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United StatesSecurities and Exchange Commission
 Washington, D.C. 20549
 
 Form 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2008
 Commission file number 000-28401
 MAXYGEN, INC.
 (Exact name of registrant as specified in its charter)
 Delaware(State of incorporation)
    
    77-0449487(I.R.S. Employer Identification No.)
 515 Galveston Drive
Redwood City, California 94063  (Address of principal executive offices, including zip code)
 (650) 298-5300  (Registrants telephone number, including area code)
 
  þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ




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##### 



MAXYGEN, INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 2008
  Part I FINANCIAL INFORMATIONItem 1: Financial Statements:Condensed Consolidated Balance Sheets as of December 31, 2007
and June 30, 2008
    
    
    1Condensed Consolidated Statements of Operations for the three and six
month periods ended June 30, 2007 and 2008
    
    
    2Condensed Consolidated Statements of Cash Flows for the six month
periods ended June 30, 2007 and 2008
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3: Quantitative and Qualitative Disclosures About Market Risk
    
    
    23Item 4: Controls and Procedures
    
    
    23Part II OTHER INFORMATIONItem 1: Legal Proceedings
    
    
    25Item 1A: Risk Factors
    
    
    25Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    40Item 3: Defaults Upon Senior Securities
    
    
    40Item 4: Submission of Matters to a Vote of Security Holders
    
    
    41Item 5: Other Information
    
    
    41Item 6: Exhibits
    
    
    41SIGNATURES
    
    
    43EXHIBIT 2.1EXHIBIT 2.1.1EXHIBIT 2.1.2EXHIBIT 10.1EXHIBIT 10.2EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
    i




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® ®
 Forward Looking Statements
  
    
    our ability to develop products suitable for commercialization;
    
    our predicted development and commercial timelines for any of our potential products,
including the timing of any commencement of clinical trials of any product candidate and
the progress or status of any clinical trials or preclinical development;
    
    our liquidity and future financial performance;
    
    the establishment, development and maintenance of any manufacturing or collaborative
relationships;
    
    the effectiveness of our MolecularBreeding directed evolution platform and other
technologies and processes;
    
    our ability to protect our intellectual property portfolio and rights;
    
    our ability to identify and develop new potential products;
    
    the attributes of any products we may develop; and
    
    our business strategies and plans.
   ii




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PartI  Financial Information
 
 Item 1. Financial Statements
 MAXYGEN, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (in thousands, except share and per share data)
 December 31,
    
    
    June 30,2007
    
    
    2008(Note 1)
    
    
    (unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    77,130
    
    
    $
    80,291Short-term investments
    
    
    68,683
    
    
    
    42,063Related party receivable
    
    
    7,493
    
    
    
    Accounts receivable and other receivables
    
    
    1,383
    
    
    
    423Prepaid expenses and other current assets
    
    
    2,683
    
    
    
    1,590Total current assets
    
    
    157,372
    
    
    
    124,367Property and equipment, net
    
    
    3,060
    
    
    
    2,673Goodwill
    
    
    12,192
    
    
    
    Deposits and other long-term assets
    
    
    85
    
    
    
    85Total assets
    
    $
    172,709
    
    
    $
    127,125LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,871
    
    
    $
    3,278Accrued compensation
    
    
    6,880
    
    
    
    2,385Accrued restructuring charges
    
    
    4,413
    
    
    
    46Accrued project costs
    
    
    3,787
    
    
    
    3,903Other accrued liabilities
    
    
    1,250
    
    
    
    1,481Total current liabilities
    
    
    19,201
    
    
    
    11,093Other long-term liabilities
    
    
    14
    
    
    
    Commitments and contingenciesStockholders equity:Preferred stock, $0.0001 par value, 5,000,000 shares
authorized, no shares issued and outstanding at
December 31, 2007 and
June 30, 2008
    
    
    
    
    
