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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q





(Mark One)

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

For the quarterly period ending September 30, 2008



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from                  to

Commission File Number: 000-29101





SEQUENOM, INC.

(Exact name of
registrant as specified in its charter)







|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|DELAWARE                                                       |  | 77-0365889                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)
|                                                               | 
|3595 John Hopkins Court San Diego, California                  |  | 92121                                  
|(Address of principal executive offices)                       |  | (Zip Code)                             

Registrants telephone number, including area code: (858) 202-9000





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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (check one):



|                          |  |                     |  |                                                                      |  |                                  
|------------------------- |  | ------------------- |  | -------------------------------------------------------------------- |  | ---------------------------------
|Large accelerated filer  ̈ |  | Accelerated filer x |  | Non-accelerated filer  ̈ (Do not check if a smaller reportingcompany) |  | Smaller reporting company filer  ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes  ̈ No x

The number of shares of the Registrants
Common Stock outstanding as of October 20, 2008, was 60,675,573.









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SEQUENOM, INC.

INDEX



|                               |  |                                                                                                                             |  |         
|------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------- |  | --------
|                               |  |                                                                                                                             |  | Page No.
|PART I  FINANCIAL INFORMATION |  |                                                                                                                            
|Item 1.                        |  | Financial Statements                                                                                                        |  | 3       
|                               |  |                                                                                                                            
|                               |  | Condensed Consolidated Balance Sheets  as of September 30, 2008 (unaudited) and December 31, 2007                          |  | 3       
|                               |  |                                                                                                                            
|                               |  | Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2008 and 2007 (unaudited) |  | 4       
|                               |  |                                                                                                                            
|                               |  | Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2008 and 2007 (unaudited)           |  | 5       
|                               |  |                                                                                                                            
|                               |  | Notes to Unaudited Condensed Consolidated Financial Statements                                                              |  | 6       
|                               |  |                                                                                                                            
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                       |  | 15      
|                               |  |                                                                                                                            
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                                                                  |  | 21      
|                               |  |                                                                                                                            
|Item 4.                        |  | Controls and Procedures                                                                                                     |  | 23      
|                               | 
|PART II  OTHER INFORMATION    |  |                                                                                                                            
|                               |  |                                                                                                                            
|Item 1.                        |  | Legal Proceedings                                                                                                           |  | 23      
|                               |  |                                                                                                                            
|Item 1A.                       |  | Risk Factors                                                                                                                |  | 24      
|                               |  |                                                                                                                            
|Item 6.                        |  | Exhibits                                                                                                                    |  | 38      



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PART IFINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

SEQUENOM, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value and share information)



|                                                                                                                                                                                 |  |                   |          |   |                  |   |          |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | -------- | - | ---------------- | - | -------- | -
|                                                                                                                                                                                 |  | September 30,2008 |          |   | December 31,2007 |  
|                                                                                                                                                                                 |  | (Unaudited)       |          |   |                  |  
|Assets                                                                                                                                                                           |  |                   |          |   |                  |   |          |  
|Current assets:                                                                                                                                                                  |  |                   |          |   |                  |   |          |  
|Cash and cash equivalents                                                                                                                                                        |  | $                 | 112,776  |   |                  | $ | 13,116   |  
|Marketable securities                                                                                                                                                            |  |                   |         |   |                  |   | 37,704   |  
|Restricted cash                                                                                                                                                                  |  |                   | 1,330    |   |                  |   | 1,330    |  
|Accounts receivable, net                                                                                                                                                         |  |                   | 8,690    |   |                  |   | 10,957   |  
|Inventories, net                                                                                                                                                                 |  |                   | 8,656    |   |                  |   | 4,191    |  
|Other current assets and prepaid expenses                                                                                                                                        |  |                   | 1,906    |   |                  |   | 1,094    |  
|                                                                                                                                                                                 |  |                   |          |   |                  |   |          |  
|Total current assets                                                                                                                                                             |  |                   | 133,358  |   |                  |   | 68,392   |  
|Equipment and leasehold improvements, net                                                                                                                                        |  |                   | 6,706    |   |                  |   | 5,959    |  
|Marketable securities, less current                                                                                                                                              |  |                   | 6,628    |   |                  |   | 929      |  
|Other long-term assets                                                                                                                                                           |  |                   | 713      |   |                  |   | 766      |  
|                                                                                                                                                                                 |  |                   |          |   |                  |   |          |  
|Total assets                                                                                                                                                                     |  | $                 | 147,405  |   |                  | $ | 76,046   |  
|                                                                                                                                                                                 |  |                   |          |   |                  |   |          |  
|                                                                                                                                                                                 |  |                  
|Liabilities and stockholders equity                                                                                                                                             |  |                   |          |   |                  |   |          |  
|Current liabilities:                                                                                                                                                             |  |                   |          |   |                  |   |          |  
|Accounts payable                                                                                                                                                                 |  | $                 | 6,965    |   |                  | $ | 8,408    |  
|Accrued expenses                                                                                                                                                                 |  |                   | 7,194    |   |                  |   | 5,669    |  
|Accrued acquisition and integration costs                                                                                                                                        |  |                   | 237      |   |                  |   | 237      |  
|Deferred revenue                                                                                                                                                                 |  |                   | 1,421    |   |                  |   | 873      |  
|Current portion asset-backed loan                                                                                                                                                |  |                   | 623      |   |                  |   | 424      |  
|Other current liabilities                                                                                                                                                        |  |                   | 621      |   |                  |   | 91       |  
|                                                                                                                                                                                 |  |                   |          |   |                  |   |          |  
|Total current liabilities                                                                                                                                                        |  |                   | 17,061   |   |                  |   | 15,702   |  
|Deferred revenue, less current portion                                                                                                                                           |  |                   | 415      |   |                  |   | 335      |  
|Other long-term liabilities                                                                                                                                                      |  |                   | 4,128    |   |                  |   | 4,437    |  
|Long-term portion asset-backed loan                                                                                                                                              |  |                   | 828      |   |                  |   | 823      |  
|Long-term accrued acquisition and integration costs, less current portion                                                                                                        |  |                   | 306      |   |                  |   | 484      |  
|Commitments and contingencies                                                                                                                                                    |  |                   |          |   |                  |   |          |  
|Stockholders equity:                                                                                                                                                            |  |                   |          |   |                  |   |          |  
|Convertible preferred stock, par value $0.001; 5,000,000 shares authorized, no shares issued or outstanding at September 30, 2008 and
December 31, 2007, respectively            |  |                   |         |   |                  |   |         |  
|Common stock, par value $0.001; 185,000,000 shares authorized, 60,670,761 and 44,888,656 shares issued and outstanding at September 30,
2008 and December 31, 2007, respectively |  |                   | 61       |   |                  |   | 44       |  
|Additional paid-in capital                                                                                                                                                       |  |                   | 634,909  |   |                  |   | 536,022  |  
|Accumulated other comprehensive income                                                                                                                                           |  |                   | 558      |   |                  |   | 319      |  
|Accumulated deficit                                                                                                                                                              |  |                   | (510,861 | ) |                  |   | (482,120 | )
|                                                                                                                                                                                 |  |                   |          |   |                  |   |          |  
|Total stockholders equity                                                                                                                                                       |  |                   | 124,667  |   |                  |   | 54,265   |  
|                                                                                                                                                                                 |  |                   |          |   |                  |   |          |  
|Total liabilities and stockholders equity                                                                                                                                       |  | $                 | 147,405  |   |                  | $ | 76,046   |  
|                                                                                                                                                                                 |  |                   |          |   |                  |   |          |  

See accompanying notes.



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SEQUENOM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share
information)



|                                                       |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |         |  
|------------------------------------------------------ |  | ------------------------------- | ------- | - | ------------------------------ | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                       |  | Three months endedSeptember 30, |         |   | Nine months endedSeptember 30, |  
|                                                       |  | 2008                            |         |   | 2007                           |   |        | 2008 |  |   | 2007    |  
|                                                       |  | (Unaudited)                     |         |   | (Unaudited)                    |  
|Product revenues:                                      |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Consumables                                            |  | $                               | 4,958   |   |                                | $ | 4,033  |      |  | $ | 14,558  |   |  | $ | 11,951  |  
|System related                                         |  |                                 | 5,710   |   |                                |   | 4,926  |      |  |   | 16,911  |   |  |   | 15,321  |  
|Services                                               |  |                                 | 902     |   |                                |   | 885    |      |  |   | 3,450   |   |  |   | 2,599   |  
|Research and other                                     |  |                                 |        |   |                                |   |       |      |  |   | 71      |   |  |   | 18      |  
|                                                       |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Total revenues                                         |  |                                 | 11,570  |   |                                |   | 9,844  |      |  |   | 34,990  |   |  |   | 29,889  |  
|                                                       |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Costs and expenses:                                    |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Cost of product revenue                                |  |                                 | 3,492   |   |                                |   | 3,388  |      |  |   | 11,314  |   |  |   | 10,486  |  
|Cost of service revenue                                |  |                                 | 1,036   |   |                                |   | 1,085  |      |  |   | 3,348   |   |  |   | 2,567   |  
|Research and development                               |  |                                 | 7,083   |   |                                |   | 2,758  |      |  |   | 18,381  |   |  |   | 9,889   |  
|Selling and marketing                                  |  |                                 | 5,860   |   |                                |   | 4,585  |      |  |   | 17,999  |   |  |   | 11,941  |  
|General and administrative                             |  |                                 | 4,843   |   |                                |   | 3,858  |      |  |   | 12,464  |   |  |   | 10,133  |  
|                                                       |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Total costs and expenses                               |  |                                 | 22,314  |   |                                |   | 15,674 |      |  |   | 63,506  |   |  |   | 45,016  |  
|                                                       |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Loss from operations                                   |  |                                 | (10,744 | ) |                                |   | (5,830 | )    |  |   | (28,516 | ) |  |   | (15,127 | )
|Interest income, net                                   |  |                                 | 505     |   |                                |   | 402    |      |  |   | 1,151   |   |  |   | 1,142   |  
|Loss on marketable securities                          |  |                                 | (100    | ) |                                |   |       |      |  |   | (1,171  | ) |  |   |        |  
|Other (expense) income, net                            |  |                                 | (29     | ) |                                |   | (63    | )    |  |   | (131    | ) |  |   | (79     | )
|                                                       |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Loss before income taxes                               |  |                                 | (10,368 | ) |                                |   | (5,491 | )    |  |   | (28,667 | ) |  |   | (14,064 | )
|Income tax expense                                     |  |                                 | (3      | ) |                                |   | (2     | )    |  |   | (74     | ) |  |   | (6      | )
|                                                       |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Net loss                                               |  | $                               | (10,371 | ) |                                | $ | (5,493 | )    |  | $ | (28,741 | ) |  | $ | (14,070 | )
|                                                       |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Net loss per share, basic and diluted                  |  | $                               | (0.18   | ) |                                | $ | (0.14  | )    |  | $ | (0.57   | ) |  | $ | (0.38   | )
|                                                       |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Weighted average shares outstanding, basic and diluted |  |                                 | 59,115  |   |                                |   | 40,262 |      |  |   | 50,562  |   |  |   | 37,264  |  
|                                                       |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |         |  

See accompanying notes.



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SEQUENOM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                            |  |                                |         |   |      |   |         |  
|--------------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                                                            |  | Nine months endedSeptember 30, |        
|                                                                            |  | 2008                           |         |   | 2007 |  
|                                                                            |  | (Unaudited)                    |        
|Operating activities                                                        |  |                                |         |   |      |   |         |  
|Net loss                                                                    |  | $                              | (28,741 | ) |      | $ | (14,070 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                                |         |   |      |   |         |  
|Share-based compensation expense                                            |  |                                | 5,018   |   |      |   | 1,994   |  
|Depreciation and amortization                                               |  |                                | 1,764   |   |      |   | 1,406   |  
|Loss on marketable securities                                               |  |                                | 1,171   |   |      |   |        |  
|Deferred rent                                                               |  |                                | (308    | ) |      |   | 1,734   |  
|Bad debt expense                                                            |  |                                | 221     |   |      |   | 139     |  
|Restricted stock                                                            |  |                                | 161     |   |      |   |        |  
|Other non-cash items                                                        |  |                                | 5       |   |      |   | 336     |  
|Changes in operating assets and liabilities:                                |  |                                |         |   |      |   |         |  
|Accounts receivable, net                                                    |  |                                | 2,028   |   |      |   | (3,411  | )
|Inventories, net                                                            |  |                                | (4,478  | ) |      |   | (191    | )
|Other current assets and prepaid expenses                                   |  |                                | (836    | ) |      |   | (1,361  | )
|Accounts payable and accrued expenses                                       |  |                                | 187     |   |      |   | 879     |  
|Deferred revenue                                                            |  |                                | 651     |   |      |   | (629    | )
|Other liabilities                                                           |  |                                | 561     |   |      |   | 385     |  
|                                                                            |  |                                |         |   |      |   |         |  
|Net cash used in operating activities                                       |  |                                | (22,596 | ) |      |   | (12,789 | )
|Investing activities                                                        |  |                                |         |   |      |   |         |  
|Purchases of equipment and leasehold improvements                           |  |                                | (2,442  | ) |      |   | (2,760  | )
|Purchases of marketable securities                                          |  |                                | (14,821 | ) |      |   | (40,500 | )
|Sales of marketable securities                                              |  |                                | 24,217  |   |      |   | 36,504  |  
|Maturities of marketable securities                                         |  |                                | 21,683  |   |      |   | 2,255   |  
|Net change in restricted cash                                               |  |                                | (42     | ) |      |   | 18      |  
|                                                                            |  |                                |         |   |      |   |         |  
|Net cash provided by (used in) investing activities                         |  |                                | 28,595  |   |      |   | (4,483  | )
|Financing activities                                                        |  |                                |         |   |      |   |         |  
|Proceeds from exercise of stock options and ESPP purchases                  |  |                                | 1,532   |   |      |   | 329     |  
|Proceeds from issuance of common stock and warrants                         |  |                                | 91,928  |   |      |   | 18,539  |  
|Borrowings from asset-backed loan                                           |  |                                | 610     |   |      |   | 692     |  
|Repayments on asset-backed loan                                             |  |                                | (406    | ) |      |   | (19     | )
|                                                                            |  |                                |         |   |      |   |         |  
|Net cash provided by financing activities                                   |  |                                | 93,664  |   |      |   | 19,541  |  
|                                                                            |  |                                |         |   |      |   |         |  
|Net increase in cash and cash equivalents                                   |  |                                | 99,663  |   |      |   | 2,269   |  
|Effect of exchange rate changes on cash and cash equivalents                |  |                                | (3      | ) |      |   | 139     |  
|Cash and cash equivalents at beginning of period                            |  |                                | 13,116  |   |      |   | 1,932   |  
|                                                                            |  |                                |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                  |  | $                              | 112,776 |   |      | $ | 4,340   |  
|                                                                            |  |                                |         |   |      |   |         |  

See accompanying notes.



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SEQUENOM, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



|(1) | Basis of Presentation
|--- | ---------------------

The accompanying unaudited condensed consolidated
financial statements of Sequenom, Inc. have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation have been included. Interim
results are not necessarily indicative of results for a full year. Certain reclassifications have been made to the prior period amounts in order to conform to the current presentation.

The condensed consolidated balance sheet at December 31, 2007 has been derived from the audited financial statements at that date, but does not include all of the information and disclosures required by GAAP for
complete financial statements.

These financial statements should be read in conjunction with the audited financial statements and disclosures included in
our Annual Report on Form 10-K for the year ended December 31, 2007, as filed with the Securities and Exchange Commission (SEC) on March 17, 2008.

