,571   |   |      |   | 3,833   |  
|Construction in progress                        |  |              | 165,062 |   |      |   | 64,391  |  
|                                                |  |              |         |   |      |  
|                                                |  |              | 312,617 |   |      |   | 211,212 |  
|Less: accumulated depreciation and amortization |  |              | (68,876 | ) |      |   | (56,495 | )
|                                                |  |              |         |   |      |  
|                                                |  | $            | 243,741 |   |      | $ | 154,717 |  
|                                                |  |              |         |   |      |  

The Company entered into a capital lease for
computer equipment in 2001. This capital lease was terminated in
November 2003 and a new capital lease was entered into in
December 2003. The new capital lease is included in the Computer
equipment and software amount above, at a cost of $982 and
accumulated amortization of $355 as of December 31, 2004.
Amortization expense for this equipment is included in
depreciation and amortization within the consolidated statements
of cash flows.

Included in Construction in progress is $157,930
and $46,972 as of December 31, 2004 and 2003, respectively,
relating to the Companys construction of a large-scale
manufacturing facility. The Company expects to complete this
facility in 2005 at a total cost of approximately $234,900.

(NOTE F)  Other
Assets

Other assets are comprised of the following:

|                                                                                                                                           |  |              |        |  |      |   |        | 
|------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | ------ |  | ---- | - | ------ | 
|                                                                                                                                           |  |             
|                                                                                                                                           |  | December 31, |       
|                                                                                                                                           |  |              |       
|                                                                                                                                           |  | 2004         |        |  | 2003 |  
|                                                                                                                                           |  |              |        |  |      |  
|Deferred financing costs, net of accumulated
    amortization of $5,327 and $8,625, as of December 31,
    2004
    and 2003, respectively |  | $            | 10,491 |  |      | $ | 6,954  | 
|Prepaid services                                                                                                                           |  |              | 6,200  |  |      |   | 7,511  | 
|Deferred charge for residual value guarantee                                                                                               |  |              | 3,430  |  |      |   | 4,063  | 
|All other assets                                                                                                                           |  |              | 78     |  |      |   | 149    | 
|                                                                                                                                           |  |              |        |  |      |  
|                                                                                                                                           |  | $            | 20,199 |  |      | $ | 18,677 | 
|                                                                                                                                           |  |              |        |  |      |  

F-21



---



##### 



HUMAN GENOME SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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




(NOTE F)  Other Assets
(continued)


Deferred financing costs were incurred in
connection with the Companys convertible subordinated debt
offerings during 2004, 2000 and 1999. Debt issuance costs for
the $504,815 of Notes outstanding amounted to approximately
$15,818, representing primarily underwriting fees of
approximately 3% of the gross amount of Notes, and are being
amortized on a straight-line basis which approximates an
effective interest method over the life of the Notes. Deferred
financing costs of approximately $2,880 were written off in 2004
in connection with the repurchase of a portion of the
Companys convertible subordinated debt. See Note H,
Long-Term Debt, for additional discussion of the Companys
convertible subordinated debt.

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

In accordance with the provisions of Financial
Accounting Standards Board Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others(FIN 45), during the second quarter
of 2003 the Company recorded the estimated fair market value of
its maximum residual value guarantee of the lease of one of its
facilities (Traville). The Company estimated the
fair market value of the guarantee as approximately $4,380 and
is amortizing this amount on a straight-line basis over the term
of the lease. As of December 31, 2004 and 2003, the
unamortized amount of approximately $3,430 and $4,063,
respectively, was recorded within Other assets and Other
liabilities on the Companys consolidated balance sheets.
See Note I, Commitments and Other Matters for additional
discussion.

(NOTE G)  Accounts Payable and
Accrued Expenses

Accounts payable and accrued expenses are
comprised of the following:

|                      |  |              |        |  |      |   |        | 
|--------------------- |  | ------------ | ------ |  | ---- | - | ------ | 
|                      |  |             
|                      |  | December 31, |       
|                      |  |              |       
|                      |  | 2004         |        |  | 2003 |  
|                      |  |              |        |  |      |  
|Fixed asset purchases |  | $            | 20,320 |  |      | $ | 12,128 | 
|Professional fees     |  |              | 17,930 |  |      |   | 5,882  | 
|Restructuring         |  |              | 14,468 |  |      |   |       | 
|Accrued interest      |  |              | 5,405  |  |      |   | 7,529  | 
|Accrued expenses      |  |              | 5,004  |  |      |   | 6,582  | 
|                      |  |              |        |  |      |  
|                      |  | $            | 63,127 |  |      | $ | 32,121 | 
|                      |  |              |        |  |      |  