    
    Common stock, $0.0001 par value: 100,000,000 shares
authorized, 36,926,566 and 37,124,404 shares issued and
outstanding at December 31, 2007 and June 30, 2008,
respectively
    
    
    4
    
    
    
    4Additional paid-in capital
    
    
    423,541
    
    
    
    428,034Accumulated other comprehensive loss
    
    
    (32
    )
    
    
    (162
    )Accumulated deficit
    
    
    (270,019
    )
    
    
    (311,844
    )Total stockholders equity
    
    
    153,494
    
    
    
    116,032Total liabilities and stockholders equity
    
    $
    172,709
    
    
    $
    127,125




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MAXYGEN, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except per share amounts)
 Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2007
    
    
    2008
    
    
    2007
    
    
    2008(unaudited)Collaborative research and development revenue
    
    $
    874
    
    
    $
    
    
    
    $
    8,471
    
    
    $
    Revenue from related party
    
    
    
    
    
    
    120
    
    
    
    556
    
    
    
    277Grant revenue
    
    
    1,207
    
    
    
    1,037
    
    
    
    2,146
    
    
    
    2,323Total revenues
    
    
    2,081
    
    
    
    1,157
    
    
    
    11,173
    
    
    
    2,600Operating expenses:Research and development
    
    
    16,343
    
    
    
    12,534
    
    
    
    30,943
    
    
    
    25,640General and administrative
    
    
    3,528
    
    
    
    5,031
    
    
    
    7,859
    
    
    
    8,544Goodwill impairment
    
    
    
    
    
    
    12,192
    
    
    
    
    
    
    
    12,192Restructuring charge
    
    
    
    
    
    
    266
    
    
    
    
    
    
    
    799Total operating expenses
    
    
    19,871
    
    
    
    30,023
    
    
    
    38,802
    
    
    
    47,175Loss from operations
    
    
    (17,790
    )
    
    
    (28,866
    )
    
    
    (27,629
    )
    
    
    (44,575
    )Interest income and other (expense), net
    
    
    2,118
    
    
    
    759
    
    
    
    4,292
    
    
    
    2,750Net loss
    
    $
    (15,672
    )
    
    $
    (28,107
    )
    
    $
    (23,337
    )
    
    $
    (41,825
    )Basic and diluted net loss per share
    
    $
    (0.43
    )
    
    $
    (0.76
    )
    
    $
    (0.64
    )
    
    $
    (1.13
    )Shares used in basic and diluted net loss per
share calculations
    
    
    36,791
    
    
    
    37,046
    
    
    
    36,688
    
    
    
    37,021
  2




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MAXYGEN, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 Six months endedJune 30,2007
    
    
    2008(unaudited)Operating activitiesNet loss
    
    $
    (23,337
    )
    
    $
    (41,825
    )Adjustments to reconcile net loss from continuing operations
to net cash used in operating activities:Depreciation
    
    
    847
    
    
    
    802Goodwill impairment
    
    
    
    
    
    
    12,192Non-cash stock compensation
    
    
    3,750
    
    
    
    3,877Changes in operating assets and liabilities:Related party receivable
    
    
    
    
    
    
    7,493Accounts receivable and other receivables
    
    
    3,511
    
    
    
    959Prepaid expenses and other current assets
    
    
    663
    
    
    
    1,094Accounts payable
    
    
    (403
    )
    
    
    407Accrued compensation
    
    
    (1,052
    )
    
    
    (4,495
    )Accrued restructuring charges
    
    
    
    
    
    
    (4,367
    )Accrued project costs
    
    
    3,199
    
    
    
    116Other accrued liabilities
    
    
    (646
    )
    
    
    217Taxes payable
    
    
    (140
    )
    
    
    Deferred revenue
    
    
    (5,593
    )
    
    
    Net cash used in operating activities
    
    
    (19,201
    )
    
    
    (23,530
    )Investing activitiesPurchases of available-for-sale securities
    
    
    (122,005
    )
    