Use of Estimates

The preparation of financial statements in accordance 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 at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. We regularly evaluate
estimates and assumptions related to inventory valuation and warranty liabilities, which affect cost of sales and gross margin; the allowance for doubtful accounts, which affects revenue recognition; our discounted cash flow analysis valuation
model, which affects the valuation of our auction rate securities (ARS); and the valuation of deferred income taxes, which affects income tax expense and benefit. We base our estimates and assumptions on historical experience and on various other
factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management considers
many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this
process. In addition, other factors may affect estimates, including: expected business and operational change, sensitivity and volatility associated with the assumptions used in developing estimates and whether historical trends are expected to be
representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. The actual
results experienced by us may differ materially and adversely from managements estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Recent Accounting Pronouncements

On May 5, 2008, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS No. 162). SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting the principles to be used in the preparation of financial statements that are presented in conformity with generally accepted accounting principles in the U.S. The adoption of SFAS No. 162 is not expected
to have a material impact on our consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities (SFAS No. 161). This statement changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an
entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and its related interpretations,
and (c) how derivative instruments and related hedged items affect an entitys financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, with early application encouraged. This statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The adoption of SFAS No. 161 is not expected to have a
material impact on our consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS
No. 157). This statement establishes a common definition for fair value to be applied to GAAP requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. SFAS
No. 157 is effective for financial assets and financial liabilities for fiscal years beginning after November 15, 2007. Issued in February 2008, FSP 157-1 Application of FASB Statement No. 157 to FASB Statement No. 13 and
Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13, removed leasing transactions accounted for under SFAS No. 13 and related



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guidance from the scope of SFAS No. 157. FSP 157-2 Partial Deferral of the Effective Date of Statement 157 (FSP 157-2), deferred the
effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008. The implementation of SFAS No. 157 for financial assets and financial liabilities, effective
January 1, 2008, did not have a material impact on our consolidated financial statements. See Note 3, Marketable Securities and Fair Value Measurements for further discussion on our financial assets. We are currently assessing the
impact of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities on our consolidated financial statements.

SFAS No. 141(R),
Business Combinations (SFAS No. 141(R)), was issued in December 2007. SFAS No. 141(R) established principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. SFAS No. 141(R) also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines
what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) will become effective for fiscal years beginning after December 15,
2008. We are evaluating the impact that SFAS No. 141(R) will have on our financial statements.

In June 2007, the FASB ratified Emerging Issues Task
Force Issue (EITF) No. 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities (EITF No. 07-3). EITF No. 07-3 requires that nonrefundable
advance payments for goods and services that will be used or rendered in future research and development activities pursuant to executory contractual arrangements be deferred and recognized as an expense in the period that the related goods are
delivered or services are performed. We adopted EITF No. 07-3 as of January 1, 2008, and its adoption did not have a material impact on our consolidated financial statements.



|(2) | Liquidity and Capital Resources
|--- | -------------------------------

We have a history of recurring losses
from operations and have an accumulated deficit of $510.9 million as of September 30, 2008. Our capital requirements to sustain operations, including research and development projects, have been and will continue to be significant. As of
September 30, 2008, we had available cash and cash equivalents totaling $112.8 million and working capital of $116.3 million. We also have approximately $6.6 million of ARS investments classified as noncurrent marketable securities at
September 30, 2008.

In July 2008 we closed an underwritten public offering of our common stock. Additionally, in April 2007, we closed a registered
direct offering of our common stock and in October 2007 we closed a private placement of our common stock. A more detailed description of our equity offerings is discussed in Note 7 Stockholders Equity.



|(3) | Marketable Securities and Fair Value Measurements
|--- | -------------------------------------------------

Marketable securities

We account for marketable securities in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities and
determined the appropriate classification of marketable securities was available-for-sale at the time of purchase. As such, at September 30, 2008 and December 31, 2007, all of our investments in marketable securities were
reported at fair value. Fair value is determined based on observable market quotes or valuation models using assessments of counterparty credit worthiness, credit default risk or underlying security and overall capital market liquidity. Declines in
fair value that are considered other-than-temporary are charged to operations and those that are considered temporary are reported as a component of accumulated other comprehensive income in stockholders equity. We use the specific
identification method of determining the cost basis in computing realized gains and losses on the sale of available-for-sale securities.

Historically, we
have invested in ARS, commercial paper of prime quality, certificates of deposit, guaranteed bankers acceptance and U.S. Government instruments, and by policy, limit the amount of credit exposure to any one issuer. At September 30, 2008 and
December 31, 2007, $9.4 million and $20.9 million of principal were invested in ARS, respectively. The ARS held are private placement securities with various long-term nominal maturities with interest rates reset through a dutch auction each
month, except for one ARS that resets every 92 days. The monthly auctions historically have provided a liquid market for these securities. The investments in ARS represent interests in collateralized debt obligations supported by insurance
securitizations and other structured credits, including corporate bonds and to a lesser degree, pools of residential and commercial mortgages.

Consistent
with our investment policy guidelines in effect when originally purchased, the ARS investments held by us all had AAA/AA credit ratings at the time of purchase. With the liquidity issues experienced in global credit and capital markets, the $9.4
million ARS held by us at September 30, 2008, have experienced multiple failed auctions as the amount of securities submitted for sale has exceeded the amount of purchase orders and we have been unable to liquidate. Two of our ARS investments,
which we continue to hold, were downgraded to credit ratings of B3 and Baa2, respectively, since the beginning of 2008.



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The estimated market value of all ARS holdings at September 30, 2008, was approximately $6.6 million, which reflects
a $2.8 million adjustment to the principal value of $9.4 million. The $2.8 million adjustment consists of a $2.3 million other-than-temporary impairment loss charged to operations and a $0.5 million unrealized loss recorded to accumulated other
comprehensive income. Although the ARS continue to pay interest according to their stated terms, based on input assumptions to valuation models and an analysis of other-than-temporary impairment factors, we recorded losses of approximately $0.1
million and $1.2 million for the three and nine months ended September 30, 2008, respectively. Approximately $0.5 million of the recorded loss for the nine months ended September 30, 2008 represented the reclassification of previously
recorded unrealized losses in other comprehensive income that we recorded in the first quarter of 2008 and reflected the portion of ARS holdings that we have now concluded have an other-than-temporary decline in value. As of September 30, 2008,
the accumulated unrealized losses in other comprehensive income total $0.5 million related to ARS.

Fair Value Measurements

SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants on the measurement date. SFAS No. 157 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard
describes three levels of inputs that may be used to measure fair value:

Level 1Quoted prices in active markets for identical assets or
liabilities. We have determined that our investments in money market accounts, certificates of deposit and U.S. Government securities meet the criteria for definition within the Level 1 hierarchy.

Level 2Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs
include quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
We have determined that our investments in commercial paper meet the criteria for definition within the Level 2 hierarchy.

Level
3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. We have determined that our investments in ARS meet the criteria for definition within Level 3
hierarchy.

The fair values of our investments in ARS instruments are estimated utilizing a discounted cash flow analysis valuation model as of
September 30, 2008. This analysis considers, among other items, the collateral underlying the security investments, the credit quality of the counterparty, the timing of expected future cash flows, the default risk underlying the security,
discount rates, the expected time until a successful auction and the overall capital market liquidity. These securities were also compared, when possible, to other observable market data with similar characteristics to the securities.
Management has also reviewed the valuation input criteria utilized by our investment manager, which generally consists of the price of credit protection, information available on the trading of senior and subordinated securities and other debt in
the market place for comparable types of maturities, the current credit rating of the trust sponsor and/or bond insurer, as well as the ultimate maturity and the underlying collateral of the securities and have deemed them to be reasonable
assumptions in determining fair value. The valuation of our ARS investments is subject to uncertainties that are difficult to predict. Factors that may impact our valuation include changes to credit ratings of the securities, as well as to the
underlying assets supporting those securities, rates of credit default of the underlying assets, underlying collateral value, discount rates, counterparty risk and the ongoing strength and quality of market credit and liquidity.

Based on the underlying assumptions utilized in our discounted cash flow analyses and that our holdings of ARS are not required for operational purposes in 2008, which
allows sufficient time for the securities to return to full value, we have classified these investments as noncurrent assets on the unaudited Condensed Consolidated Balance Sheet at September 30, 2008 and December 31, 2007 of $6.6 million
and $1.0 million, respectively. If we determine that any future valuation adjustment was other than temporary, we would record a charge to operations as appropriate, based on changes in assumptions and input from our valuation models. Any future
fluctuation in fair value related to these instruments that we determine to be temporary, including any recoveries of previous write-downs, would be recorded to accumulated other comprehensive income.

We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest
level of input that is significant to the fair value measurement. The following table sets forth our financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2008:



|                                    |  |       |         |         |   |         |  |         |   |  |   |      
|----------------------------------- |  | ----- | ------- | ------- | - | ------- |  | ------- | - |  | - | -----
|(in thousands) Description          |  | Total |         | Level 1 |   | Level 2 |  | Level 3
|Cash equivalents                    |  | $     | 109,230 |         | $ | 109,230 |  | $       |  |  | $ |     
|Restricted cash                     |  |       | 1,330   |         |   | 1,330   |  |         |  |  |   |     
|Marketable securities, non-current1 |  |       | 6,628   |         |   |        |  |         |  |  |   | 6,628
|                                    |  |       |         |         |   |         |  |         |   |  |   |      
|Total                               |  | $     | 117,188 |         | $ | 110,560 |  | $       |  |  | $ | 6,628
|                                    |  |       |         |         |   |         |  |         |   |  |   |      



|1 | Gains or losses considered to be temporary are recorded to accumulated other comprehensive loss at each measurement
date. Other than temporary losses are recorded to operations at each measurement date.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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The following table presents our assets measured at fair value on a recurring basis using significant unobservable inputs
(Level 3) as defined in SFAS No. 157 at September 30, 2008:



|                                                                                                                                             |  |                        |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------- | -
|(in thousands)                                                                                                                               |  | Auction RateSecurities |        
|Balance at December 31, 2007                                                                                                                 |  | $                      | 19,018  |  
|Transfers to Level 3                                                                                                                         |  |                        |        |  
|Total gains or losses:                                                                                                                       |  |                        |         |  
|Included in operations                                                                                                                       |  |                        | (1,171  | )
|Recognized loss previously included in other comprehensive income                                                                            |  |                        | 469     |  
|Included in other comprehensive loss                                                                                                         |  |                        | (197    | )
|Purchases and settlements, net                                                                                                               |  |                        | (11,491 | )
|                                                                                                                                             |  |                        |         |  
|Balance at September 30, 2008                                                                                                                |  | $                      | 6,628   |  
|                                                                                                                                             |  |                        |         |  
|Gains or losses included in operations (or changes in net assets) for the period (above) relating to assets still held at September 30,
2008 |  |                        |         |  
|Total losses for the nine months ended September 30, 2008, included in operations                                                            |  | $                      | (1,171  | )
|                                                                                                                                             |  |                        |         |  
|Total change in unrealized losses included in other comprehensive loss                                                                       |  | $                      | 272     |  
|                                                                                                                                             |  |                        |         |  



|(4) | Comprehensive Loss
|--- | ------------------

SFAS No. 130, Reporting Comprehensive
Income (SFAS No. 130), requires reporting and displaying comprehensive income (loss) and its components, which, for us, includes net loss and unrealized gains and losses on investments and foreign currency translation gains and
losses. In accordance with SFAS No. 130, the accumulated balance of other comprehensive income (loss) is disclosed as a separate component of stockholders equity. A summary of our comprehensive loss is as follows (in thousands):



|                                                |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |         |  
|----------------------------------------------- |  | ------------------------------- | ------- | - | ------------------------------ | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                |  | Three months endedSeptember 30, |         |   | Nine months endedSeptember 30, |  
|                                                |  | 2008                            |         |   | 2007                           |   |        | 2008 |  |   | 2007    |  
|Comprehensive loss:                             |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Net loss                                        |  | $                               | (10,371 | ) |                                | $ | (5,493 | )    |  | $ | (28,741 | ) |  | $ | (14,070 | )
|Unrealized (loss) gain on marketable securities |  |                                 | (5      | ) |                                |   | 8      |      |  |   | 253     |   |  |   |        |  
|Foreign currency translation adjustments        |  |                                 | (384    | ) |                                |   | 223    |      |  |   | (14     | ) |  |   | 287     |  
|                                                |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |         |  
|Comprehensive loss                              |  | $                               | (10,760 | ) |                                | $ | (5,262 | )    |  | $ | (28,502 | ) |  | $ | (13,783 | )
|                                                |  |                                 |         |   |                                |   |        |      |  |   |         |   |  |   |         |  



|(5) | Net Loss Per Share
|--- | ------------------

In accordance with SFAS No. 128, Earnings
Per Share, basic net loss per share is computed by dividing the net loss for the period by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss for the
period by the weighted average number of common and common equivalent shares outstanding during the period. Common stock equivalents consisting of stock options, warrants and restricted stock were not included in the computation of diluted net loss
per share as their effect was anti-dilutive for all periods presented.



|(6) | Asset Purchase Agreement
|--- | ------------------------

On September 22, 2008, we entered into an
Asset Purchase Agreement (the Agreement) by and among us, Sequenom Center for Molecular Medicine, LLC, our wholly owned subsidiary, the Center for Molecular Medicine (CMM), VAI Innovations, LLC, (VAI) and Spectrum Health
Hospitals (Spectrum), pursuant to which we have agreed to acquire certain assets from CMM related to CMMs business in advanced molecular pathology laboratory services relating to diagnostics, translational research and clinical
trials. Under the terms of the Agreement, we will pay to CMM $4.0 million, less all cash and cash equivalents. Ninety percent of the purchase price will be comprised of shares of our common stock to be issued to CMM at the closing of the transaction
and ten percent will be comprised of cash to be deposited into an escrow account. The escrow account will remain in place for 18 months following the closing of the transaction to satisfy potential indemnification claims.



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The closing is subject to the satisfaction or waiver of a number of closing conditions, including, among others, the
accuracy of representations and warranties, compliance with covenants in the Agreement, satisfactory completion of our due diligence review, receipt of necessary governmental approvals and receipt of necessary third party consents.

The Agreement may be terminated (i) by mutual written consent, (ii) by either CMM or us if the closing of the transaction has not taken place by
December 31, 2008, (iii) by either CMM or us in the event that the other party materially breaches the Agreement (subject to a right to cure) and (iv) by either CMM or us in the event that the other party fails to satisfy its closing
conditions. The Agreement is anticipated to close during the fourth quarter of 2008.



|(7) | Stockholders Equity
|--- | --------------------

On July 1, 2008, we closed an underwritten
public offering of our common stock totaling 5,500,000 shares of our common stock at $15.50 per share, with the underwriters exercising their option to purchase an additional 825,000 shares on July 8, 2008. Including the additional shares, the
offering resulted in net aggregate proceeds of approximately $91.9 million after deducting underwriting discounts, commissions and estimated transaction expenses.

During 2007, we closed a $20.0 million registered direct offering of our common stock to several new and existing investors, as well as a $30.5 million private placement of our common stock. Under the terms of the registered direct offering
we issued and sold 6,666,666 shares at $3.00 per share, with net aggregate proceeds of approximately $18.3 million after deducting placement agents fees and transaction expenses. Under the terms of the private placement of our common stock we
issued and sold 3,383,335 shares at $9.00 per share, with net aggregate proceeds of approximately $28.1 million after deducting placement agents fees and estimated transaction expenses.



|(8) | Share-Based Compensation
|--- | ------------------------

We maintain several share-based compensation
plans for the grant of incentive stock options and non-qualified stock options to employees, consultants and non-employee directors. In accordance with the provisions of SFAS No. 123, Share-Based Payment (SFAS No. 123(R)) the
estimated fair value of share-based payments is measured at the grant date and is recognized as share-based compensation expense over the employees requisite service period.

For the three months ended September 30, 2008 and 2007, we recorded $1,610,000 and $810,000 of compensation expense related to our share-based compensation awards, respectively. The compensation expense related
to our share-based compensation arrangements is recorded as a component of research and development expense ($312,000 and $166,000), selling and marketing expense ($384,000 and $175,000) and general and administrative expense ($914,000 and $469,000)
for the three months ended September 30, 2008 and 2007, respectively.