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

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

F-22



---



##### 









(NOTE H)  Long-Term Debt




|                                                        |  |                         |       |            |         |               |  |      |         |  |  |   |         | 
|------------------------------------------------------- |  | ----------------------- | ----- | ---------- | ------- | ------------- |  | ---- | ------- |  |  | - | ------- | 
|                                                        |  |                         |       |            |         | December 31, 
|                                                        |  | December 31,            |       |            |         |              
|Debt                                                    |  | 2004 Interest Rates     |       | Maturities |         | 2004          |  | 2003
|                                                        |  |                         |       |            |         |               |  |     
|5.5% Convertible Subordinated Notes                     |  |                         | 5.50% |            |         | June 2006     |  | $    | 3,120   |  |  | $ | 3,120   | 
|5.0% Convertible Subordinated Notes                     |  |                         | 5.00% |            |         | February 2007 |  |      | 139,821 |  |  |   | 199,900 | 
|3.75% Convertible Subordinated Notes                    |  |                         | 3.75% |            |         | March 2007    |  |      | 81,874  |  |  |   | 300,000 | 
|2.25% Convertible Subordinated Notes                    |  |                         | 2.25% |            |         | October 2011  |  |      | 280,000 |  |  |   |        | 
|                                                        |  |                         |       |            |         |               |  |      |         |  |  |   |         | 
|                                                        |  |                         |       |            |         |               |  | $    | 504,815 |  |  | $ | 503,020 | 
|                                                        |  |                         |       |            |         |               |  |      |         |  |  |   |         | 
|Annual maturities of all long-term debt are as follows: |  |                         |       |            |         |               |  |     
|                                                        |  |                         | 2005  |            |         |               |  | $    |        |  |  |   |         | 
|                                                        |  |                         | 2006  |            |         |               |  |      | 3,120   |  |  |   |         | 
|                                                        |  |                         | 2007  |            |         |               |  |      | 221,695 |  |  |   |         | 
|                                                        |  |                         | 2008  |            |         |               |  |      |        |  |  |   |         | 
|                                                        |  |                         | 2009  |            |         |               |  |      |        |  |  |   |         | 
|                                                        |  | 2010
    and thereafter |       |            | 280,000 |               |  |      |         | 
|                                                        |  |                         |       |            |         |               |  |      |         | 
|                                                        |  |                         |       |            |         |               |  | $    | 504,815 |  |  |   |         | 
|                                                        |  |                         |       |            |         |               |  |      |         |  |  |   |         | 



|                                     |  |              |         |  |       |   |         |          |  |   |         |  |  |   |         | 
|------------------------------------ |  | ------------ | ------- |  | ----- | - | ------- | -------- |  | - | ------- |  |  | - | ------- | 
|                                     |  | December 31, |        
|                                     |  |              |        
|                                     |  | 2004         |         |  | 2003  |  
|                                     |  |              |         |  |       |  
|                                     |  | Carrying     |         |  | Fair  |   |         | Carrying |  |   | Fair    | 
|                                     |  | Amount       |         |  | Value |   |         | Amount   |  |   | Value   | 
|                                     |  |              |         |  |       |   |         |          |  |   |         | 
|5.5% Convertible Subordinated Notes  |  | $            | 3,120   |  |       | $ | 3,149   |          |  | $ | 3,120   |  |  | $ | 3,404   | 
|5.0% Convertible Subordinated Notes  |  |              | 139,821 |  |       |   | 139,821 |          |  |   | 199,900 |  |  |   | 189,048 | 
|3.75% Convertible Subordinated Notes |  |              | 81,874  |  |       |   | 79,418  |          |  |   | 300,000 |  |  |   | 272,840 | 
|2.25% Convertible Subordinated Notes |  |              | 280,000 |  |       |   | 295,050 |          |  |   |        |  |  |   |        | 
|                                     |  |              |         |  |       |   |         |          |  |   |         | 
|                                     |  | $            | 504,815 |  |       | $ | 517,438 |          |  | $ | 503,020 |  |  | $ | 465,292 | 
|                                     |  |              |         |  |       |   |         |          |  |   |         | 