    
    (30,390
    )Maturities of available-for-sale securities
    
    
    115,646
    
    
    
    56,880Acquisition of property and equipment
    
    
    (609
    )
    
    
    (415
    )Net cash provided by (used in) investing activities
    
    
    (6,968
    )
    
    
    26,075Financing activitiesProceeds from issuance of common stock
    
    
    4,743
    
    
    
    616Net cash provided by financing activities
    
    
    4,743
    
    
    
    616Effect of exchange rate changes on cash and cash equivalents
    
    
    (8
    )
    
    
    Net increase (decrease) in cash and cash equivalents
    
    
    (21,434
    )
    
    
    3,161Cash and cash equivalents at beginning of period
    
    
    46,504
    
    
    
    77,130Cash and cash equivalents at end of period
    
    $
    25,070
    
    
    $
    80,291
  3




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MAXYGEN, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 1. Basis of Presentation and Significant Accounting Policies
 Basis of Presentation
    Principles of Consolidation
  Reclassifications
  Accounting for Clinical Trial Costs
  
    
    start-up  initial setting up of the trial;
    
    enrollment of patients in the trial; and
    
    close down and reporting of the trial.
  4




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Restructuring Charge
  Revenue Recognition
   5




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Loss Per Share
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2007
    
    
    2008
    
    
    2007
    
    
    2008Net loss
    
    $
    (15,672
    )
    
    $
    (28,107
    )
    
    $
    (23,337
    )
    
    $
    (41,825
    )Basic and diluted:Weighted-average shares used in
computing basic and diluted net
loss per share
    
    
    36,791
    
    
    
    37,046
    
    
    
    36,688
    
    
    
    37,021Basic and diluted net loss per share
    
    $
    (0.43
    )
    
    $
    (0.76
    )
    
    $
    (0.64
    )
    
    $
    (1.13
    )
 6




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Comprehensive Loss
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2007
    
    
    2008
    
    
    2007
    
    
    2008Net loss
    
    $
    (15,672
    )
    
    $
    (28,107
    )
    
    $
    (23,337
    )
    
    $
    (41,825
    )Changes in unrealized gains(losses) on
securities available-for-sale
    
    
    29
    
    
    
    (299
    )
    
    
    88
    
    
    
    (130
    )Changes in foreign currency translation
adjustments
    
    
    (3
    )
    
    
    
    
    
    
    (8
    )
    
    
    Comprehensive loss
    
    $
    (15,646
    )
    
    $
    (28,406
    )
    
    $
    (23,257
    )
    
    $
    (41,955
    )
  December 31,
    
    
    June 30,2007
    
    
    2008Unrealized gain on available-for-sale securities
    
    $
    220
    
    
    $
    97Unrealized losses on available-for-sale securities
    
    
    
    
    
    
    (7
    )Foreign currency translation adjustments
    
    
    (252
    )
    
    
    (252
    )Accumulated other comprehensive loss
    
    $
    (32
    )
    
    $
    (162
    )
 Recent Accounting Pronouncements
    7




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Stock-Based Compensation
  Stock Options
   8




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Three months ended
    
    Three months endedJune 30, 2007
    
    June 30, 2008(1)U.S.
    
    Danish
    
    U.S.
    
    DanishEmployees
    
    Employees
    
    Employees
    
    EmployeesExpected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    Risk-free interest rate rangeOptions
    
    
    4.76
    %
    
    
    4.97
    %
    
    
    2.85
    %
    
    
    Risk-free interest rate rangeESPP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expected lifeOptions
    
    5.70 years
    
    2.40 years
    
    5.72 years
    
    
    Expected lifeESPP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expected volatilityOptions
    
    
    51.30
    %
    
    
    44.88
    %
    
    
    51.86
    %
    
    
    Expected volatilityESPP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 Six months ended
    
    Six months endedJune 30, 2007
    
    June 30, 2008(1)U.S.
    