For the nine months ended September 30, 2008 and 2007, we recorded
$4,256,000 and $1,693,000 of compensation expense related to our share-based compensation awards, respectively. The compensation expense related to our share-based compensation arrangements is recorded as a component of research and development
expense ($883,000 and $304,000), selling and marketing expense ($1,038,000 and $350,000) and general and administrative expense ($2,335,000 and $1,039,000) for the nine months ended September 30, 2008 and 2007, respectively.

We have not recognized, and do not expect to recognize in the near future, any tax benefit related to stock-based compensation cost as a result of the full valuation
allowance of our net deferred tax assets and our net operating loss carryforwards.

We account for options granted to non-employees in accordance with EITF
No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, and SFAS No. 123(R). The fair value of these options at the measurement
dates was estimated using the Black-Scholes pricing model. Total share-based compensation for options granted to non-employees for the three months ended September 30, 2008 and 2007, was $382,000 and $36,000, respectively, and is included in
research and development expenses ($100,000 and $9,000) and in sales and marketing expenses ($282,000 and $27,000). For the nine months ended September 30, 2008 and 2007, total share-based compensation for options granted to non-employees was
$473,000 and $79,000, respectively, and is included in research and development expenses ($113,000 and $11,000), in sales and marketing expenses ($360,000 and $29,000), and in general and administrative expenses ($0 and $39,000) in the statements of
operations.

Share-Based Compensation Plans

Stock Compensation Plans

On May 31, 2006, stockholders approved our 2006 equity incentive plan (the 2006 Plan), as the successor to
our 1999 stock option plan (the 1999 Plan). In connection with the adoption of the 2006 Plan, we terminated the automatic annual increase feature under the 1999 Plan and resolved to cease to grant additional stock awards under the 1999 Plan
following the effectiveness of the 2006 Plan. On May 29, 2008, our stock holders approved an amendment to the 2006 Plan to increase the share reserve for issuance under the 2006



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Plan by an additional 1,500,000 shares of common stock. As of September 30, 2008, the aggregate number of shares of common stock that may be issued
under the 2006 Plan was 8,272,353 shares, plus the number of shares subject to any stock awards under the 1999 Plan that terminate or are forfeited or repurchased and would otherwise have been returned to the share reserve under the 1999 Plan.

Restricted Stock

On January 18, 2007, we granted
restricted stock awards to certain executive officers and employees. At December 31, 2007, 57,126 shares with a weighted average grant date fair value of $4.60 per share remained outstanding and 7,247 shares were cancelled prior to vesting. The
awards fully vested on January 18, 2008.

On October 18, 2007, we granted 50,000 restricted stock units to an executive officer with a grant date
fair value of $11.04. These units vest over 4 years, with 13/48th of the units vesting 13 months after the grant date, then vest in equal monthly installments thereafter. At September 30, 2008, all units remain outstanding.

On January 29, 2008, we granted 18,628 restricted stock awards and 20,974 restricted stock units to certain executive officers and employees with a weighted average
grant date fair value of $8.16 per share. During the three months ended September 30, 2008, restricted stock awards totaling 1,781 were cancelled. The remaining awards will be fully vested on January 29, 2009.

On July 17, 2008, we granted 55,555 restricted stock units to an executive officer with a grant date fair value of $20.00 per share. These units vest over 4 years,
with 13/48th of the units vesting 13 months after the grant date, then vest in equal monthly installments thereafter. At September 30, 2008, all units remain outstanding.

Employee Stock Purchase Plan

In 1999 we adopted the 1999 Employee Stock Purchase Plan (the 1999 ESPP). As of
September 30, 2008, we had reserved 851,676 shares of common stock for issuance under the 1999 ESPP. Beginning in 2001, the amount of authorized shares available under the 1999 ESPP automatically increases each January 1st by an amount
equal to 1% of the outstanding common stock on the last trading day of the prior year, subject to an annual increase limitation of 166,666 shares. The 1999 ESPP allows for a series of concurrent offering periods, each with a maximum duration of 24
months. Shares are purchased semi-annually at 85% of the lower of the closing stock price at the beginning or end of the period.

In October 2006 our Board
of Directors approved a change to all offerings under the 1999 ESPP that commence on or after February 1, 2007. New offerings will be for a duration of six months and will consist of one purchase interval, but will not impose either an
individual or all-participant limitation on the number of shares purchasable on a purchase date, although the 1999 ESPP limits stock purchases to $25,000 per individual per calendar year. Participants had the option of: continuing under the
current plan offering period until its expiration, or withdrawing from the current offering prior to its expiration and enrolling in the new offering commencing on February 1, 2007. Those employees not electing to enroll in the new offering
period continued under the then current offering until the 24 month offering period expires. On July 31, 2008, the final 24 month offering period expired and all ESPP participants are now under six month offering periods. As of
September 30, 2008, employees have contributed approximately $0.1 million to the current offering period of the 1999 ESPP, since the beginning of the offering period that commenced August 1, 2008. For the three months ended
September 30, 2008 and 2007, we have recognized $232,000 and $4,000, respectively, as share-based compensation expense related to the 1999 ESPP Plan. For the nine months ended September 30, 2008 and 2007, we have recognized $236,000 and
$8,000, respectively, as share-based compensation expense related to the 1999 ESPP Plan.

Warrants

In connection with the acquisition of Axiom Biotechnologies (Axiom) in 2002, we assumed an outstanding warrant to purchase 7,333 Axiom ordinary shares at an exercise
price of $10.50, which was adjusted to become a warrant to purchase 1,512 shares of our common stock at an exercise price of $50.19 per share. As of September 30, 2008, this warrant has not been exercised and expires in December 2011.

In connection with an amendment to our lease for our corporate headquarters in San Diego, California in September 2005, we issued to the landlord a
warrant to purchase 50,000 shares of our common stock with an exercise price of $2.64 per share. The warrant expires in October 2015. As of September 30, 2008, the warrant remains outstanding and exercisable.

In connection with the private placement financing completed in June 2006, we issued to the investors warrants to purchase an aggregate of 11,999,999 shares of our
common stock at an exercise price of $2.10 per share.



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During the three months ended September 30, 2008, investors exercised 4,313,453 warrants utilizing cashless exercises to purchase 3,883,030 shares of
our common stock. As of September 30, 2008, all of the warrants issued in connection with the private placement had been exercised and no warrants remained outstanding.

Additionally in connection with the June 2006 private placement financing, we issued to our placement agent a warrant to purchase 866,666 shares of our common stock at an exercise price of $2.52 per share and expires
in June 2011. This warrant contains anti-dilution provisions that adjust the exercise price and number of shares subject to the warrants upon reorganization, mergers, stock splits and combinations, reclassifications of our common stock, or stock
dividends, but not for other issuances of our common stock. During the three months ended September 30, 2008, the placement agent exercised 59,066 warrants utilizing cashless exercises to purchase 52,114 shares of our common stock. As of
September 30, 2008, warrants to purchase an aggregate of 7,500 shares remained outstanding and exercisable.

Stock Options

The estimated fair value of each stock option award granted was determined on the date of grant using the Black-Scholes option valuation model with the following
weighted-average assumptions for stock option grants:



|                             |  |               |   |  |      |  
|---------------------------- |  | ------------- | - |  | ---- | -
|                             |  | September 30, |  
|                             |  | 2008          |   |  | 2007 |  
|Risk free interest rates     |  | 3.5           | % |  | 4.7  | %
|Volatility                   |  | 96.3          | % |  | 83.0 | %
|Dividend yield               |  | 0             | % |  | 0    | %
|Expected option term (years) |  | 6.6           |   |  | 6.4  |  

The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected term of
our employee stock options. The expected volatility is based on the historical volatility of our stock. We have not paid any dividends on common stock since our inception and do not anticipate paying dividends on our common stock in the foreseeable
future. The computation of the expected option term is based on a weighted-average calculation combining the average life of stock options that have already been exercised or cancelled with the estimated life of all unexercised stock options.

SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates. Pre-vesting forfeitures were estimated to be 12.4% based on historical experience. Our determination of fair value is affected by our stock price as well as a number of assumptions that require judgment. The
weighted-average fair value of each stock option granted to employees during the three months ended September 30, 2008 and 2007, estimated as of the grant date using the Black-Scholes option valuation model was $16.46 and $3.53, respectively,
per share of our common stock subject to the stock option.

A summary of the status of our stock option plans as of September 30, 2008, and of changes
in stock options outstanding under the plans during the nine months ended September 30, 2008, is as follows:



|                                                     |  |                          |   |  |                                         |       |                                                    |     |                          |   |            
|---------------------------------------------------- |  | ------------------------ | - |  | --------------------------------------- | ----- | -------------------------------------------------- | --- | ------------------------ | - | -----------
|Outstanding                                          |  | Shares Subjectto Options |   |  | WeightedAverage ExercisePrice per Share |       | WeightedAverageRemainingContractualTerm (in years) |     | AggregateIntrinsic Value
|Outstanding at December 31, 2007                     |  | 5,080,236                |   |  | $                                       | 6.16  |                                                    |     |                          |   |            
|Granted                                              |  | 1,542,356                |   |  |                                         | 11.23 |                                                    |     |                          |   |            
|Cancelled                                            |  | (239,949                 | ) |  |                                         | 6.58  |                                                    |     |                          |   |            
|Exercised                                            |  | (198,192                 | ) |  |                                         | 4.87  |                                                    |     |                          |   |            
|                                                     |  |                          |   |  |                                         |       |                                                    |     |                          |   |            
|Outstanding at September 30, 2008                    |  | 6,184,451                |   |  | $                                       | 7.45  |                                                    | 8.0 |                          | $ | 125,009,484
|                                                     |  |                          |   |  |                                         |       |                                                    |     |                          |   |            
|Options vested and exercisable at September 30, 2008 |  | 2,664,707                |   |  | $                                       | 8.06  |                                                    | 7.0 |                          | $ | 55,899,186 
|                                                     |  |                          |   |  |                                         |       |                                                    |     |                          |   |            

As of September 30, 2008, there was $14.2 million of unamortized compensation expense related to
unvested stock option awards, which is expected to be recognized over a remaining weighted-average vesting period of 2.5 years. Cash received from stock option exercises for the nine months ended September 30, 2008 and 2007 was $964,000 and
$225,000, respectively. At September 30, 2008, there were 1,961,373 shares available for future option grants.



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|(9) | Inventories
|--- | -----------

Inventories are stated at the lower of cost (first-in,
first-out) or market value. Standard cost, which approximates actual cost, is used to value inventories. The components of inventories were (in thousands):



|                |  |                   |       |                  |   |      
|--------------- |  | ----------------- | ----- | ---------------- | - | -----
|                |  | September 30,2008 |       | December 31,2007
|                |  | (Unaudited)       |       | (Audited)       
|Raw materials   |  | $                 | 5,569 |                  | $ | 3,053
|Work in process |  |                   | 1,057 |                  |   |     
|Finished goods  |  |                   | 2,030 |                  |   | 1,138
|                |  |                   |       |                  |   |      
|Total           |  | $                 | 8,656 |                  | $ | 4,191
|                |  |                   |       |                  |   |      

Inventories are shown net of excess and obsolescence reserves of $1.5 million and $1.1 million at
September 30, 2008 and December 31, 2007, respectively.



|(10) | Asset-backed Loan
|---- | -----------------

On August 31, 2007, we signed an amendment to our
existing asset-backed loan line that had previously expired. Under the terms of this amendment, we may elect to have individual minimum fundings of $100,000 up to an aggregate limit of $3.0 million through December 23, 2008. All borrowings will
be secured by the underlying financed equipment.

As of September 30, 2008, we have an aggregate of $1.5 million outstanding on this asset-backed loan
line relating to four fundings with interest rates from 9.73% to 10.6% to be repaid in 36 monthly installments.



|(11) | Acquisition and Integration Costs
|---- | ---------------------------------

As of September 30, 2008, we had
approximately $0.5 million remaining in accrued acquisition costs, relating to the acquisition of Gemini Genomics, plc in 2001. The remaining acquisition liability relates to facility exit costs.

The accrued acquisition cost activity in the three months ended September 30, 2008, was as follows (in thousands):



|                                                     |  |                            |     |             |   |      |                              |  |   |    
|---------------------------------------------------- |  | -------------------------- | --- | ----------- | - | ---- | ---------------------------- |  | - | ---
|                                                     |  | Balance atDecember 31,2007 |     | Deductions  |   |      | Balance atSeptember 30, 2008
|                                                     |  | (Audited)                  |     | (Unaudited) |   |      | (Unaudited)                 
|Costs to close facilities and exit lease commitments |  | $                          | 721 |             | $ | (178 | )                            |  | $ | 543



|(12) | Warranty Costs and Reserves
|---- | ---------------------------

In accordance with FASB Interpretation
No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN No. 45), we provide a warranty provision related to the sales of our MassARRAY
equipment based on our experience of returns and repairs required under the warranty period.

We generally provide a one-year warranty on our MassARRAY
Compact system and related equipment. We establish an accrual for estimated warranty expenses associated with system sales based on historical amounts. This expense is recorded as a component of cost of product revenue in the statement of
operations.

Changes in our warranty liability during the three months ended September 30, 2008, were as follows (in thousands):



|                                      |  |   |      |  
|------------------------------------- |  | - | ---- | -
|Balance as of December 31, 2007       |  | $ | 526  |  
|Additions charged to cost of revenues |  |   | 467  |  
|Repairs and replacements              |  |   | (409 | )
|                                      |  |   |      |  
|Balance as of September 30, 2008      |  | $ | 584  |  
|                                      |  |   |      |  



|(13) | Litigation
|---- | ----------

In November 2001, we and certain of our current or former
officers and directors were named as defendants in a class action shareholder complaint filed by Collegeware USA in the U.S. District Court for the Southern District of New York (now captioned In re Sequenom, Inc. IPO Securities Litigation) Case
No. 01-CV-10831. Similar complaints were filed in the same District Court against hundreds of other public companies that conducted initial public offerings of their common stock in the late 1990s and 2000. In the complaint, the plaintiffs
allege that our underwriters, certain of our officers and directors and we violated the federal securities laws because our registration statement and prospectus contained untrue statements of material fact or omitted material
facts regarding the compensation to be received by and the stock allocation practices of the underwriters. The plaintiffs seek unspecified monetary damages and other relief. In October 2002, our officers and directors were dismissed without
prejudice pursuant to a stipulated dismissal and tolling agreement with the plaintiffs. In February 2003, the District Court dismissed the claim against us brought under



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Section 10(b) of the Securities Exchange Act of 1934, without giving the plaintiffs leave to amend the complaint with respect to that claim. The
District Court declined to dismiss the claim against us brought under Section 11 of the Securities Act of 1933.

In September 2003, pursuant to
the authorization of a special litigation committee of our board of directors, we approved in principle a settlement offer by the plaintiffs. In September 2004, we entered into a settlement agreement with the plaintiffs. In February 2005, the
District Court issued a decision certifying a class action for settlement purposes and granting preliminary approval of the settlement subject to modification of certain bar orders contemplated by the settlement. In August 2005, the District Court
reaffirmed class certification and preliminary approval of the modified settlement. In February 2006, the District Court dismissed litigation filed against certain underwriters in connection with the claims to be assigned to the plaintiffs under the
settlement. In April 2006, the District Court held a final fairness hearing to determine whether to grant final approval of the settlement. In December 2006, the U.S. Court of Appeals for the Second Circuit vacated the District
Courts decision certifying as class actions the six lawsuits designated as focus cases. Thereafter the District Court ordered a stay of all proceedings in all of the lawsuits pending the outcome of plaintiffs petition to
the Second Circuit for rehearing en banc. In April 2007, the Second Circuit denied plaintiffs rehearing petition, but clarified that the plaintiffs may seek to certify a more limited class in the District Court. Accordingly, the
settlement as originally negotiated was terminated pursuant to stipulation and will not receive final approval. Plaintiffs filed amended complaints in the six focus cases in August 2007. Sequenom is not one of the focus case issuers. In September
2007, Sequenoms named officers and directors again extended the tolling agreement with the plaintiffs. Also in September 2007, the plaintiffs moved to certify the classes alleged in the focus cases and to appoint class representatives and
class counsel in those cases. The focus case issuers filed motions to dismiss the claims against them in November 2007 and an opposition to plaintiffs motion for class certification in December 2007. The District Court denied the motions to
dismiss in March 2008. On October 2, 2008, the plaintiffs withdrew their class certification motion. The focus case defendants now have until October 31, 2008 to answer the amended complaints.