1 2 1 2 1 2


F-23



---



##### 









(NOTE H)  Long-Term Debt (continued)


3 4 3 4 3 4 3 4


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




|                |  |                     |                      |                   |  |               
|--------------- |  | ------------------- | -------------------- | ----------------- |  | --------------
|                |  | Optional Redemption |                      | December 31, 2004
|Note            |  | Effective Date      |                      | Redemption Price 
|                |  |                     |                      |                  
|51/2%
    Notes |  |                     | December 2002        |                   |  | 100.92%       
|5% Notes        |  |                     | February 2003        |                   |  | 101.67%       
|33/4%
    Notes |  |                     | March 2003           |                   |  | 101.25%       
|21/4%
    Notes |  |                     | No redemption option |                   |  | Not applicable



F-24



---



##### 









(NOTE H)  Long-Term Debt (continued)






(NOTE I)  Commitments and Other Matters


Leases




|                                            |                      |           |         |  |         |   |     |     | 
|------------------------------------------- | -------------------- | --------- | ------- |  | ------- | - | --- | --- | 
|                                            |                      | Operating |         |  | Capital |  
|Year Ending December 31,                    |                      | Leases    |         |  | Lease   |  
|                                            |                      |           |         |  |         |  
|2005                                        |                      | $         | 23,142  |  |         | $ | 353 |    
|2006                                        |                      |           | 22,748  |  |         |   | 324 |    
|2007                                        |                      |           | 20,447  |  |         |   |    |    
|2008                                        |                      |           | 20,782  |  |         |   |    |    
|2009                                        |                      |           | 11,986  |  |         |   |    |    
|2010 and thereafter                         |                      |           | 54,350  |  |         |   |    |    
|                                            |                      |           |         |  |         |  
|                                            |                      | $         | 153,455 |  |         |   | 677 |    
|                                            |                      |           |         |  |         |  
|Less imputed interest                       |                      |           |         |  |         |   | 33  |    
|                                            |                      |           |         |  |         |  
|Present value of minimum lease payments     |                      |           |         |  |         |   | 644 |    
|                                            | Less current portion |           |         |  |         |   |     | 328 | 
|                                            |                      |           |         |  |         |  
|Long-term portion of minimum lease payments |                      |           |         |  |         | $ | 316 |    
|                                            |                      |           |         |  |         |  



F-25



---



##### 











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




Leases (continued)




Consolidation of Variable
Interest Entities .






F-26



---



##### 



HUMAN GENOME SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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




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




Leases (continued)


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

With respect to the Traville lease, the Company
has a residual value guarantee of 87.75% of the total financed
cost at lease termination. In the event of default, the Company
is responsible for 100% of the total financed cost of the
project. Because the lessor is responsible for servicing and
repaying the debt financings to various parties, the Company has
made the residual value guarantee to the lessor. In the event
the lessor defaults to the lender, the Company has the right to
cure the default or exercise its option to acquire the property.
At any time during the lease term, the Company has the option to
purchase legal and/or beneficial interest in the project for
100% of the lease balance plus any unpaid indemnity amounts. As
of December 31, 2004, the Companys residual value
guarantee for the Traville lease had reached the full maximum
amount of $175,500.

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

In accordance with the provisions of Financial
Accounting Standards Board Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others(FIN 45), the Company recorded the
estimated fair market value of the maximum residual value
guarantee of the Traville lease during the second quarter of
2003. The Company estimated the fair market value of the
guarantee as approximately $4,380 and is amortizing this amount
on a straight-line basis over the term of the lease. As of
December 31, 2004 and 2003, the unamortized amount of
approximately $3,430 and $4,063, respectively, was recorded
within Other assets and Other liabilities on the Companys
consolidated balance sheets.

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

The Company has entered into leases for office
and laboratory space, which provide for certain rent abatement
and rent escalations on each anniversary of the lease
commencement date. For financial reporting purposes, rent
expense is charged to operations on a straight-line basis over
the term of the lease, resulting in a liability for deferred
rent of $3,404 and $4,067 at December 31, 2004 and 2003,
respectively.

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

The Company has entered into various
sale-leaseback transactions resulting in equipment leases with
rental payments aggregating $59,311, with terms ranging from
five to seven years. The Company must either purchase the
equipment at the end of the initial term at the greater of fair
market value or 20% of original cost or, in some cases, extend
the term of the lease for an additional year. The Company has
accounted for these leases as operating leases. Minimum annual
rentals are approximately $10,239.