    Danish
    
    U.S.
    
    DanishEmployees
    
    Employees
    
    Employees
    
    EmployeesExpected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    Risk-free interest rate rangeOptions
    
    4.64% to 4.76%
    
    4.76% to 4.97%
    
    2.75% to 2.85%
    
    
    Risk-free interest rate rangeESPP
    
    4.74% to 5.09%
    
    
    
    
    
    2.13% to 4.98%
    
    
    Expected lifeOptions
    
    5.70 years
    
    2.40 years
    
    5.72 years
    
    
    Expected lifeESPP
    
    0.94 years
    
    
    
    
    
    0.08 to 1.0 years
    
    
    Expected volatilityOptions
    
    51.30% to 52.96%
    
    44.88% to 45.28%
    
    50.61% to 51.86%
    
    
    Expected volatilityESPP
    
    
    48.31
    %
    
    
    
    
    
    
    65.66
    %
    
    
    
 
 (1)
    
    As the result of cessation of research and development operations at Maxygen ApS, no options
were granted to Danish employees during the three and six months ended June 30, 2008.  Restricted Stock Units
  9




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Valuation and Expense Information under SFAS 123(R)
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2007
    
    
    2008
    
    
    2007
    
    
    2008Research and development
    
    $
    816
    
    
    $
    1,101
    
    
    $
    1,434
    
    
    $
    1,689General and administrative
    
    
    898
    
    
    
    1,279
    
    
    
    2,133
    
    
    
    1,922Stock-based compensation expense
before income taxes
    
    
    1,714
    
    
    
    2,380
    
    
    
    3,567
    
    
    
    3,611Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total stock-based compensation
expense after income taxes
    
    $
    1,714
    
    
    $
    2,380
    
    
    $
    3,567
    
    
    $
    3,611
  2. Cash Equivalents and Investments
   Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Estimated FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueMoney market funds
    
    $
    79,038
    
    
    $
    
    
    
    $
    
    
    
    $
    79,038Commercial paper
    
    
    28,143
    
    
    
    95
    
    
    
    
    
    
    
    28,238Corporate bonds
    
    
    3,330
    
    
    
    2
    
    
    
    
    
    
    
    3,332U.S. government agency securities
    
    
    11,753
    
    
    
    
    
    
    
    (7
    )
    
    
    11,746Total
    
    
    122,264
    
    
    
    97
    
    
    
    (7
    )
    
    
    122,354Less amounts classified as cash
equivalents
    
    
    (80,291
    )
    
    
    
    
    
    
    
    
    
    
    (80,291
    )Total investments
    
    $
    41,973
    
    
    $
    97
    
    
    $
    (7
    )
    
    $
    42,063
 10




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Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Estimated FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueMoney market funds
    
    $
    77,130
    
    
    $
    
    
    
    $
    
    
    
    $
    77,130Commercial paper
    
    
    43,704
    
    
    
    211
    
    
    
    
    
    
    
    43,915Corporate bonds
    
    
    13,569
    
    
    
    5
    
    
    
    
    
    
    
    13,574U.S. government agency securities
    
    
    11,190
    
    
    
    4
    
    
    
    
    
    
    
    11,194Total
    
    
    145,593
    
    
    
    220
    
    
    
    
    
    
    
    145,813Less amounts classified as cash
equivalents
    
    
    (77,130
    )
    
    
    
    
    
    
    
    
    
    
    (77,130
    )Total investments
    
    $
    68,463
    
    
    $
    220
    
    
    $
    
    
    
    $
    68,683
   Amortized
    
    
    EstimatedCost
    
    
    Fair ValueDue within one year
    
    $
    41,973
    
    
    $
    42,063Due after one year through two years
    
    
    
    
    
    
    $
    41,973
    
    
    $
    42,063
 3. Litigation
 In re Initial Public Offering
Securities Litigation
 ,
 11