On August 3, 2007, we received a demand letter dated July 31, 2007, demanding on behalf of an alleged stockholder, Vanessa Simmonds, that our board of
directors prosecute a claim against our IPO underwriters, in addition to certain unnamed officers, directors and principal stockholders as identified in our IPO prospectus, for violations of sections 16(a) and 16(b) of the Securities Exchange Act of
1934. The demand letter asserts purchases and sales of our common stock within periods of less than six months and failure to report such transactions, and seeks unspecified disgorgement of profits. We requested further information from
Ms. Simmonds in order to evaluate the demand and although Ms. Simmonds provided a response, we still do not have adequate information to evaluate the demand and there has been no further correspondence or communication with
Ms. Simmonds.

We do not anticipate that the ultimate outcome of either of the events set forth above will have a material adverse impact on our
financial position.

On June 5, 2008, we were named as a defendant in a complaint filed by plaintiffs Beckman Coulter Inc. and Orchid Cellmark Inc. in
the United States District Court for the Southern District of California. In the complaint, the plaintiffs allege that we are infringing three patents owned by Orchid Cellmark Inc. and licensed to Beckman Coulter Inc. by making and selling our iPLEX
products and teaching our customers how to use the products. The plaintiffs seek a permanent injunction enjoining us from further infringement, and unspecified monetary damages, including lost profits, enhanced damages pursuant to 35 U.S.C. §
284, costs, attorneys fees and other relief as the court deems just and proper. On August 15, 2008, we filed an answer and counter claims against plaintiffs seeking declaratory judgments that the patents are not infringed and are invalid
and/or unenforceable. We believe that the plaintiffs claims are without merit and will vigorously defend against the claims advanced in the complaint.

Recently on October 30, 2008, we filed a patent infringement suit against Ibis Biosciences, Inc., a subsidiary of Isis Pharmaceuticals, Inc. The lawsuit was filed in the United States District Court for the District of Delaware. The lawsuit
alleges that the sale or offer for sale of the Ibis T5000 Biosensor System and related technology infringes three U.S. patents: 6,300,076, 6,500,621 and 7,419,787. We are seeking a permanent injunction enjoining the defendant from further
infringement and monetary damages, including enhanced damages pursuant to 35 U.S.C. § 284, costs, attorneys fees and other relief as the court deems just and proper.

In addition, from time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business.

(14) Income Taxes

In July 2006, the FASB issued Financial Interpretation Number 48, Accounting for
Uncertainty in Income Taxes(FIN 48), which prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. Additionally, FIN 48 provides
guidance on de-recognition, classification, accounting in interim periods and disclosure requirements for uncertain tax positions.

We adopted the
provisions of FIN 48 on January 1, 2007. There were no unrecognized tax benefits as of the date of adoption and there are no unrecognized tax benefits included in the balance sheet at December 31, 2007 or September 30, 2008 that
would, if recognized, affect the effective tax rate.

Our practice is to recognize interest and/or penalties related to income tax matters in income tax
expense. We had no accrual for interest and penalties on our balance sheets at December 31, 2007 and September 30, 2008, and have recognized no interest and/or penalties in the statement of operations for the year ended December 31,
2007 and the three and nine months ended September 30, 2008. Due to the existence of the valuation allowance, future changes in our unrecognized tax benefits will not impact our effective tax rate.

We are subject to taxation in the U.S., foreign and various state jurisdictions. Our tax years for 1993 and forward are subject to examination by the Federal and
California tax authorities due to the carryforward of unutilized net operating losses and research and development credits.

New Tax Legislation

The Housing and Economic Recovery Act of 2008 (P.L. 110-289), which was signed by the President on July 30, 2008 contains a special tax benefit that is
available to corporations making capital investments eligible for 50-percent bonus depreciation during the period April 1 through December 31, 2008 (or during 2009 for certain long-lived and transportation property). The election permits
a taxpayer to receive a cash benefit from current utilization of carry-forward credits, in exchange for relinquishing the larger NOL otherwise generated by bonus depreciation.

A taxpayer making the election will be allowed to claim a credit or refund in an amount equal to lowest of the
following three amounts: (1) $30 million; (2) 6% of the taxpayers accumulated R&D credit carry-forward amounts and AMT credits generated from taxable years beginning before 2006; or (3) the 20% of the additional
bonus depreciation that the taxpayer otherwise would have been entitled to claim under IRC § 168(k) for qualifying property placed in service between April 1stand December 31stof 2008 had the taxpayer not opted to claim the special refundable credit.

The Company plans to determine the impact of this legislation during the fourth quarter and any benefit will be recorded at year end.

On September 23, 2008, the California Governor signed 2008-2009 budget legislation that contains significant tax law changes. This legislation suspends Net Operating
Loss (NOL) deductions for tax years beginning on or after January 1, 2008, and before January 1, 2010. This legislation also limits the maximum amount of a taxpayers liability that may be offset by tax credits for taxable years
beginning on or after January 1, 2008, and before January 1, 2010. Since the Company is in a net operating loss position, there is no financial statement impact of this new legislation.



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During the first quarter of 2008, we substantially completed our IRC Sections 382/383 study and analysis. The
results of this study concluded that we experienced an ownership change for purposes of the IRC Sections 382/383 limitation in June 2006. As a result of this ownership change, utilization of our net operating loss and credits are subject to an
annual limitation under Sections 382/383. Generally, the annual limitation is determined by multiplying the value of our stock immediately before the ownership change by the applicable long-term tax-exempt rate. We estimate our annual
limitation for GAAP reporting purposes to be approximately $1.0 million. Of the aggregate $239.3 million net operating carryforwards as of December 31, 2007, we have approximately $40.5 million available for GAAP reporting federal purposes. Our
research and development credits are also limited under Sections 382/383. The federal research and development credit of $10.3 million at December 31, 2007, was eliminated as a result of the ordering rules and limitations under
Sections 382/383. The California research and development credits of $8.0 million carryforward indefinitely and under Sections 382/383 can be utilized beginning in 2016 with an annual limitation of approximately $85,000 per year.

Based on the conclusion of the Sections 382/383 study, we reduced our deferred tax assets and valuation allowance on these assets by approximately
$89.8 million to reflect this limitation.

We recorded an income tax provision of $3,000 and $74,000 for the three and nine months ended September 30,
2008, which are related to foreign taxes on our international operations.



|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

All statements in this report that are not historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can
generally be identified as such because the context of the statement will include words such as may, will, intend, plans, believes, anticipates, expects,
estimates, predicts, potential, continue, opportunity, goals, or should, the negative of these words or words of similar import. Similarly, statements that describe
our future plans, strategies, intentions, expectations, objectives, goals or prospects are also forward-looking statements. These forward-looking statements are or will be, as applicable, based largely on our expectations and projections about
future events and future trends affecting our business, and so are or will be, as applicable, subject to risks and uncertainties including but not limited to the risk factors discussed in this report, that could cause actual results to differ
materially from those anticipated in the forward-looking statements. We caution investors that there can be no assurance that actual results or business conditions will not differ materially from those projected or suggested in such forward-looking
statements. Our views and the events, conditions and circumstances on which these future forward-looking statements are based, may change. All forward statements are qualified in their entirety by this cautionary statement and we undertake no
obligation to revise or update any such statements to reflect events or circumstances after the date hereof.

SEQUENOM® , SpectroCHIP®, iPLEX® and MassARRAY® are registered trademarks and EpiTYPER, SEQureDx and iSEQ are trademarks of SEQUENOM, Inc. This report may also refer to trade names and trademarks of other organizations.

Sequenom was incorporated in 1994 under the laws of the State of Delaware.

Overview

We are a genetics company committed to providing genetic analysis products, services and diagnostic
applications. Our products and services are designed to translate the results of genomic research into solutions for biomedical research, translational research, molecular medicine applications and research conducted in the agro (agricultural and
livestock) industry. Our development efforts in various diagnostic applications include areas of noninvasive diagnostics in prenatal, oncology and infectious diseases and other disorders.

Our proprietary MassARRAY system, comprised of hardware, software applications, consumable chips and reagents, is a high performance (in speed, accuracy and cost
efficiency) nucleic acid analysis platform that quantitatively and precisely measures genetic target material and variations. Our MassARRAY research and development efforts are committed to producing new and improved components and applications that
deliver greater system versatility and reduce the cost per data point generated. MassARRAY technology is widely accepted as a leading high-performance DNA analysis platform for the fine mapping genotyping and quantitative gene expression markets and
is gaining traction in new developing markets, such as epigenomics and pathogen typing. Our customers include some of the worldwide premier clinical research laboratories, biotechnology companies and academic institutions, as well as various
government agencies. To provide customer support for our expanding user base and in an effort to maximize market penetration, we have established direct sales and support personnel serving North America, Europe, India, Australia and Asia, in
addition to regional distribution partners in France, Israel, South Korea, New Zealand, Singapore, Taiwan and Turkey.

Our research and development
activities are focused on enhancing and expanding our MassARRAY technology and applications, and in many cases these activities also serve to facilitate our diagnostics initiatives. We expect to expand our MassARRAY system product offerings with the
following improvements and new product applications:



| |  |  | iSEQ Pathogen Typer  We launched this new application, which provides a method for identifying and typing microbes, viruses and other haploid organisms
within hours as compared to days in other technologies.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Copy Number Variation (CNV) During the third quarter of 2008, we issued a user guide to support the analysis of CNVs. CNV refers to the genetic trait
of differences in the number of copies of a particular gene present in the genome of an individual. Since CNVs often encompass genes that may have important roles both in human disease and drug response, understanding the mechanisms of CNV formation
may also help scientists better understand human genome evolution.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Epigenomics  Epigenomics refers to the study of environmental factors that can cause an organisms genes to behave (or express
themselves) differently, even though the genes themselves may not change. We plan to launch our new Epi-designer application in the fourth quarter of 2008, and we believe this new application will aid researchers in identifying those genes
that have mutated or have been influenced by environmental or other factors.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Onco-Carta Mutation Panel  We plan to launch a new panel for identifying patterns of genes associated with the development of specific cancers in the
fourth quarter of 2008.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Optical Nanopore Sequencing Technology  We plan to generate a proof of concept of this technology, which we licensed from Harvard
University and Boston University, in the fourth quarter of 2008. If successful, this may allow us to develop a first commercial application potentially as early as the end of 2010. Optical Nanopore Sequencing Technology is a third generation
sequencing technology that we believe may potentially provide whole genome sequencing for less than $1,000.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Closed Tube Assay  We plan to launch this application, which is intended to improve the workflow of our MassARRAY system, as early as the second half
of 2009.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other  We are developing other technologies and applications which we believe will further our efforts to be a leader in fine mapping and personalized
medicine.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

Our research and development efforts in molecular diagnostic products are focused on the development of noninvasive
diagnostics (SEQureDx) for use on the MassARRAY system and other platforms. Initially, we are focused on providing this technology, which is noninvasive, using a simple maternal blood draw, for prenatal diagnostics. Our other diagnostic tests are
also planned to be noninvasive and are expected to use simple blood draws from patients rather than invasive procedures such as surgery. Subject to the completion of our pending acquisition of CMM, we plan to commercialize this technology through
our CLIA licensed laboratory in the form of Laboratory Developed Tests (LDTs), also known as Home Brews, which is the predominant approach used for current tests such as serum screening and invasive prenatal tests. Concurrent with our
LDT commercialization and revenue building activities, we plan to conduct the development activities necessary to file submissions with the Food and Drug Administration (FDA) seeking approval for selected diagnostic tests.

We are also developing a test for Trisomy 21 (Down syndrome). Subject to the completion of our pending acquisition of CMM, we plan to initially commercialize the test as
a LDT through our CLIA licensed laboratory in the second quarter of 2009. We are also expecting to conduct various development efforts to provide a FDA submission seeking approval of the test in 2011. In addition to Trisomy 21, we plan to develop
other chromosomal tests, including tests for Trisomy 18 (Edwards syndrome) and Trisomy 13 (Patau syndrome).

We have announced positive results from
screening studies using our noninvasive circulating cell-free fetal nucleic acid SEQureDx Technology, which enables the detection of fetal aneuploidy, including Down syndrome, from maternal blood. We reported that data from blinded studies
performed by us involving 201 clinical samples collected both prospectively and retrospectively, as well as 219 new clinical samples collected showed that our proprietary test for Down syndrome correctly identified 100% of all Down syndrome samples
without any false-positive or false-negative outcomes. Our test demonstrated complete concordance with clinical results in both first and second trimester samples and its ability to correctly identify a Down syndrome positive sample in the first
trimester. We anticipate that the population coverage for the test should increase to greater than 95% of the U.S. population. We plan to continue our current development activities through the end of 2008, at which time we will initiate a
multi-site 3,000 to 5,000 sample laboratory developed test validation study, which is expected to be completed and submitted for publication at the time of the anticipated commercial launch of the test in June 2009.

We also plan to pursue development of other noninvasive prenatal tests which are relevant to diagnosing disorders or conditions such as thalassemias, cardiac disorders,
congenital disorders and autism, as well as for oncology and infectious diseases and certain other diseases.

On September 22, 2008, we entered into an
Asset Purchase Agreement (the Agreement) by and among us, Sequenom Center for Molecular Medicine, LLC, our wholly owned subsidiary, the Center for Molecular Medicine (CMM), VAI Innovations, LLC, (VAI) and Spectrum Health
Hospitals (Spectrum), pursuant to which we have agreed to acquire certain assets from CMM related to CMMs business in advanced molecular pathology laboratory services relating to diagnostics, translational research and clinical
trials. Under the terms of the Agreement, we will pay to CMM $4.0 million, less all cash and cash equivalents. Ninety percent of the purchase price will be comprised of shares of our common stock to be issued to CMM at the closing of the transaction
and ten percent will be comprised of cash to be deposited into an escrow account. The escrow account will remain in place for 18 months following the closing of the transaction to satisfy potential indemnification claims.

The closing is subject to the satisfaction or waiver of a number of closing conditions, including, among others, the accuracy of representations and warranties,
compliance with covenants in the Agreement, satisfactory completion of our due diligence review, receipt of necessary governmental approvals and receipt of necessary third party consents.



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The Agreement may be terminated (i) by mutual written consent, (ii) by CMM or us if the closing of the
transaction has not taken place by December 31, 2008, (iii) by CMM or us in the event that the other party materially breaches the Agreement (subject to a right to cure) and (iv) by CMM or us in the event that the other party fails to
satisfy its closing conditions. The Agreement is anticipated to close during the fourth quarter of 2008.

Subsequent to September 30, 2008, we announced
the acquisition of an exclusive license of intellectual property for the use of fetal nucleic acids from maternal urine. The license provides us with the exclusive global right to use transrenal fetal DNA in maternal urine for noninvasive prenatal
diagnostics and analysis on a technology-independent basis for all uses, excluding the limited field of fetal gender determination solely by the presence of Y chromosome. The licensed intellectual property includes issued patents in the United
States and Europe and is part of our continuing strategy to expand and protect our SEQureDx franchise through the identification and licensing of new technologies and sampling methodologies.