Rent expense aggregated $27,966, $20,446 and
$18,232 for the years ended December 31, 2004, 2003 and
2002, respectively.

F-27



---



##### 



HUMAN GENOME SCIENCES, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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




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


Capital Expenditures

At December 31, 2004 and 2003, the Company
had commitments for capital expenditures, consisting primarily
of manufacturing equipment, of approximately $13,398 and
$51,227, respectively. Included in commitments for capital
expenditures is $10,276 as of December 31, 2004 relating to
the Companys construction of a large-scale manufacturing
facility.

401(k) Plan

The Company has adopted a 401(k) pension plan
available to eligible full-time employees. The Company made
contributions of $1,410, $1,256 and $1,089 to the plan for the
years ended December 31, 2004, 2003 and 2002, respectively.

(NOTE J)  Stockholders
Equity

Stock Option and Employee Stock Purchase
Plans

The Company has stock option plans under which
options to purchase shares of the Companys common stock
may be granted to employees, consultants and directors at a
price no less than the fair market value on the date of grant.
At December 31, 2004, the total authorized number of shares
under all plans was 53,227,896. The vesting period of the
options is determined by the Board of Directors and is generally
four years. All options expire after ten years from the date of
grant.

In 2001, the Companys stockholders approved
an amendment to the 2000 Stock Incentive Plan (2000
Plan), which established the number of shares of common
stock that would be reserved for issuance and added to the 2000
Plan for 2001, 2002 and 2003. This limit was equal to five
percent of the outstanding common stock as of the end of the
preceding fiscal year. Shares that were available for a given
year but not subject to awards granted in that year were carried
forward to the following year. In 2003, five percent of the
outstanding common stock as of December 31, 2002, or
6,442,527 shares, were reserved for issuance under the 2000
Plan. After 2003, only the carried forward shares and the shares
that are returned to the pool of available shares due to award
forfeitures will be available for issuance.

The Company issued options for 188,150 shares of
common stock to non-employees during the year ended
December 31, 2002. The fair value of these options has been
amortized to expense over the service period. The Company issued
no options to non-employees during the years ended
December 31, 2004 and 2003.

Option transactions during 2004, 2003 and 2002
are summarized as follows:

|                                   |  |                         |            |           |       |   |       |        |           |  |            |   |  |           |       |  |       |  |            |   |  |   |       | 
|---------------------------------- |  | ----------------------- | ---------- | --------- | ----- | - | ----- | ------ | --------- |  | ---------- | - |  | --------- | ----- |  | ----- |  | ---------- | - |  | - | ----- | 
|                                   |  |                        
|                                   |  | Year Ended December 31, |           
|                                   |  |                         |           
|                                   |  |                         |            |           |       |  
|                                   |  | 2004                    |            |           | 2003  |   |       | 2002   |          
|                                   |  |                         |            |           |       |   |       |        |          
|                                   |  |                         |            | Weighted- |       |   |       |        | Weighted- |  |            |   |  | Weighted- |      
|                                   |  |                         |            | Average   |       |   |       |        | Average   |  |            |   |  | Average   |      
|                                   |  |                         |            | Exercise  |       |   |       |        | Exercise  |  |            |   |  | Exercise  |      
|                                   |  | Shares                  |            |           | Price |   |       | Shares |           |  | Price      |   |  | Shares    |       |  | Price | 
|                                   |  |                         |            |           |       |   |       |        |           |  |            |   |  |           |       |  |       | 
|Outstanding at beginning of year   |  |                         | 30,769,339 |           |       | $ | 27.31 |        |           |  | 28,307,139 |   |  | $         | 31.03 |  |       |  | 24,700,767 |   |  | $ | 35.63 | 
|Options granted                    |  |                         | 2,520,350  |           |       |   | 10.97 |        |           |  | 6,010,898  |   |  |           | 12.47 |  |       |  | 5,816,516  |   |  |   | 13.13 | 
|Options exercised                  |  |                         | (1,022,625 | )         |       |   | 7.79  |        |           |  | (485,534   | ) |  |           | 7.74  |  |       |  | (495,207   | ) |  |   | 7.14  | 
|Options canceled or expired        |  |                         | (8,793,151 | )         |       |   | 42.02 |        |           |  | (3,063,164 | ) |  |           | 35.66 |  |       |  | (1,714,937 | ) |  |   | 43.43 | 
|                                   |  |                         |            |           |       |   |       |        |           |  |            |   |  |           |       |  |       | 
|Outstanding at end of year         |  |                         | 23,473,913 |           |       |   | 20.90 |        |           |  | 30,769,339 |   |  |           | 27.31 |  |       |  | 28,307,139 |   |  |   | 31.03 | 
|                                   |  |                         |            |           |       |   |       |        |           |  |            |   |  |           |       |  |       | 
|Options exercisable at end of year |  |                         | 16,049,826 |           |       |   | 24.45 |        |           |  | 17,488,816 |   |  |           | 30.90 |  |       |  | 13,829,582 |   |  |   | 30.09 | 
|                                   |  |                         |            |           |       |   |       |        |           |  |            |   |  |           |       |  |       | 