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4. Commitments
   For the remainder of 2008
    
    $
    4,296
 Year endingDecember 31,2009
    
    $
    3,2472010
    
    
    375Thereafter
    
    
    Total commitments beyond current year
    
    $
    3,622
   12




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5.  Guarantees and Indemnifications
    6. Related Party Transactions
   13




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7. Fair Value
        Estimated FairValue
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Money market funds
    
    $
    79,038
    
    
    $
    79,038
    
    
    $
    
    
    
    $
    Commercial paper
    
    
    28,238
    
    
    
    
    
    
    
    28,238
    
    
    
    Corporate bonds
    
    
    3,332
    
    
    
    
    
    
    
    3,332
    
    
    
    U.S. government agency securities
    
    
    11,746
    
    
    
    
    
    
    
    11,746
    
    
    
    Total
    
    $
    122,354
    
    
    $
    79,038
    
    
    $
    43,316
    
    
    $
    
 14




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8. Restructuring Charges
    Charges
    
    
    
    
    
    
    
    
    
    
    As of June 30, 2008Balance at
    
    
    during the six
    
    
    
    
    
    
    Balance at
    
    
    
    
    
    
    TotalDecember
    
    
    months ended
    
    
    Cash
    
    
    June 30,
    
    
    Total Costs to
    
    
    Expected31, 2007
    
    
    June 30, 2008
    
    
    payments
    
    
    2008
    
    
    Date
    
    
    CostsEmployee severance
and other benefits
charges
    
    $
    4,413
    
    
    $
    74
    
    
    $
    (4,487
    )
    
    $
    
    
    
    $
    5,286
    
    
    $
    5,286Contract
termination and
other associated
costs
    
    
    
    
    
    
    725
    
    
    
    (679
    )
    
    
    46
    
    
    
    725
    
    
    
    725$
    4,413
    
    
    $
    799
    
    
    $
    (5,166
    )
    
    $
    46
    
    
    $
    6,011
    
    
    $
    6,011
 9. Derivatives and Financial Instruments
   15




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10. Goodwill
  11. Subsequent Event
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Executive Summary
     16




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17




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Critical Accounting Policies and Estimates
  Results of Operations
 Revenues
      Research and Development Expenses
  18




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Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2007
    
    
    2008
    
    
    2007
    
    
    2008Collaborative projects funded by third parties(1)
    
    $
    214
    
    
    $
    
    
    
    $
    2,451
    
    
    $
    Government grants
    
    
    1,329
    
    
    
    1,255
    
    
    
    2,261
    
    
    
    2,432Internal projects
    
    
    14,800
    
    
    
    11,279
    
    
    
    26,231
    
    
    
    23,208Total
    
    $
    16,343
    
    
    $
    12,534
    
    
    $
    30,943
    
    
    $
    25,640
 
 (1)
    
    Research and development expenses related to collaborative projects funded by third parties
may be less than the reported revenues due to the amortization of non-refundable upfront payments,
as well as a portion of the collaborative research and development revenue that is charged for
general and administrative expenses.  19




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General and Administrative Expenses
   Goodwill Impairment
  20




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Restructuring Charge
  Interest Income and Other Income (Expense), Net
   Recent Accounting Pronouncements
     21




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Liquidity and Capital Resources
      22




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Payments Due by PeriodLess
    
    
    
    
    
    
    
    
    
    
    Morethan 1
    
    
    1-3
    
    
    4-5
    
    
    than 5Contractual Obligations
    
    Total
    
    
    Year
    
    
    Years
    
    
    Years
    
    
    YearsOperating lease obligations
    
    $
    796
    
    
    $
    597
    
    
    $
    199
    
    
    $
    
    
    
    $
    Purchase obligations
    
    
    7,122
    
    
    
    3,699
    
    
    
    3,423
    
    
    
    
    
    
    