Recently on October 30, 2008, we filed a patent infringement suit against Ibis Biosciences, Inc., a subsidiary of Isis Pharmaceuticals, Inc. The lawsuit was filed in the
United States District Court for the District of Delaware. The lawsuit alleges that the sale or offer for sale of the Ibis T5000 Biosensor System and related technology infringes three U.S. patents: 6,300,076, 6,500,621 and 7,419,787. We are seeking
a permanent injunction enjoining the defendant from further infringement and monetary damages, including enhanced damages pursuant to 35 U.S.C. § 284, costs, attorneys fees and other relief as the court deems just and proper.

We maintain a website at www.sequenom.com to which we regularly post copies of our press releases as well as additional information about us. Our filings with the SEC
are available free of charge through our website as soon as reasonably practicable after being electronically filed with or furnished to the SEC. Interested persons can subscribe on our website to email or RSS feed alerts that are sent automatically
when we issue press releases, file our reports with the SEC or post certain other information to our website. Information contained in our website does not constitute a part of this report.

Overview of Operational Results

As of September 30, 2008, our
revenues consisted of sales of MassARRAY hardware, software, consumables, maintenance agreements, and from services contracts through our genetic analysis contract research services business. The impact of our product offerings and contract research
services business on future revenues, margins, expenses, and cash flows remains uncertain and depends on many factors as described in Item 1A of this report under the caption Risk Factors.

We expect revenues from out-licensing and commercialization of our noninvasive prenatal diagnostics technology to be minimal for the foreseeable future. To the
extent that revenues are realized from our noninvasive prenatal diagnostics technology or from our prior disease gene discoveries, if at all, they may fluctuate significantly as revenues will be based upon the occurrence of certain milestones, our
reliance upon and the progress made by our collaborative partners, successful product development and commercialization, and product demand, all of which are uncertain and difficult to predict. As a result, our entitlement to, and the timing
and amounts of, any licensing and milestone payments and royalty or revenue sharing payments on future product sales are uncertain and difficult to predict. To achieve such revenues we will likely be dependent upon the efforts, resources and
success of present and future collaborators and licensees who may need to invest significant dollar amounts in research and development efforts, commercialization efforts, clinical trials, and obtaining regulatory approvals over several
years. Such revenues, if any, are uncertain and also depend on many factors as described in Item 1A of this report under the caption Risk Factors.

We have a history of recurring losses from operations and have an accumulated deficit of $510.9 million as of September 30, 2008. As of September 30, 2008, we had available cash and cash equivalents totaling
$112.8 million and working capital of $116.3 million. We also have approximately $6.6 million of auction rate securities (ARS) investments classified as noncurrent marketable securities as of September 30, 2008.

During 2007, we closed a $20.0 million registered direct offering of our common stock to several new and existing investors, as well as a $30.5 million private placement
of our common stock. Under the terms of the registered direct offering we issued and sold 6,666,666 shares at $3.00 per share, with net aggregate proceeds of approximately $18.3 million after deducting placement agents fees and transaction
expenses. Under the terms of the private placement of our common stock we issued and sold 3,383,335 shares at $9.00 per share, with net aggregate proceeds of approximately $28.1 million after deducting placement agents fees and estimated
transaction expenses.

On July 1, 2008, we closed an underwritten public offering of our common stock totaling 5,500,000 shares of our common stock at
$15.50 per share with the underwriters exercising their option to purchase an additional 825,000 shares on July 8, 2008. Including the additional shares, the offering resulted in net aggregate proceeds of approximately $91.9 million after
deducting underwriting discounts, commissions and estimated transaction expenses.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. These accounting principles require us
to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are
made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the
extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. The accounting policies that reflect our more significant estimates, judgments and assumptions and
which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:



| |  |  | Accrued acquisition and integration costs
| | - |  | -----------------------------------------



| |  |  | Impairment of long-lived assets
| | - |  | -------------------------------



| |  |  | Allowance for doubtful accounts
| | - |  | -------------------------------



| |  |  | Valuation of ARS
| | - |  | ----------------



| |  |  | Reserves for obsolete and slow-moving inventory
| | - |  | -----------------------------------------------



| |  |  | Income taxes
| | - |  | ------------



| |  |  | Stock-based compensation
| | - |  | ------------------------



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In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require
managements judgment in its application. There are also areas in which managements judgment in selecting among available alternatives would not produce a materially different result. Our senior management has reviewed these critical
accounting policies and related disclosures with the Audit Committee of the Board of Directors.

During the first nine months of 2008 there were no
significant changes in our critical accounting policies and estimates. Please refer to Managements Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on
Form 10-K for our the year ended December 31, 2007 for a more complete discussion of our critical accounting policies and estimates.

Results
of Operations for the Three and Nine Months Ended September 30, 2008 and 2007

Product revenues

Total product revenues for the three months ended September 30, 2008 increased to $11.6 million from $9.8 million for the same period in 2007 and is comprised of
product sales and contract research services. Total revenues for the nine months ended September 30, 2008 increased to $35.0 million from $29.9 million for the same period in 2007. Product revenues are derived from sales of consumables
including our SpectroCHIP bioarray chips used with our iPLEX and other assays, MassARRAY systems, maintenance agreements, sales and licensing of our proprietary software, and license fees from end-users.

For the three and nine months ended September 30, 2008 compared to the three and nine months ended September 30, 2007, consumable revenues increased to $5.0
million and $14.6 million, respectively, from $4.0 million and $12.0 million due to an increased installed base of MassARRAY Compact systems to the comparative period.

System related revenue was $5.7 million and $16.9 million, respectively, for the three and nine months ended September 30, 2008, compared to $4.9 million and $15.3 million, respectively, for the same period in
2007. The increase of $0.8 million for the three months ended September 30, 2008 as compared to the same period in 2007 was primarily due to higher MassARRAY system sales revenue of $0.6 million associated with an increase in our average
selling price and higher maintenance revenue of $0.2 million due to higher service contracts in effect over our install base versus the comparative period. The increase in system related revenue of $1.6 million for the nine months ended
September 30, 2008, compared to the nine months ended September 30, 2007 was due to an increase in MassARRAY system revenue of $1.1 million associated with an increase in our average selling price and an increase in maintenance
revenue to $2.3 million from $1.8 million for the respective periods.

We recorded contract research service revenues of $0.9 million and $3.5 million,
respectively, for the three and nine months ended September 30, 2008, compared to $0.9 million and $2.6 million, respectively, for the comparative periods in 2007. The increases of $0.9 million for the nine months ended September 30, 2008,
is attributable to our service business growth in primarily the commercial, clinical analysis and the academic research markets, as we expand from the level of services provided in 2007.

Research and other revenues were approximately $0 and $71,000, respectively, for the three and nine months ended September 30, 2008 compared to $0 and $18,000, respectively, for the three and nine months ended
September 30, 2007. The timing of research revenues depends upon our expenditures on grant research and our receipt of grant funding from sponsoring agencies. We expect grant revenue to be minimal going forward.

Our revenues have historically fluctuated from period to period and likely will continue to fluctuate substantially in the future based upon the unpredictable sales
cycle for the MassARRAY Compact system, revenue recognition criteria, and the overall acceptance and demand for our new and existing commercial products and services.

Cost of product and service revenues and gross margin

Cost of product revenues for the three and nine months ended
September 30, 2008 were $3.5 million and $11.3 million, respectively, compared to $3.4 million and $10.5 million, respectively, for the same periods in 2007. Gross margins on product sales for the three and nine months ended September 30,
2008 were 67% and 64%, respectively, compared to 62% and 62%, respectively, for the same periods in 2007. Gross margins slightly increased due to higher systems sales with a favorable mix of new systems at higher margins, as well as increased
consumable sales that sell at higher average gross margins compared to systems sales.

Cost of contract research service revenues for the three and nine
months ended September 30, 2008 were $1.0 million and $3.3 million, respectively, compared to $1.1 million and $2.6 million, respectively, for the same periods in 2007. Gross margins remained consistent for the three and nine months ended
September 30, 2008, compared to the same periods in 2007. Gross margins on contract research service revenues are dependent on the particular contract terms of the work undertaken in each quarter.

For the three and nine months ended September 30, 2008, the Companys overall gross margin was 61% and 58%, respectively, compared to 55% and 56% in the
comparative periods in 2007. The increase in overall gross margin for the three months ended September 30, 2008 is attributable to increased consumables sales that sell at higher average gross margins, and stronger system



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related margins as compared to the same period in 2007. The overall gross margin for the nine months ended September 30, 2008 increased due to increased
consumables sales in 2008, as well as stronger system related margins as compared to the same period in 2007.

We believe that our gross margin in future
periods will be affected by, among other things, the selling price for systems and consumables, consumable sales per MassARRAY system sold, the mix of products sales and contract research services, competitive conditions, sales volumes, discounts
offered, sales through distributors, inventory reserves and obsolescence charges required and royalty payment obligations on in-licensed technologies.

Research and development expenses

Research and development expenses for the three and nine months ended September 30, 2008, increased
to $7.1 and $18.4 million, compared to $2.8 million and $9.9 million for the same periods in 2007. These expenses consisted primarily of salaries and related personnel expenses, product development costs, and expenses relating to work performed
under research contracts.

The increase in expenses of $4.3 million for the three months ended September 30, 2008, compared to the same period in 2007
primarily relates to increased headcount, travel and related costs of $0.7 million, $0.3 million for higher share-based compensation charges, increased operating supplies of $1.4 million primarily associated with our noninvasive prenatal diagnostic
research and development, $1.3 million in higher collaboration costs primarily associated with license fees for rights to our noninvasive prenatal diagnostic test, $0.1 million in higher advisory board, license and maintenance fees, $0.1 million of
increased depreciation and equipment related expenses and $0.7 million in higher allocated overhead charges primarily due to the full allocation of our information technology department across all functional areas. These increases were offset by
decreased consultant and research and development related expenses of $0.3 million from higher development project costs incurred in 2007.

The increase in
research and development expenses of $8.5 million for the nine months ended September 30, 2008 compared to the same period in 2007 primarily relates to increased salaries, travel and personnel costs of $2.9 million, $0.8 million for higher
share-based compensation charges, increased operating supplies of $2.2 million primarily associated with our noninvasive prenatal diagnostic research and development, $1.1 million in higher collaboration costs primarily associated with license fees
for rights to our noninvasive prenatal diagnostic test, $0.4 million in higher advisory board, license and maintenance fees, $0.3 million of increased depreciation and equipment related expenses, $0.1 million for software maintenance expenses and
$1.1 million in higher allocated overhead charges primarily due to the full allocation of our information technology department across all functional areas. These increases were offset by a $0.4 million decrease in consultant and research and
development related expenses.

Selling and marketing expenses

Selling and marketing expenses for the three and nine months ended September 30, 2008 were $5.9 million and $18.0 million, respectively, compared to $4.6 million and $11.9 million for the same periods in 2007. These expenses consisted
primarily of salaries and related expenses for sales and marketing, customer support, and business development personnel and their related department expenses.

The increase in expense of $1.3 million for sales and marketing expenses in the three months ended September 30, 2008 compared to the same period in 2007 were primarily affected by increased costs of $0.3 million for increased
headcount and travel related expenses, $0.6 million for higher share-based compensation charges, $0.1 million related to consulting expenses for sales consultants in Europe and diagnostic and genetic analysis marketing consultants, $0.1 million of
operating supplies for the customer support group, and $0.2 million in higher allocated overhead charges primarily due to the full allocation of our information technology department across all functional areas.

The increase of $6.1 million in sales and marketing expenses for the nine months ended September 30, 2008 compared to the same period in 2007 was primarily affected
by increased costs of $2.9 million for increased headcount and travel related expenses, $1.1 million for higher share-based compensation charges, $0.4 million of marketing expenses for projects associated with our noninvasive prenatal technology,
$0.2 million from the write-off of accounts receivable determined to be not collectible, $0.4 million related to higher sales and marketing expenses consisting of sales costs, postage, customer support and feasibility studies, $0.4 million related
to higher rent and increased operating supplies related to worldwide operations, $0.6 million in higher allocated overhead charges primarily due to the full allocation of our information technology department across all functional areas.

We expect our sales and marketing headcount and associated expenses to increase during 2008 as we strengthen our sales force for our MassARRAY system and related
product sales and contract research services business and as we build our commercial development team for our noninvasive prenatal diagnostic tests.



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General and administrative expenses

General and administrative expenses for the three and nine months ended September 30, 2008 were $4.8 million and $12.5 million, compared to $3.9 million and $10.1 million for the same periods in 2007. These
expenses consisted primarily of salaries and related expenses for legal, finance and human resource personnel, and their related department expenses.

The
increase of $0.9 million for the three months ended September 30, 2008 from the same period in 2007 was primarily due to $0.1 million for increased headcount and related expenses, $0.3 million in higher share-based compensation charges, $1.0
million for increased legal fees, $0.3 million in increased consulting, audit and tax related expenses, $0.2 million for increased software and equipment license, maintenance and communications expenses, $0.1 million for other general and
administrative expenses consisting of depreciation, postage and board of director costs, offset by the allocation of information technology department expenses to other functional departments of $1.1 million.

The increase of $2.4 million for the nine months ended September 30, 2008 from the same period in 2007 was primarily due to $1.3 million for increased headcount and
related expenses, $0.8 million in higher share-based compensation charges, $1.4 million for increased legal fees, $1.1 million in increased consulting, audit and tax related expenses, $0.5 million for increased software and equipment license,
maintenance and communications expenses, $0.2 million for higher depreciation expense, offset by the allocation of information technology department expenses to other functional departments of $2.9 million.

We expect general and administrative costs to increase in 2008 compared to 2007, as we build our infrastructure to support our anticipated growth.

Net interest income

Net interest income was $0.5 million and $1.2
million, respectively, for the three and nine months ended September 30, 2008, compared to $0.4 million and $1.1 million, respectively, for the same periods in 2007, as our cash, cash equivalents and marketable securities balances were higher
in the current periods, offset by lower interest rates earned by our investment portfolio.

Loss on marketable securities

Loss on marketable securities was $0.1 million and $1.2 million for the three and nine months ended September 30, 2008, respectively, compared to no recognized loss
in the comparable period. The recognized loss was due to an other-than-temporary impairment on two of our investments in ARS. If the credit ratings of the security issuers deteriorate or if uncertainties in these markets continue and any decline in
market value is determined to be other-than-temporary in our remaining ARS investments, we would be required to adjust the carrying value of the investment through additional impairment charges.

Other expense, net

Other expense, net was $29,000 and $131,000 for
the three and nine months ended September 30, 2008 and 2007, respectively, compared to other expense, net of $63,000 and $79,000 in the same periods in 2007.

Liquidity and Capital Resources

As of September 30, 2008, cash and cash equivalents totaled $112.8 million, compared to $50.8 million
at December 31, 2007. Our cash reserves are held in a variety of interest-bearing instruments, including certificates of deposit and U.S. Government instruments. We also have approximately $6.6 million of ARS investments classified as
noncurrent marketable securities as of September 30, 2008.

We have a history of recurring losses from operations and have an accumulated deficit of
$510.9 million as of September 30, 2008. Our capital requirements to sustain operations, including research and development projects, have been and will continue to be significant. As of September 30, 2008, we had working capital of $116.3
million.

During 2007, we closed a $20.0 million registered direct offering of our common stock to several new and existing investors, as well as a $30.5
million private placement of our common stock. Under the terms of the registered direct offering we issued and sold 6,666,666 shares at $3.00 per share, with net aggregate proceeds of approximately $18.3 million after deducting placement
agents fees and transaction expenses. Under the terms of the private placement of our common stock we issued and sold 3,383,335 shares at $9.00 per share, with net aggregate proceeds of approximately $28.1 million after deducting placement
agents fees and estimated transaction expenses.

On July 1, 2008, we closed an underwritten public offering of our common stock totaling
5,500,000 shares of our common stock at $15.50 per share, with the underwriters exercising their option to purchase an additional 825,000 shares on July 8, 2008. Including the additional shares, the offering resulted in net aggregate proceeds
of approximately $91.9 million after deducting underwriting discounts, commissions and estimated transaction expenses.