F-28



---



##### 









(NOTE J)  Stockholders Equity
(continued)


Stock Option and Employee Stock Purchase Plans (continued)




|                        |  |                     |            |           |                     |  |           |          |  |   |             |           |  |          |            |  |  |   |       | 
|----------------------- |  | ------------------- | ---------- | --------- | ------------------- |  | --------- | -------- |  | - | ----------- | --------- |  | -------- | ---------- |  |  | - | ----- | 
|                        |  | 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    |           
|                        |  |                     |            |           |                     |  |           |          |  |   |             |           |  |          |           
|$4.25 to $10.91         |  |                     | 9,012,637  |           |                     |  | 5.8       |          |  | $ | 8.70        |           |  |          | 6,055,082  |  |  | $ | 8.10  | 
|$10.92 to $21.82        |  |                     | 6,616,177  |           |                     |  | 8.2       |          |  |   | 13.54       |           |  |          | 2,542,474  |  |  |   | 14.19 | 
|$21.83 to $32.74        |  |                     | 3,611,100  |           |                     |  | 4.2       |          |  |   | 27.28       |           |  |          | 3,565,376  |  |  |   | 27.29 | 
|$32.75 to $54.56        |  |                     | 2,092,351  |           |                     |  | 6.2       |          |  |   | 39.46       |           |  |          | 1,763,710  |  |  |   | 39.49 | 
|$54.57 to $109.13       |  |                     | 2,141,648  |           |                     |  | 5.7       |          |  |   | 66.10       |           |  |          | 2,123,184  |  |  |   | 66.11 | 
|                        |  |                     |            |           |                     |  |           |          |  |   |             |           |  |          |           
|                        |  |                     | 23,473,913 |           |                     |  | 6.3       |          |  |   | 20.90       |           |  |          | 16,049,826 |  |  |   | 24.45 | 
|                        |  |                     |            |           |                     |  |           |          |  |   |             |           |  |          |           









F-29



---



##### 









(NOTE J)  Stockholders Equity
(continued)


Stock Option and Employee Stock Purchase Plans (continued)




|               |                              |                         |            |       |            |       |          
|-------------- | ---------------------------- | ----------------------- | ---------- | ----- | ---------- | ----- | ---------
|               |                              | Year Ended December 31,
|               |                              |                        
|               |                              | 2004                    |            | 2003  |            | 2002 
|               |                              |                         |            |       |            |      
|Expected life: |                              |                         |            |       |            |      
|               | Stock options                |                         | 5.17 years |       | 6.75 years |       | 7.0 years
|               | Employee stock purchase plan |                         | 1.0 year   |       | 1.0 year   |       | 1.0 year 
|Interest rate  |                              | 3.68%                   |            | 3.95% |            | 4.02%
|Volatility     |                              | 40%                     |            | 78%   |            | 79%  
|Dividend yield |                              | 0%                      |            | 0%    |            | 0%   







(NOTE K)  Preferred Share Purchase
Rights






F-30



---



##### 









(NOTE K)  Preferred Share Purchase Rights
(continued)