    Total
    
    $
    7,918
    
    
    $
    4,296
    
    
    $
    3,622
    
    
    $
    
    
    
    $
    
    
 Item 3. Quantitative And Qualitative Disclosures About Market Risk
 Market Risk Management
  
 Item 4. Controls and Procedures
 Evaluation of Controls and Procedures
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Changes in Internal Control
  Limitations on the Effectiveness of Controls
  24




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Part II  Other Information
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 A restated description of the risk factors associated with our business is set forth below.
This description includes all material changes to and supersedes the description of the risk
factors associated with our business previously disclosed in Part I, Item 1A of our Annual Report
on Form 10-K for the year ended December 31, 2007. You should carefully consider the risks
described below, together with all of the other information included in this report, in considering
our business and prospects. The risks and uncertainties described below are not the only ones
facing our company. Additional risks and uncertainties not presently known to us or that we
currently deem immaterial also may impair our business operations. If any of the following risks
actually occur, our business could be harmed. In such case, the trading price of our common stock
could decline, and you may lose all or part of your investment.
 We have a history of net losses. We expect to continue to incur net losses and may not achieve
or maintain profitability.
  We are an early stage company deploying unproven technologies. If we do not develop
commercially successful products, we may be forced to cease operations.
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The prospects of our current product candidates are highly uncertain. In particular, ongoing
clinical trials of our MAXY-G34 product candidate may produce negative or inconclusive results, and
we may decide, or regulators may require us, to conduct additional clinical and/or preclinical
testing for this product candidate or cease our trials, which could adversely affect our business
and cause a significant drop in our stock price.
   Litigation or other proceedings or third party claims of intellectual property infringement
relating to our MAXY-G34 product candidate may delay or materially impact our ability to
commercialize MAXY-G34.
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Drug development is a long, expensive and uncertain process and may not result in the
development of any commercially successful products.
    The development of our product candidates, which is based on modifications to natural human
proteins, may be subject to substantial delays, increased development costs, reduced market
potential for any resulting product or the termination of the affected development program by us or
a collaborator, each of which could adversely affect our business.
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Our clinical development strategy, which relies on third party contract research
organizations, exposes us to additional risk.
  Our revenues, expenses and operating results are subject to fluctuations that may cause our
stock price to decline.
  
    
    the termination of research and development contracts with collaborators or
government research grants, which may not be renewed or replaced;
    
    the success rate of our development or discovery efforts leading to milestones and
royalties under future collaboration arrangements, if any;
    
    the timing of licensing fees or the achievement of milestones under new or existing
licensing and collaborative arrangements;
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
    
    the timing of expenses, particularly with respect to contract manufacturing,
preclinical studies and clinical trials;
    
    the timing and willingness of any future collaborators to commercialize our
products, which would result in royalties to us; and
    
    general and industry specific economic conditions, which may affect the research
and development expenditures of any future collaborator.
   Our current and future product candidates could take a long time to complete clinical
development, may fail in clinical development, or may never gain approval, which could reduce or
eliminate our revenue by delaying or terminating the potential commercialization of our product
candidates.
     
    
    deficiencies in the conduct of the clinical trials;
    
    negative or inconclusive results from the clinical trials that necessitate
additional clinical studies;
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
    
    difficulties or delays in identifying and enrolling patients who meet trial
eligibility criteria;
    
    delays in obtaining or maintaining required approvals from institutions, review
boards or other reviewing entities at clinical sites;
    
    inadequate supply or deficient quality of product candidate materials necessary for
the conduct of the clinical trials;
    
    the occurrence of unacceptable toxicities or properties or unforeseen adverse
events, especially as compared to currently approved drugs intended to treat the same
indications;
    
    our lack of financial resources to continue the development of a product candidate;
    
    future legislation or administrative action or changes in FDA policy or the policy
of foreign regulatory agencies during the period of product development, clinical
trials and FDA regulatory review; or
    