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We consider the material drivers of our cash flow to be sales volumes, accounts receivable, inventory management and
operating expenses. Our principal sources of liquidity are our cash and cash equivalents. Cash used in operations for the nine months ended September 30, 2008, was $22.6 million compared to $12.8 million for the same period in 2007. The use of
cash was primarily a result of the net loss of $28.7 million for the nine months ended September 30, 2008, adjusted for non-cash items of depreciation and amortization of $1.8 million, share-based compensation of $5.0 million, loss on
marketable securities of $1.2 million, non-cash compensation charges related to vesting of restricted stock of $0.2 million and bad debt expense of $0.2 million, offset by a non-cash change in deferred rent of $0.3 million. The changes in our
operating assets and liabilities primarily consisted of an increase in inventories of $4.5 million and other current assets of $0.9 million. These increases were offset by decreases in accounts receivable of $2.0 million, deferred revenue of $0.6
million, other liabilities of $0.6 million and accounts payable and accrued expenses of $0.2 million. At our current and anticipated level of operating loss, we expect to continue to incur an operating cash outflow on a quarterly basis for the
foreseeable future.

Investing activities, other than the changes in our marketable securities and restricted cash of $31.0 million, consist of purchases
for capital equipment that used $2.4 million in cash during the nine months ended September 30, 2008.

Net cash provided by financing activities was
$93.7 million for the nine months ended September 30, 2008, compared to cash provided of $19.5 million for the same period in 2007. Financing activities during the nine months ended September 30, 2008, included the receipt of proceeds from
the issuance of common stock and warrants of $91.9 million, the receipt of proceeds from the exercise of stock options and employee stock purchase plan purchases during the period of $1.5 million and proceeds from our equipment financing line of
$0.6 million. Our cash used consisted of repayments on our asset-backed loan of $0.4 million for the nine months ended September 30, 2008.

Based on
our current plans, we believe our cash, cash equivalents and current marketable securities, will be sufficient to fund our operating expenses and capital requirements through at least 2010. However, the actual amount of funds that we will need will
be determined by many factors, some of which are beyond our control, and we may need funds sooner than currently anticipated. These factors include but are not limited to:



| |  |  | the size of our future operating losses;
| | - |  | ----------------------------------------



| |  |  | the level of our success in selling our MassARRAY products and services;
| | - |  | ------------------------------------------------------------------------



| |  |  | our ability to introduce and sell new products and services, and successfully reduce inventory levels of earlier products;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | the level of our selling, general and administrative expenses;
| | - |  | --------------------------------------------------------------



| |  |  | our success in and the expenses associated with researching, developing and commercializing diagnostic products, alone or in collaboration with our partners, and
obtaining any required regulatory approval for those products;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the extent of our research and development pursuits, including our level of investment in MassARRAY product research and development, and diagnostic research and
development, particularly for noninvasive prenatal diagnostics;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the extent to which we enter into, maintain, and derive revenues from licensing agreements, including agreements to out-license our noninvasive prenatal diagnostic
technology, research and other collaborations, joint ventures and other business arrangements;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the extent to which we acquire, and our success in integrating, technologies or companies;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | the level of our legal expenses including those expenses associated with litigation particularly patent infringement litigation and with intellectual property
protection; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | regulatory changes and technological developments in our markets.
| | - |  | -----------------------------------------------------------------

At September 30, 2008, we had outstanding stand-by letters of credit with financial institutions totaling $1.1 million related to our building and operating leases, which will remain in place until the
expiration of the Newton, Massachusetts building lease agreement in December 2010.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

Marketable Securities and Fair Value Measurements

The primary objective of our investment activities is to preserve principal while at the
same time maximizing the income we receive from our investments without significantly increasing risk. Some of the securities that we invest in may have market risk. This means that a change in prevailing interest rates may cause the fair value of
the principal amount of the investment to fluctuate. For example, if we hold a security that was issued with a fixed interest rate at the then-prevailing rate and interest rates later rise, the fair value of the principal amount of our investment
will probably decline. To minimize this risk in the future, we revised our investment policy in April 2008 to maintain our portfolio of cash equivalents and marketable securities in a variety of securities, including U.S. government securities with
ratings of AAA, and repurchase agreements collateralized by U.S. government securities with ratings of AAA. Our investment policy includes a minimum quality rating for all new investments, as well as limits the amount of credit



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exposure to only issuances from the U.S. Government. If an investment we hold falls below this level, we research the reasons for the fall and determine if
we should continue to hold the investment in order to minimize our exposure to market risk of the investment.

At September 30, 2008, $9.4 million of
principal was invested in auction rate securities (ARS). The ARS held are private placement securities with various long-term nominal maturities with interest rates reset through a dutch auction each month, except for one ARS that resets every 92
days. The monthly auctions historically have provided a liquid market for these securities. The investments in ARS represent interests in collateralized debt obligations supported by insurance securitizations and other structured credits, including
corporate bonds and to a lesser degree, pools of residential and commercial mortgages. All ARS investments purchased by us had AAA/AA credit ratings at the time of purchase. With the liquidity issues experienced in global credit and capital markets,
the ARS held at December 31, 2007 and September 30, 2008 have experienced multiple failed auctions as the amount of securities submitted for sale has exceeded the amount of purchase orders.

We account for our marketable securities in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, and
originally classified these securities as available-for-sale. Consistent with our investment policy guidelines in effect when originally purchased, the ARS investments held by us all had AAA/AA credit ratings at the time of purchase.
With the liquidity issues experienced in global credit and capital markets, the $9.4 million ARS held by us at September 30, 2008, have experienced multiple failed auctions as the amount of securities submitted for sale has exceeded the amount
of purchase orders and we have been unable to liquidate. Two of our ARS investments, which we continue to hold, have been downgraded to credit ratings of B3 and Baa2, respectively, since the beginning of 2008.

Due to the underlying assumptions utilized in our discounted cash flow analyses and that our holdings of ARS are not required for operational purposes through 2010,
which allows time for the securities to return to full value, we have classified all ARS investments as noncurrent assets on the unaudited Condensed Consolidated Balance Sheet at September 30, 2008 of $6.6 million. Although the ARS continue to
pay interest according to their stated terms, based on changes in assumptions and input from our valuation models and an analysis of other-than-temporary impairment factors, a recognized loss of approximately $0.1 million and $1.2 million was
recorded for the three and nine months ended September 30, 2008, respectively, of which $0.5 million represented the reclassification of previously recorded unrealized losses in other comprehensive income that we recorded in the first quarter
of 2008 and reflects the portion of ARS holdings that we have concluded have an other-than-temporary decline in value. The $0.1 million and $1.2 million impairment charges do not have a material impact on our liquidity or financial flexibility. If
we determine that any future valuation adjustment was other than temporary, we would record a charge to operations as appropriate. Any future fluctuation in fair value related to these instruments that we determine to be temporary, including any
recoveries of previous write-downs, would be recorded to accumulated other comprehensive income.

Since there is a lack of observable market quotes on our
investment portfolio of marketable securities and ARS, we utilize valuation models including those that are based on expected cash flow streams and collateral values, including assessments of counterparty credit quality, default risk underlying the
security, discount rates and overall capital market liquidity. The valuation of our investment portfolio is subject to uncertainties that are difficult to predict. Factors that may impact our valuation include changes to credit ratings of the
securities as well as to the underlying assets supporting those securities, rates of default of the underlying assets, underlying collateral value, discount rates, counterparty risk and ongoing strength and quality of market credit and liquidity. In
the event we need to access the ARS investments that are in an illiquid state, we will not be able to do so without the possible loss of principal, until a future auction for these investments is successful or they are redeemed by the issuer or they
mature. The market value of these securities may decline.

Foreign currency rate fluctuations

We have foreign subsidiaries whose functional currencies are the Great British Pound (GBP), and the Euro (EUR). The subsidiaries accounts are translated from the
relevant functional currency to the U.S. dollar using the current exchange rate in effect at the balance sheet date, for balance sheet accounts, and using the average exchange rate during the period for revenues and expense accounts. The effects of
translation are recorded as a separate component of stockholders equity. Our subsidiaries conduct their business with customers in local currencies. Additionally, we occasionally invoice Australian customers in their local currency (AUS).
Exchange gains and losses arising from these transactions are recorded using the actual exchange differences on the date of the transaction. We have not taken any action to reduce our exposure to changes in foreign currency exchange rates, such as
options or futures contracts, with respect to transactions with our subsidiaries or transactions with our customers where the invoicing currency is not the U.S. dollar.

The table below sets forth our currency exposure (i.e., those transactional exposures that give rise to the net currency gains and losses recognized in the income and expenditure account) on our net monetary assets
and liabilities. These exposures consist of our monetary assets and liabilities that are not denominated in the functional currency used by us or our subsidiary having the asset or liability.



|                                  |     |                                                                   |     |  |   |  
|--------------------------------- | --- | ----------------------------------------------------------------- | --- |  | - | -
|Functional currency of operations |     | As of September 30, 2008Net foreign monetary assets/(liabilities)
|                                  | EUR |                                                                   | GBP
|                                  |     | ($ in millions)                                                  
|USD                               |     | $                                                                 | 0.3 |  | $ | 



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A movement of 10% in the EUR to U.S. dollar exchange rate would create an unrealized gain or loss of approximately
$25,000.

We had no off balance sheet, or unrecognized, gains and losses in respect of financial instruments used as hedges at the beginning or end of the
three or nine months ended September 30, 2008. We had no deferred gains or losses during the period covered.

Inflation

We do not believe that inflation has had a material adverse impact on our business or operating results during the periods presented.



|Item 4. | Controls and Procedures
|------- | -----------------------

We have established and maintain
disclosure controls and procedures that are designed to ensure that we record, process, summarize, and report information we are required to disclose in our periodic reports filed with the Securities and Exchange Commission in the manner and within
the time periods specified in the Security and Exchange Commissions rules and forms. We also design our disclosure controls to ensure that the information is accumulated and communicated to our management, including the principal executive
officer and the principal financial officer, as appropriate to allow timely decisions regarding required disclosure. We also maintain internal controls and procedures that are designed to ensure that we comply with applicable laws and our
established financial policies. We design our internal controls to provide reasonable assurance that (1) our transactions are properly authorized; (2) our assets are safeguarded against unauthorized or improper use; and (3) our
transactions are properly recorded and reported in conformity with accounting principles generally accepted in the United States.

We have evaluated the
design and operation of our disclosure controls and procedures to determine whether they are effective in ensuring that the disclosure of required information is timely made in accordance with the Exchange Act and the rules and regulations of the
Securities and Exchange Commission. This evaluation was made under the supervision and with the participation of management, including our principal executive officer and principal financial officer as of September 30, 2008. Our management does
not expect that our disclosure controls or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the
control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of
controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may
become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur
and not be detected.

Our principal executive officer and principal financial officer have concluded, based on their review, that our disclosure controls
and procedures, as defined by Exchange Act Rules 13a-15(e) and 15d-15(e), were effective as of September 30, 2008, to ensure that information required to be disclosed by us in reports that we file under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms.

An evaluation was
also performed under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of any change in our internal control over financial reporting that occurred during our
last fiscal quarter and that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. That evaluation did not identify any such change.

PART IIOTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

In November 2001, we and certain of our current
or former officers and directors were named as defendants in a class action shareholder complaint filed by Collegeware USA in the U.S. District Court for the Southern District of New York (now captioned In re Sequenom, Inc. IPO Securities
Litigation) Case No. 01-CV-10831. Similar complaints were filed in the same District Court against hundreds of other public companies that conducted initial public offerings of their common stock in the late 1990s and 2000. In the complaint,
the plaintiffs allege that our underwriters, certain of our officers and directors and we violated the federal securities laws because our registration statement and prospectus contained untrue statements of material fact or
omitted material facts regarding the compensation to be received by and the stock allocation practices of the underwriters. The plaintiffs seek unspecified monetary damages and other relief. In October 2002, our officers and directors were
dismissed without prejudice pursuant to a stipulated dismissal and tolling agreement with the plaintiffs. In February 2003, the District Court dismissed the claim against us brought under



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Section 10(b) of the Securities Exchange Act of 1934, without giving the plaintiffs leave to amend the complaint with respect to that claim. The
District Court declined to dismiss the claim against us brought under Section 11 of the Securities Act of 1933.

In September 2003, pursuant to
the authorization of a special litigation committee of our board of directors, we approved in principle a settlement offer by the plaintiffs. In September 2004, we entered into a settlement agreement with the plaintiffs. In February 2005, the
District Court issued a decision certifying a class action for settlement purposes and granting preliminary approval of the settlement subject to modification of certain bar orders contemplated by the settlement. In August 2005, the District Court
reaffirmed class certification and preliminary approval of the modified settlement. In February 2006, the District Court dismissed litigation filed against certain underwriters in connection with the claims to be assigned to the plaintiffs under the
settlement. In April 2006, the District Court held a final fairness hearing to determine whether to grant final approval of the settlement. In December 2006, the U.S. Court of Appeals for the Second Circuit vacated the District
Courts decision certifying as class actions the six lawsuits designated as focus cases. Thereafter the District Court ordered a stay of all proceedings in all of the lawsuits pending the outcome of plaintiffs petition to
the Second Circuit for rehearing en banc. In April 2007, the Second Circuit denied plaintiffs rehearing petition, but clarified that the plaintiffs may seek to certify a more limited class in the District Court. Accordingly, the
settlement as originally negotiated was terminated pursuant to stipulation and will not receive final approval. Plaintiffs filed amended complaints in the six focus cases in August 2007. Sequenom is not one of the focus case issuers. In September
2007, Sequenoms named officers and directors again extended the tolling agreement with the plaintiffs. Also in September 2007, the plaintiffs moved to certify the classes alleged in the focus cases and to appoint class representatives and
class counsel in those cases. The focus case issuers filed motions to dismiss the claims against them in November 2007 and an opposition to plaintiffs motion for class certification in December 2007. The District Court denied the motions to
dismiss in March 2008. On October 2, 2008, the plaintiffs withdrew their class certification motion. The focus case defendants now have until October 31, 2008 to answer the amended complaints.

On August 3, 2007, we received a demand letter dated July 31, 2007, demanding on behalf of an alleged stockholder, Vanessa Simmonds, that our board of
directors prosecute a claim against our IPO underwriters, in addition to certain unnamed officers, directors and principal stockholders as identified in our IPO prospectus, for violations of sections 16(a) and 16(b) of the Securities Exchange Act of
1934. The demand letter asserts purchases and sales of our common stock within periods of less than six months and failure to report such transactions, and seeks unspecified disgorgement of profits. We requested further information from
Ms. Simmonds in order to evaluate the demand and although Ms. Simmonds provided a response, we still do not have adequate information to evaluate the demand and there has been no further correspondence or communication with
Ms. Simmonds.

We do not anticipate that the ultimate outcome of either of the events set forth above will have a material adverse impact on our
financial position.

On June 5, 2008, we were named as a defendant in a complaint filed by plaintiffs Beckman Coulter Inc. and Orchid Cellmark Inc. in
the United States District Court for the Southern District of California. In the complaint, the plaintiffs allege that we are infringing three patents owned by Orchid Cellmark Inc. and licensed to Beckman Coulter Inc. by making and selling our iPLEX
products and teaching our customers how to use the products. The plaintiffs seek a permanent injunction enjoining us from further infringement, and unspecified monetary damages, including lost profits, enhanced damages pursuant to 35 U.S.C. §
284, costs, attorneys fees and other relief as the court deems just and proper. On August 15, 2008, we filed an answer and counter claims against plaintiffs seeking declaratory judgments that the patents are not infringed and are invalid
and/or unenforceable. We believe that the plaintiffs claims are without merit and will vigorously defend against the claims advanced in the complaint.