(NOTE L)  Income Taxes




|                                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                              |  | Year Ended December 31, |        
|                                                              |  |                         |        
|                                                              |  | 2004                    |         |   | 2003 |   |         | 2002 | 
|                                                              |  |                         |         |   |      |   |         |      | 
|Federal income tax provision at 34%                           |  | $                       | (82,585 | ) |      | $ | (63,010 | )    |  | $ | (74,703 | )
|State taxes, net of federal tax benefit                       |  |                         | (11,024 | ) |      |   | (8,551  | )    |  |   | (10,023 | )
|Tax credits, principally for research and development         |  |                         | (6,975  | ) |      |   | (6,751  | )    |  |   | (6,852  | )
|Stock option deduction for which no book benefit is available |  |                         | (1,475  | ) |      |   | (667    | )    |  |   | (1,303  | )
|Other                                                         |  |                         | 1,457   |   |      |   | 81      |      |  |   | 99      |  
|Increase in valuation allowance on deferred tax asset         |  |                         | 100,602 |   |      |   | 78,898  |      |  |   | 92,782  |  
|                                                              |  |                         |         |   |      |   |         |      | 
|                                                              |  | $                       |        |   |      | $ |        |      |  | $ |        |  
|                                                              |  |                         |         |   |      |   |         |      | 



|                  |                                                             |         |       |        |                   |   |         |          |  
|----------------- | ----------------------------------------------------------- | ------- | ----- | ------ | ----------------- | - | ------- | -------- | -
|                  |                                                             | 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 | )
|                  |                                                             |         |       |        |                   |  
|                  |                                                             | $       |      |        |                   | $ |        |         
|                  |                                                             |         |       |        |                   |  

F-31



---



##### 









(NOTE L)  Income Taxes (continued)


|                  |                                                             |         |       |        |                   |   |         |          |  
|----------------- | ----------------------------------------------------------- | ------- | ----- | ------ | ----------------- | - | ------- | -------- | -
|                  |                                                             | Current |       |        | Long-Term         |  
|                  |                                                             | Asset   |       |        | Asset/(Liability) |  
|                  |                                                             |         |       |        |                   |  
|December 31, 2003 |                                                             |         |       |        |                   |   |         |         
|                  | Net operating loss carryforward                             |         | $     |       |                   |   | $       | 330,468  |  
|                  | Research and development and other tax credit carryforwards |         |       |       |                   |   |         | 34,021   |  
|                  | Loss on impaired investments                                |         |       |       |                   |   |         | 21,037   |  
|                  | Net unrealized gains on investments                         |         |       |       |                   |   |         | (10,319  | )
|                  | Deferred revenue                                            |         |       | 992    |                   |   |         | 2,975    |  
|                  | Depreciation                                                |         |       |       |                   |   |         | 4,717    |  
|                  | Reserves and accruals                                       |         |       | 2,271  |                   |   |         | 2,430    |  
|                  | Other                                                       |         |       |       |                   |   |         | 491      |  
|                  |                                                             |         |       |        |                   |  
|                  |                                                             |         | 3,263 |        |                   |   | 385,820 |         
|                  | Less valuation allowance                                    |         |       | (3,263 | )                 |   |         | (385,820 | )
|                  |                                                             |         |       |        |                   |  
|                  |                                                             | $       |      |        |                   | $ |        |         
|                  |                                                             |         |       |        |                   |  





|         |               |              |   |      |  |      |   |   |  |   |   |   | 
|-------- | ------------- | ------------ | - | ---- |  | ---- | - | - |  | - | - | - | 
|         |               | Year Ended  
|         |               | December 31,
|         |               |             
|         |               | 2004         |   | 2003 |  | 2002
|         |               |              |   |      |  |     
|Current: |               |              |   |      |  |      |   |   |  |   |   |  
|         | Federal       |              | $ |     |  |      | $ |  |  |   | $ |  | 
|         | State         |              |   |     |  |      |   |  |  |   |   |  | 
|         | Foreign taxes |              |   |     |  |      |   |  |  |   |   |  | 
|Deferred |               |              |  |      |  |      |  |   |  |   |  |  
|         |               |              |   |      |  |      |   |   | 
|         |               | $            |  |      |  | $    |  |   |  | $ |  |  
|         |               |              |   |      |  |      |   |   | 