    other reasons that are internal to the business of a collaborative partner, which
it may not share with us.
  Our potential products are subject to a lengthy and uncertain regulatory process and may never
gain approval. If our potential products are not approved, we will not be able to commercialize
those products.
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
    
    a drug candidate may not be safe or effective;
    
    regulatory officials may not find the data from preclinical testing and clinical
trials sufficient;
    
    the FDA and other regulatory agencies might not approve our third-party
manufacturers processes or facilities; or
    
    the FDA or other regulatory agencies may change its approval policies or adopt new
regulations.
   Our manufacturing strategy, which relies on third-party manufacturers, exposes us to
additional risks.
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The manufacturing of our product candidates presents technological, logistical and regulatory
risks, each of which may adversely affect our potential revenues.
  
    
    before we can obtain approval of any of our product candidates for the treatment of
a particular disease or condition, we must demonstrate to the satisfaction of the FDA
and other governmental authorities that the drug manufactured for commercial use is
comparable to the drug manufactured for clinical trials and that the manufacturing
facility complies with applicable laws and regulations;
    
    it may not be technically feasible to scale up an existing manufacturing process to
meet demand or such scale-up may take longer than anticipated; and
    
    failure to comply with strictly enforced GMP regulations and similar foreign
standards may result in delays in product approval or withdrawal of an approved
product from the market.
  We may need additional capital in the future. If additional capital is not available, we may
have to curtail or cease operations.
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If we are unable to enter into or maintain future collaboration arrangements for any of our
product candidates, we may not be able to effectively develop and market some of our products.
    Any conflicts with a collaborator could harm our business.
   Any inability to adequately protect our proprietary technologies could harm our competitive
position.
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Litigation or other proceedings or third party claims of intellectual property infringement
could require us to spend time and money and could require us to shut down some of our operations.
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Budget or cash constraints may force us to delay or terminate our efforts to develop certain
products and could prevent us from executing our business plan, meeting our stated timetables and
commercializing our potential products as quickly as possible.
   Our revenues are primarily derived from government grants and license agreements, and our
inability to maintain these grants and agreements or establish and maintain new collaborations,
license agreements or grants would adversely impact our revenues, financial position and results of
operation.
  Other biological products may compete with our products.
  ® ®
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®
   Many potential competitors who have greater resources and experience than we do may develop
products and technologies that make ours obsolete.
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Legislative actions, new accounting pronouncements and higher compliance costs may adversely
impact our future financial position and results of operations.
   If we do not attract and retain key employees, our business could be impaired.
  The operation of international locations may increase operating expenses and divert management
attention.
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Acquisitions could result in dilution, operating difficulties and other harmful consequences.
  
    
    diversion of management time (both ours and that of the acquired company) from
focus on operating the businesses to issues of integration during the period of
negotiation through closing and further diversion of such time after closing;
    
    decline in employee morale and retention issues resulting from changes in
compensation, reporting relationships, future prospects, or the direction of the
business;
    
    the need to integrate each companys accounting, management information, human
resource and other administrative systems to permit effective management and the lack
of control if such integration is delayed or not implemented; and
    
    the need to implement controls, procedures and policies appropriate for a larger
public company in companies that before acquisition had been smaller, private
companies.
   Our stock price has been, and may continue to be, extremely volatile, and an investment in our
stock could decline in value.
  