Recently on October 30, 2008, we filed a patent infringement suit against Ibis Biosciences, Inc., a subsidiary of Isis Pharmaceuticals, Inc. The lawsuit was filed in the United States District Court for the District of Delaware. The lawsuit
alleges that the sale or offer for sale of the Ibis T5000 Biosensor System and related technology infringes three U.S. patents: 6,300,076, 6,500,621 and 7,419,787. We are seeking a permanent injunction enjoining the defendant from further
infringement and monetary damages, including enhanced damages pursuant to 35 U.S.C. § 284, costs, attorneys fees and other relief as the court deems just and proper.

In addition, from time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business.



|Item 1A. | Risk Factors
|-------- | ------------

Before deciding to invest in us or deciding to
maintain or increase your investment, you should carefully consider the risks described below, in addition to the other information contained in this report and in our other filings with the SEC. The risks and uncertainties described below and in
our other filings are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business. If any of these known or unknown risks or uncertainties actually
occurs, our business, financial condition and results of operations could be seriously harmed. In that event, the market price for our common stock could decline and you may lose your investment. The risk factors in this report have been revised to
incorporate changes to our risk factors from those included in our annual report on Form 10-K for the year ended December 31, 2007. The risk factors set forth below with an asterisk (*) next to the title are new risk factors or risk
factors containing changes, including any material changes, from the risk factors previously disclosed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2007, as filed with the SEC.

We have limited experience.

Many of our technologies,
particularly our noninvasive prenatal and other molecular diagnostic technologies, are at an early stage of discovery and development. We continue to commercialize new products and create new applications for our products. We are



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developing research-use-only and diagnostic applications for our MassARRAY platform and we have limited or no experience in these applications of our
technology and operating in these markets. You should evaluate us in the context of the uncertainties and complexities affecting an early stage company developing products and applications for the life science industries and experiencing the
challenges associated with entering into new markets that are highly competitive. We need to make significant investments to ensure our products perform properly and are cost-effective, and we or our partners will likely need to apply for and obtain
certain regulatory approvals to sell our products for diagnostic applications and it is uncertain whether such approvals will be granted. Even if we develop products for commercial use and obtain all necessary regulatory approvals, we may not be
able to develop products that are accepted in the genomic, diagnostic, noninvasive prenatal, clinical research, pharmaceutical, or other markets or the emerging field of molecular medicine and that can be marketed and sold successfully.

Our operating results may fluctuate significantly.

Our
revenues and results of operations may fluctuate significantly, depending on a variety of factors, including the following:



| |  |  | our ability to manage costs and expenses and effectively implement our business strategy;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | our and our distributors success in selling, and changes in the demand for, our products and services including our MassARRAY Compact platform and iPLEX Gold
multiplexing application and other applications and related consumables, and demand for products and services for genotyping, DNA methylation (epigenetic analysis) and QGE (gene expression analysis) applications;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our success in selling genetic analysis contract research services;
| | - |  | -------------------------------------------------------------------



| |  |  | our success in depleting or reducing current product inventories in view of new or upcoming product introductions;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | the pricing of our products and services and those of our competitors;
| | - |  | ----------------------------------------------------------------------



| |  |  | variations in the timing of payments from customers and collaborative partners and the recognition of these payments as revenues;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | the timing and cost of any new product or service offerings by us;
| | - |  | ------------------------------------------------------------------



| |  |  | our ability to develop new applications and products, such as noninvasive prenatal or other diagnostic assays and other diagnostic technologies, the success of such
applications and products, and our ability to improve current products to increase demand for such products;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the potential need to acquire licenses to new technology, including genetic markers that may be useful in diagnostic applications, or to use our technology in new
markets, which could require us to pay unanticipated license fees and royalties in connection with licenses we may need to acquire;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our research and development progress and how rapidly we are able to achieve technical milestones, including the milestone of sufficient fetal DNA enrichment and/or
RNA based solutions with respect to our noninvasive prenatal technologies;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the cost, quality and availability of our consumable chips, also known as SpectroCHIP bioarrays, oligonucleotides, DNA samples, tissue samples, reagents and related
components and technologies;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | material developments in our customer and supplier relationships including our ability to successfully transition to new technologies to successfully maintain our
relationships with our customers and suppliers;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to clinically validate any potential noninvasive prenatal or other diagnostic related products and obtain regulatory approval of any potential products;
and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | expenses related to, and the results of, any litigation or other legal proceedings.
| | - |  | -----------------------------------------------------------------------------------

Further, our revenues and operating results are difficult to predict because they depend on the number, timing, and type of MassARRAY system placements that we make during the year, the number, timing, and types of
software licensed or sold, and the quantity and timing of consumables sales for the installed base of systems and the number, timing and type of contract research services agreements that we enter into. Changes in the relative mix of our MassARRAY
system and consumables sales and service agreements can have a significant impact on our gross margin, as consumable sales and service agreements typically have margins significantly different than MassARRAY system sales. Our revenues and operating
results are also difficult to predict because they depend upon the activities of our distributors. The absence of or delay in generating revenues could cause significant variations in our operating results from year to year and could result in
increased operating losses. Although we plan to invest substantial capital toward developing noninvasive prenatal and other diagnostic assays during 2008, we do not expect significant revenues from our diagnostic related initiatives during 2008.



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We believe that period-to-period comparisons of our financial results will not necessarily be meaningful. You should not
rely on these comparisons as an indication of our future performance. If our operating results in any future period fall below the expectations of securities analysts and investors, our stock price will likely fall.

*We may need additional capital to support our growth, which will result in additional dilution to our stockholders.

Our business may require additional investment that we have not yet secured. As of September 30, 2008, we have available cash and cash equivalents of approximately
$112.8 million. We also have approximately $6.6 million of auction rate securities, or ARS, investments classified as noncurrent marketable securities at September 30, 2008.

We believe our cash and cash equivalents will be sufficient to fund our operating expenses and capital requirements through 2010. However, based upon our current plans, our business will require additional investment
that we have not yet secured. The actual amount of funds that we will need will be determined by many factors, some of which are beyond our control, and we may need funds sooner than currently anticipated. These factors include but are not limited
to:



| |  |  | the size of our future operating losses;
| | - |  | ----------------------------------------



| |  |  | the level of our and our distributors success in selling our MassARRAY products and services;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | the terms and conditions of sales contracts, including extended payment terms;
| | - |  | ------------------------------------------------------------------------------



| |  |  | our ability to introduce and sell new products and services and successfully reduce inventory levels of earlier products;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | the level of our selling, general and administrative expenses;
| | - |  | --------------------------------------------------------------



| |  |  | the extent of our investment in diagnostic technology, including prenatal genetic analysis technology, molecular diagnostics and noninvasive prenatal diagnostic
technology, development, commercialization, and regulatory approval;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our success in, and the expenses associated with, researching, developing and commercializing diagnostic products, alone or in collaboration with our partners, and
obtaining any required regulatory approval for those products;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the level of our success alone or in collaboration with our partners in launching and selling any diagnostic products and services;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | the extent of our research and development pursuits, including our level of investment in MassARRAY product research and development, and diagnostic assay and other
technology research and development;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the extent to which we enter into, maintain, and derive revenues from licensing agreements, including agreements to out-license our noninvasive prenatal analysis
technology, research and other collaborations, joint ventures and other business arrangements;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the level of our legal expenses, including those expenses associated with intellectual property protection and those expenses and any damages payments associated
with litigation, including intellectual property litigation;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the extent to which we acquire, and our success in integrating, technologies or companies;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | our ability to liquidate any ARS holdings;
| | - |  | ------------------------------------------



| |  |  | the level of our expenses associated with the audit of our consolidated financial statements as well as compliance with other corporate governance and regulatory
developments or initiatives; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | regulatory changes and technological developments in our markets.
| | - |  | -----------------------------------------------------------------

General market conditions or the market price of our common stock may not support capital raising transactions, such as an additional public or private offering of our common stock or other securities. In addition,
our ability to raise additional capital may depend upon our stock being quoted on the NASDAQ Global Market or upon obtaining shareholder approval. There can be no assurance that we will be able to satisfy the criteria for continued listing on NASDAQ
or that we will be able to obtain shareholder approval if it is necessary. If we are unable to obtain additional funds on a timely basis or on terms favorable to us, we may be required to cease or reduce further commercialization of our products, to
cease or reduce certain research and development projects, to sell, license or otherwise dispose of some or all of our technology or assets or business units or to merge all or a portion of our business with another entity. If we raise additional
funds by selling shares of our capital stock, the ownership interest of our current stockholders will be diluted. Insufficient funds may require us to delay, scale back, or eliminate some or all of our activities.

We have a history of generating a large percentage of our revenue at the end of each quarterly accounting period.

Due to the manner in which many customers in our target markets allocate and spend their budgeted funds for acquisition of our products, a large percentage of our sales
are booked at the end of each quarterly accounting period. Because of this timing of our sales, we may not be able to reliably predict order volumes and our quarterly revenues. A sales delay of only a few days may significantly impact our
quarter-to-quarter comparisons. If our quarterly revenues fall below the expectations of securities analysts and investors,



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our stock price may decline. Similarly, if we are unable to ship our customer orders on time, or if extended payment terms are required, there could be a
material adverse effect on revenues for a given quarter.

A reduction in revenues from sales of MassARRAY products would harm our business.

The demand for MassARRAY systems and consumables and contract research services has changed over time, and any decline in demand will reduce our total
revenues. We expect that sales of MassARRAY systems and consumables will account for most of our total revenues for the foreseeable future. Also, our competitors have offered low priced fee-for-service genotyping services and technologies to the DNA
analysis marketplace. These factors and the following factors, among others, would reduce the demand for MassARRAY products and services:



| |  |  | competition from other products and service providers or failure of our products or applications or services;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | changes in fiscal policies and the economy which negatively impact customer buying decisions; and
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | negative publicity or evaluations, particularly with respect to product warranty and repair and troubleshooting services provided to existing customers and with
respect to our license rights to perform gender testing for social or lifestyle purposes.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our revenues are subject to the risks
faced by biotechnology and diagnostic companies, pharmaceutical companies, and governmental and other research institutions.

We expect that our
revenues in the foreseeable future will be derived primarily from MassARRAY system products provided to academic institutions, biotechnology, diagnostic, and pharmaceutical companies, laboratories, companies and institutions that service the
livestock industry, and governmental and other research institutions. Our operating results could fluctuate substantially due to reductions and delays in research and development expenditures by these customers. These reductions and delays could
result from factors such as:



| |  |  | changes in economic conditions and possible country-based boycotts;
| | - |  | -------------------------------------------------------------------



| |  |  | changes in government programs that provide funding;
| | - |  | ----------------------------------------------------



| |  |  | changes in the regulatory environment affecting health care and health care providers, and, for example, recent draft FDA guidance which, if effected, may impose
additional restrictions on CLIA licensed laboratories performing laboratory diagnostic tests;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | pricing pressures and reimbursement policies;
| | - |  | ---------------------------------------------



| |  |  | market-driven pressures on companies to consolidate and reduce costs;
| | - |  | ---------------------------------------------------------------------



| |  |  | other factors affecting research and development spending; and
| | - |  | --------------------------------------------------------------



| |  |  | uncertainty about our ability to fund operations and supply products and services to customers.
| | - |  | -----------------------------------------------------------------------------------------------

None of these factors are within our control. We have broadened the markets to which we sell our products and applications and continue to develop new applications and
products for use in new markets. We are targeting customers in clinical research and clinical marker validation, the emerging field of molecular medicine, genetic service laboratories, and animal testing laboratories and diagnostic testing markets.
We have limited or no experience operating in these potential markets and, as a result, may be unable to develop products and applications that allow us to penetrate these markets or successfully generate any revenue from sales in these markets. We
will have limited ability to forecast future demand for our existing and any new products and applications in these markets.

*We depend on sales of
our consumable chips and other MassARRAY consumables for a significant portion of our revenues.

Sales of our consumable chips and other consumables
for the MassARRAY system are an important source of revenue. Revenues from MassARRAY consumables totaled approximately 43% and 42% of our total revenues for the three and nine months ended September 30, 2008, respectively, compared to 41% and
40% of our total revenues for the three and nine months ended September 30, 2007, respectively. Factors which may limit the use of our consumable chips and other consumables or otherwise adversely affect our revenues from consumables include:



| |  |  | the extent of our customers level of utilization of their MassARRAY systems;
| | - |  | -----------------------------------------------------------------------------



| |  |  | our ability to provide timely repair services and our ability to secure replacement parts, such as lasers, for our MassARRAY systems;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the extent to which customers increase multiplexing levels using the iPLEX Gold application;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | failure to sell additional MassARRAY systems;
| | - |  | ---------------------------------------------



| |  |  | the termination of contracts with or adverse developments in our relations with suppliers of our consumables;
| | - |  | -------------------------------------------------------------------------------------------------------------



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| |  |  | the training of customer personnel;
| | - |  | -----------------------------------



| |  |  | the acceptance of our technology by our customers;
| | - |  | --------------------------------------------------



| |  |  | the ability to maintain necessary quality standards and specifications for our SpectroCHIP products; and
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | our inability to transition to new suppliers for components for our MassARRAY system and/or our ability to maintain such relationships.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------

*We may not be able to generate any revenue from noninvasive prenatal research-use-only or diagnostic tests, or any other tests we
may develop.

We have committed significant research and development resources to the development of research-use-only and diagnostic tests,
particularly noninvasive prenatal tests, for use on our MassARRAY system and other platforms. Although our licensed partner launched the first research-use-only test, a test for RHD using a reverse transcription polymerase chain reaction (RT-PCR)
platform in early 2008, there is no guarantee that our partner or we will successfully generate significant revenues from this or any other tests for any use. We have no experience in licensing, manufacturing, selling, marketing or distributing our
SEQureDx technology, or diagnostic or other tests. If we, or our partners, are not able to successfully market or sell noninvasive prenatal research-use-only or diagnostic tests or other tests we may develop for any reason, including the failure to
obtain any required regulatory approvals, we will not generate any revenue from the sale of such tests. Even if we are able to develop noninvasive prenatal research-use-only or diagnostic or other tests for sale in the marketplace, a number of
factors could impact our ability to generate any significant revenue from the sale of such tests, including the following:



| |  |  | reliance on third-party CLIA-certified laboratories, which are subject to routine governmental oversight and inspections for continued operation pursuant to CLIA,
to process tests that we develop;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | reliance on third parties to manufacture any noninvasive prenatal research-use-only or diagnostic or other tests that we may develop;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the availability of alternative and competing tests or products;
| | - |  | ----------------------------------------------------------------



| |  |  | compliance with federal, state (including New York state) and foreign regulations for the sale and marketing of research-use-only or diagnostic or other tests,
including noninvasive prenatal tests;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the accuracy rates of such tests, including rates of false-negatives and/or false-positives;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | concerns regarding the safety or effectiveness of noninvasive prenatal or other tests;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | changes in the regulatory environment affecting health care and health care providers, including changes in laws regulating laboratory testing and/or device
manufacturers;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the extent and success of our sales and marketing efforts;
| | - |  | ----------------------------------------------------------



| |  |  | pricing pressures and changes in third-party payor reimbursement policies;
| | - |  | --------------------------------------------------------------------------



| |  |  | general changes or developments in the market for womens and/or prenatal health diagnostics, or diagnostics in general;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | ethical and legal issues concerning the appropriate use of the information resulting from diagnostic or other tests;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | the refusal by women to undergo such tests for moral, religious or other reasons, or based on perceptions about the safety or reliability of such tests; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | intellectual property rights held by others.
| | - |  | --------------------------------------------

If our customers are unable to adequately prepare samples for our MassARRAY system, the overall market demand for our products may decline.

Before using the MassARRAY system, customers must prepare samples by following several steps that are subject to human error, including DNA isolation and DNA amplification. If DNA samples are not prepared appropriately, or the proposed
assays are too complex, the MassARRAY system may not generate a reading or a correct reading. If our customers experience these difficulties, they might achieve lower throughput levels than specified for the system. If our customers are unable to
generate expected levels of throughput, they might not continue to purchase our consumables, they could express their discontent with our products to others, or they could collaborate with others to jointly benefit from the use of our products. Any
or all of these actions would reduce the overall market demand for our products. From time to time, we have experienced customer complaints regarding data quality and difficulty in processing more complex assays.