(NOTE M)  Charge for Restructuring




F-32



---



##### 









(NOTE M)  Charge for Restructuring
(continued)










|                                |       |           |        |       |            |   |        |            |  |   |        |        |  |   |         |        | 
|------------------------------- | ----- | --------- | ------ | ----- | ---------- | - | ------ | ---------- |  | - | ------ | ------ |  | - | ------- | ------ | 
|                                |       | Severance |        |       | Former CEO |   |        |            |  |  
|                                |       | and       |        |       | Related    |   |        | Facilities |  |   |       
|                                |       | Benefits  |        |       | Charges    |   |        | Related    |  |   | Total  |       
|                                |       |           |        |       |            |   |        |            |  |   |        |       
|Balance as of January 1, 2004   |       | $         |       |       |            | $ |       |            |  | $ |       |        |  | $ |        |       
|Severance and benefits          |       |           | 2,500  |       |            |   |       |            |  |   |       |        |  |   | 2,500   |       
|Former CEO related charges      |       |           |       |       |            |   | 5,212  |            |  |   |       |        |  |   | 5,212   |       
|9410 Key West Avenue            |       |           |       |       |            |   |       |            |  |   | 4,000  |        |  |   | 4,000   |       
|9800 Medical Center Drive       |       |           |       |       |            |   |       |            |  |   | 20,296 |        |  |   | 20,296  |       
|                                |       |           |        |       |            |   |        |            |  |   |        |       
|                                | Total |           |        | 2,500 |            |   |        | 5,212      |  |   |        | 24,296 |  |   |         | 32,008 | 
|Cash paid                       |       |           | (2,479 | )     |            |   | (100   | )          |  |   | (1,516 | )      |  |   | (4,095  | )     
|Non-cash                        |       |           |       |       |            |   | (4,151 | )          |  |   | (9,294 | )      |  |   | (13,445 | )     
|                                |       |           |        |       |            |   |        |            |  |   |        |       
|Balance as of December 31, 2004 |       | $         | 21     |       |            | $ | 961    |            |  | $ | 13,486 |        |  | $ | 14,468  |       
|                                |       |           |        |       |            |   |        |            |  |   |        |       

F-33



---



##### 









(NOTE M)  Charge for Restructuring
(continued)








(NOTE N)  Net Loss Per Share




|                                                                                   |  |                         |             |   |      |   |             |      |  |   |             |  
|---------------------------------------------------------------------------------- |  | ----------------------- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                                                                   |  | Year Ended December 31, |            
|                                                                                   |  |                         |            
|                                                                                   |  | 2004                    |             |   | 2003 |   |             | 2002 | 
|                                                                                   |  |                         |             |   |      |   |             |      | 
|Numerator:                                                                         |  |                         |             |   |      |   |             |      |  |   |             |  
|Net loss                                                                           |  | $                       | (242,898    | ) |      | $ | (185,324    | )    |  | $ | (219,716    | )
|                                                                                   |  |                         |             |   |      |   |             |      | 
|Denominator:                                                                       |  |                         |             |   |      |   |             |      |  |   |             |  
|Denominator for basic and diluted earnings
    per share  weighted-average shares |  |                         | 130,041,071 |   |      |   | 129,112,670 |      |  |   | 128,591,153 |  
|                                                                                   |  |                         |             |   |      |   |             |      | 
|Net loss per share, basic and diluted:                                             |  |                         |             |   |      |   |             |      |  |   |             |  
|Net loss per share                                                                 |  | $                       | (1.87       | ) |      | $ | (1.44       | )    |  | $ | (1.71       | )
|                                                                                   |  |                         |             |   |      |   |             |      | 



F-34



---



##### 









(NOTE O)  Quarterly Financial Information
(unaudited)




|                                               |  |         |         |   |         |   |         |         |  |   |         |   |  |   |         |  
|---------------------------------------------- |  | ------- | ------- | - | ------- | - | ------- | ------- |  | - | ------- | - |  | - | ------- | -
|                                               |  | 1st     |         |   | 2nd     |   |         | 3rd     |  |   | 4th     |  
|                                               |  | Quarter |         |   | Quarter |   |         | Quarter |  |   | Quarter |  
|                                               |  |         |         |   |         |   |         |         |  |   |         |  
|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   | )
|                                              
|2003                                           |  |         |         |   |         |   |         |         |  |   |         |   |  |   |         |  
|Revenue                                        |  | $       | 1,642   |   |         | $ | 642     |         |  | $ | 1,242   |   |  | $ | 4,642   |  
|Income (loss) from operations                  |  |         | (54,316 | ) |         |   | (56,810 | )       |  |   | (57,895 | ) |  |   | (57,902 | )
|Net income (loss)                              |  |         | (41,315 | ) |         |   | (47,394 | )       |  |   | (47,688 | ) |  |   | (48,927 | )
|Net income (loss) per share, basic and diluted |  |         | (0.32   | ) |         |   | (0.37   | )       |  |   | (0.37   | ) |  |   | (0.38   | )







F-35