    
    our failure to meet our publicly announced revenue and/or expense projections
and/or product development timetables;
    
    adverse or inconclusive results or delays in preclinical development or clinical
trials;
    
    any entry into or material amendment or termination of a collaborative or license
agreement;
    
    any decisions to discontinue or delay development programs or clinical trials;
    
    announcements of new technological innovations or new products by us or our
competitors;
    
    conditions or trends in the biotechnology and life science industries;
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
    
    changes in the market valuations of other biotechnology or life science companies;
    
    developments in domestic and international governmental policy or regulations;
    
    announcements by us or our competitors of significant acquisitions, strategic
partnerships, joint ventures or capital commitments;
    
    changes in general economic, political and market conditions, such as recessions,
interest rate changes, terrorist acts and other factors;
    
    developments in or challenges relating to our patent or other proprietary rights,
including lawsuits or proceedings alleging patent infringement based on the
development, manufacturing or commercialization of our product candidates; and
    
    sales of our common stock or other securities in the open market.
  Substantial sales of shares may adversely impact the market price of our common stock.
  If we or a collaborator receives regulatory approval for one of our drug candidates, we will
be subject to ongoing FDA obligations and continued regulatory review, and we may also be subject
to additional FDA post-marketing obligations, all of which may result in significant expense and
limit our ability to commercialize our potential drugs.
  We may be subject to costly product liability claims and may not have adequate insurance.
  We currently have no product marketing capabilities.
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The coverage and reimbursement status of newly approved drugs is uncertain and failure to
obtain adequate coverage and reimbursement could limit our ability to market any drugs we may
develop and decrease our ability to generate revenue.
  Some of our existing stockholders can exert control over us, and may not make decisions that
are in the best interests of all stockholders.
  Our facilities in California are located near an earthquake fault, and an earthquake or other
types of natural disasters or resource shortages could disrupt our operations and adversely affect
our results.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
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Item 4. Submission of Matters to a Vote of Security Holders
  (a)
    
    The stockholders reelected the seven nominees for our board of directors:
 Shares Voted For
    
    
    SharesCandidate
    
    Candidate
    
    
    WithheldM.R.C. Greenwood
    
    
    29,991,011
    
    
    
    706,758Russell J. Howard
    
    
    30,329,559
    
    
    
    368,210Louis G. Lange
    
    
    26,971,731
    
    
    
    3,726,038Ernest Mario
    
    
    26,972,408
    
    
    
    3,725,361Gordon Ringold
    
    
    29,909,251
    
    
    
    788,518Isaac Stein
    
    
    29,908,451
    
    
    
    789,318James R. Sulat
    
    
    29,985,961
    
    
    
    711,808
 (b)
    
    The stockholders ratified the selection of Ernst & Young LLP as our independent registered
public accounting firm for the fiscal year ending December 31, 2008:
 Shares voted for
    
    
    30,564,529Shares voted against
    
    
    97,436Shares abstaining
    
    
    35,804Broker non-votes
    
    
    0
 
 Item 5. Other Information
  
 Exhibits
  2.1
    
    Technology Transfer Agreement, dated as of July 1, 2008, by and among
Maxygen, Inc., Maxygen Holdings Ltd., Maxygen ApS and Bayer HealthCare LLC.2.1.1
    
    Intellectual Property Cross License Agreement, dated as of July 1, 2008, by and
among Maxygen, Inc., Maxygen Holdings Ltd., Maxygen ApS and Bayer HealthCare LLC.2.1.2
    
    License Agreement, dated as of July 1, 2008, by and between Maxygen, Inc. and Bayer
HealthCare LLC.10.1*
    
    Form of Amended and Restated Change of Control Agreement for Executive
Officers10.2*
    
    Letter Agreement, dated May 12, 2008, regarding amendment to Consulting
Agreement, dated April 1, 2006, between Maxygen, Inc. and Waverley Associates, Inc.31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
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31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Management contract or compensatory plan or arrangement.
    
    Confidential treatment has been  requested with respect to portions of the
exhibit. A complete copy of the agreement, including the redacted terms, has been separately
filed with the Securities and Exchange Commission. 42




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Signatures
  MAXYGEN, INC.August 5, 2008
    By:
    /s/ Russell J. HowardRussell J. HowardChief Executive OfficerAugust 5, 2008
    By:
    /s/ Lawrence W. BriscoeLawrence W. BriscoeChief Financial Officer 43