The sales cycles for our products are lengthy, and we may expend substantial funds and management effort with no assurance of successfully selling our products or
services.

The sales cycles for our MassARRAY system products are typically lengthy. Our sales and licensing efforts require the effective
demonstration of the benefits, value, and differentiation and validation of our products and services, and significant education and



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training of multiple personnel and departments within a customer organization. We may be required to negotiate agreements containing terms unique to each
prospective customer or licensee which would lengthen the sales cycle. We may expend substantial funds and management effort with no assurance that we will sell our products or services. In addition, this lengthy sales cycle makes it more difficult
for us to accurately forecast revenue in future periods and may cause revenues and operating results to vary significantly in such periods.

We may
not be able to successfully adapt our products for commercial applications.

A number of potential applications of our MassARRAY technology,
including research-use-only and diagnostic applications for noninvasive prenatal and other molecular testing, may require significant enhancements in our core technology or the in-licensing of intellectual property rights or technologies. If we are
unable to complete the development, introduction, or scale-up of any product, or if any of our products or applications, such as gene expression analysis, epigenetic analysis or iPLEX Gold multiplexing, do not achieve a significant level of market
acceptance, our business, financial condition and results of operations could be seriously harmed. Achieving market acceptance will depend on many factors, including demonstrating to customers that our technology is cost competitive or superior to
other technologies and products that are available now or that may become available in the future. We believe that our revenue growth and profitability will substantially depend on our ability to overcome significant technological challenges and
successfully introduce our newly developed products, applications, and services into the marketplace.

We have limited commercial production
capability and experience and may encounter production problems or delays, which could result in lower revenue.

We partially assemble the MassARRAY
system and partially manufacture our consumable chips and MassARRAY kits. To date, we have only produced these products in moderate quantities. We may not be able to maintain acceptable quality standards as we continue or ramp up production. For
example, we have experienced crystallized matrix on some of our chips, which has interfered with chip performance. To achieve anticipated customer demand levels, we will need to scale-up our production capability and maintain adequate levels of
inventory while manufacturing our products at a reasonable cost. We may not be able to produce sufficient quantities to meet market demand or manufacture our product at a reasonable cost. If we cannot achieve the required level and quality of
production, we may need to outsource production or rely on licensing and other arrangements with third parties. This reliance could reduce our gross margins and expose us to the risks inherent in relying on others. We might not be able to
successfully outsource our production or enter into licensing or other arrangements with these third parties, which would adversely affect our business.

*We depend on third-party products and services and limited sources of supply to develop and manufacture our products.

We rely on
outside vendors to supply certain products and the components and materials used in our products. Some of these products, components and materials are obtained from a single supplier or a limited group of suppliers. Our MassARRAY system is comprised
of several components, of which the following are currently obtained from a single supplier: Bruker Daltonics, Inc. supplies our mass spectrometers, PSI, Inc. supplies our chips, Majer Precision Engineering, Inc. supplies the pins for the pin-tools
and Paragon Medsystems LLC and Thermo Fischer Matrix who supply our nano dispenser liquid handling devices.

Our consumables also include components
provided by sole suppliers, New England Biolabs, Epicentre, BioRad, and USB. In the event of any adverse developments with these vendors, our product supply may be interrupted, which would have an adverse impact on our business. In the past, we have
experienced quality problems with and delays in receiving components used to produce our consumable chips, problems with laser reliability in our mass spectrometers supplied by Bruker and lengthy delays in obtaining lasers for replacement, problems
with matrix crystallization on our chips, and also had technical difficulties with our pin-tool nanoliter dispenser device. We have also experienced software and operational difficulties with our MassARRAY Compact system. Our reliance on outside
vendors generally and a sole or a limited group of suppliers in particular involves several risks, including:



| |  |  | the inability to obtain an adequate supply of properly functioning, required products, components, and materials due to capacity constraints, product defects, a
discontinuance of a product by a supplier, or other supply constraints;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | reduced control over quality and pricing of products, components, and materials; and
| | - |  | ------------------------------------------------------------------------------------



| |  |  | delays and long lead times in receiving products, components, or materials from vendors.
| | - |  | ----------------------------------------------------------------------------------------

We and our licensees and collaborators may not be successful in developing or commercializing diagnostic products, diagnostic assays including noninvasive prenatal
diagnostic products, or other products using our products, services, or discoveries.

Development of diagnostic or other products by us, our
licensees, or our collaborators including assays, are subject to risks of failure inherent in the development and commercial viability of any such product, such as demand for such product. These risks further include the possibility that such
product would:



| |  |  | be found to be ineffective, unreliable, or otherwise inadequate or otherwise fail to receive regulatory approval;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | be difficult or impossible to manufacture on a commercial scale;
| | - |  | ----------------------------------------------------------------



| |  |  | be uneconomical to market;
| | - |  | --------------------------



| |  |  | fail to be successfully commercialized if adequate reimbursement from government health administration authorities, private health insurers, and other organizations
for the costs of these products is unavailable;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | be impossible to commercialize because they infringe on the proprietary rights of others or compete with products marketed by others that are superior; or
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | fail to be commercialized prior to the successful marketing of similar products by competitors.
| | - |  | -----------------------------------------------------------------------------------------------

If a licensee discovers or develops diagnostic products or we or a collaborator discover or develop diagnostic or other products using our technology, products,
services, or discoveries, we may rely on that licensee or collaborator (hereafter referred to as partner) for product development, regulatory approval, manufacturing, and marketing of those products before we can realize revenue and some
or all of the milestone payments, royalties, or other payments we may be entitled to under the terms of the licensing or collaboration agreement. If we are unable to successfully achieve milestones or our partners fail to develop successful
products, we will not earn the revenues contemplated and we may also lose exclusive (as in the case of our license agreement with Isis Innovation Ltd, or ISIS, under which we in-license our fundamental noninvasive prenatal diagnostic technology) or
non-exclusive license rights to intellectual property that are required to commercialize such products. Our agreements may allow our partners significant discretion in electing whether to pursue any of these activities. We cannot control the amount
and timing of resources our partners may devote to our programs or potential products. As a result, we cannot be certain that our partners will choose to develop or commercialize any products or will be successful in doing so. In addition, if a
partner is involved in a business combination, such as a merger or acquisition, or changes its business focus, its performance under its agreement with us may suffer and, as a result, we may not generate any revenues or only limited revenues from
the royalty, milestone, and similar payment provisions contained in our agreement with that partner.

*Our ability to compete in the market may
decline if we lose or may not obtain some of our intellectual property rights.

Our success will depend on our ability to obtain and protect patents
on our technology, to protect our trade secrets, and to maintain our rights to licensed intellectual property or technologies. Our patent applications or those of our licensors may not result in the issue of patents in the United States or other
countries. Our patents or those of our licensors may not afford meaningful protection for our technology and products. Others may challenge our patents or those of our licensors in litigation or by proceedings such as interference, oppositions and
reexaminations, as is the case with the appeal pending before the European Patent Office with respect to the patent rights that we in-licensed from ISIS for prenatal diagnostics (United States Patent No. 6,258,540 and European Patent
No. 994963), and as a result, our patents or those of our licensors could be narrowed or invalidated or become unenforceable. Competitors may develop products similar to ours that do not conflict with our patents or patent rights. Others may
develop noninvasive prenatal tests or other diagnostic tests or products, technologies or methods in violation of our patents or those of our licensors, or by operating around our patents or license agreements, which could reduce sales of our
consumables or reduce or remove our noninvasive prenatal and other diagnostic commercialization opportunities. To protect or enforce our patent rights, we may initiate interference proceedings, oppositions, reexaminations or litigation against
others. However, these activities are expensive, take significant time and divert managements attention from other business concerns. We may not prevail in these activities. The patent position of biotechnology companies generally is highly
uncertain and involves complex legal and factual questions that are often the subject of litigation. No consistent policy has emerged from the U.S. Patent and Trademark Office, the offices of foreign countries or the courts regarding the breadth of
claims allowed or the degree of protection afforded under biotechnology patents. There is a substantial backlog of biotechnology patent applications at the U.S. Patent and Trademark Office and of the equivalent offices around the world and the
approval or rejection of patent applications may take several years.

*Claims by other companies that we infringe their intellectual property rights
or that patents on which we rely are invalid could adversely affect our business.

From time to time, companies have asserted, and may again assert,
patent, copyright and other intellectual proprietary rights against our products or products using our technologies. These claims have resulted and may in the future result in lawsuits being brought against us. For example, we are named as a
defendant in a lawsuit brought by Beckman Coulter Inc. and Orchid Cellmark Inc. In this lawsuit, Beckman Coulter and Orchid Cellmark have alleged that by making and selling our iPLEX products and teaching our customers how to use these products, we
are infringing, contributing, and inducing others to infringe three patents owned by Orchid Cellmark. We may not prevail in this litigation or any future lawsuits alleging patent infringement given the complex technical issues and inherent
uncertainties in intellectual property litigation. If any of our products, technologies or activities, in particular our iPLEX products from which we derive a substantial portion of our revenues, were found to infringe on another companys
intellectual property rights, we could be subject to an injunction that would force the removal of our products from the market or we could be required to redesign our products, which could be costly. We could also be ordered to pay damages or other
compensation, including punitive damages and attorneys fees to such other company. A negative outcome in any such litigation could also severely disrupt the sales of our marketed products to our customers or their customers, which in turn
could harm our relationships with our customers, our market share and and/or product revenues. Even if we are ultimately successful in defending any intellectual property litigation, such litigation is expensive and time consuming to address, will
divert our managements attention from our business and may harm our reputation.

Other companies or entities also may commence actions seeking to
establish the invalidity of our patents. In the event that one or more of our patents are challenged, a court may invalidate the patent(s) or determine that the patent(s) is not enforceable, which could harm



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our competitive position. For example, we recently filed a patent infringement lawsuit against defendant Ibis Biosciences, Inc., a subsidiary of Isis
Pharmaceuticals, Inc. in the United States District Court for the District of Delaware. We believe that the sale and offer for sale of Ibis products and technology infringes three Sequenom patents related to nucleic acid analysis by mass
spectrometry. We are seeking a permanent injunction enjoining defendant from further infringement and monetary damages. Defendant may challenge the validity of our patents as part of the lawsuit. If one or more of our patents are invalidated,
or if the scope of the claims in any of these patents is limited by a court decision, we could lose certain market exclusivity afforded by patents owned or in-licensed by us and potential competitors could more easily bring products to the market
that directly compete with our own. Such adverse decisions may negatively impact our revenues.

The rights we rely upon to protect the intellectual
property underlying our products may not be adequate, which could enable others to use our technology and reduce our ability to compete with them.

We require our employees, consultants, advisors, and collaborators to execute confidentiality agreements and in certain cases, assignment or license agreements. We cannot guarantee that these agreements will provide us with adequate
intellectual property ownership or protection against improper or unauthorized use or disclosure of confidential information or inventions. In some situations, these agreements may conflict with or be subject to the rights of others with whom our
employees, consultants, advisors, or collaborators have prior employment or consulting relationships. In some situations, as is the case with our employees in Germany, these types of agreements or relationships are subject to foreign law, which
provides us with less favorable rights or treatment than under U.S. law. Others may gain access to our inventions, trade secrets or independently develop substantially equivalent proprietary materials, products, information, and techniques.

We may not successfully obtain regulatory approval of any noninvasive prenatal or other diagnostic product or other product which we or our
licensing or collaborative partners develop and we may not be able to successfully partner with CLIA licensed laboratories with respect to research-use-only products.

Products that we or our collaborators develop in the molecular medicine, diagnostic, noninvasive prenatal diagnostic, or other markets, depending on their intended use, may be regulated as medical devices by the FDA
and comparable agencies of other countries and require either premarket approval, or PMA, or 510(k) clearance from the FDA, prior to marketing. The 510(k) clearance process usually takes from three to six months from submission, but can take
significantly longer. The PMA process is much more costly, lengthy, uncertain, and generally takes from nine months to one year or longer from submission. Also, recent draft guidance from the FDA suggests changes in regulations that would be
applicable to CLIA licensed laboratories which, if such regulations become effective, could burden and delay our ability to partner or collaborate with CLIA licensed laboratories with respect to our commercialization plans for diagnostic products.
In addition, commercialization of any diagnostic or other product that our licensees or collaborators or we develop would depend upon successful completion of preclinical testing and clinical trials. Preclinical testing and clinical trials are long,
expensive, and uncertain processes, and we do not know whether we, our licensees, or any of our collaborators, would be permitted or able to undertake clinical trials of any potential products. It may take us or our licensees or collaborators many
years to complete any such testing, and failure could occur at any stage. Preliminary results of trials do not necessarily predict final results, and acceptable results in early trials may not be repeated in later trials. A number of companies in
the diagnostic pharmaceutical industry, including biotechnology companies, have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. Delays or rejections of potential products may be encountered
based on changes in regulatory policy for product approval during the period of product development and regulatory agency review. If our projects reach clinical trials, we or our licensees or collaborators could decide to discontinue development of
any or all of these projects at any time for commercial, scientific, or other reasons.

*The results of preclinical studies and completed clinical
trials are not necessarily predictive of future results, and our current product candidates may not have favorable results in later studies or trials.

To date, long-term safety and efficacy have not yet been demonstrated in clinical trials for any of our diagnostic product candidates. Favorable results in our early studies or trials may not be repeated in later studies or trials that will
be required to obtain either PMA or 510(k) clearance from the FDA prior to marketing any of our product candidates. Our product candidates may fail to demonstrate positive results in clinical trials despite having progressed through earlier-stage
trials. In particular, the limited results that we have obtained for our prenatal diagnostic tests may not predict results from studies in larger numbers of subjects drawn from more diverse populations over a longer period of time. Unfavorable
results from ongoing preclinical studies or clinical trials could result in delays, modifications or abandonment of ongoing or future clinical trials, or abandonment of a product development program. Preclinical and clinical results are frequently
susceptible to varying interpretations that may delay, limit or prevent regulatory approvals or commercialization.

If the validity of the consents
from volunteers were to be challenged, we could be forced to stop using some of our resources, which would hinder our gene discovery outlicensing efforts and our diagnostic product development efforts.

We have attempted to ensure that all clinical data and genetic and other biological samples that we receive from our subsidiaries and our clinical collaborators have been
collected from volunteers who have provided our collaborators or us with appropriate consents for the data and samples provided for purposes which extend to include diagnostic product development activities. We have attempted to ensure that data and
samples that have been collected by our clinical collaborators are provided to us on an anonymous basis. We have also attempted to ensure that the volunteers from whom our data and samples are collected do not retain or have conferred on them any
proprietary or commercial rights to the data or any discoveries derived from them. Our clinical collaborators are based in a



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number of different countries, and, to a large extent, we rely upon our clinical collaborators for appropriate compliance with the voluntary consents
provided and with local law and regulation. That our data and samples come from and are collected by entities based in different countries results in complex legal questions regarding the adequacy of consents and the status of genetic material under
a large number of different legal systems. The consents obtained in any particular country could be challenged in the future, and those consents could prove invalid, unlawful or otherwise inadequate for our purposes. Any findings against us, or our
clinical collaborators, could deny us access to or force us to stop using some of our clinical or genetic resources, which would hinder our diagnostic product development efforts. We could become involved in legal challenges, which could consume a
substantial proportion of our management and financial resources.

If we cannot obtain licenses to patented SNPs and genes, we could be prevented
from obtaining significant revenue or becoming profitable.

The U.S. Patent and Trademark Office has issued and continues to issue patents claiming
single nucleotide polymorphism, or SNP, and gene discoveries and their related associations and functions. If certain SNPs and genes are patented, we will need to obtain rights to those SNPs and genes to develop, use, and sell related assays and
other types of products or services utilizing such SNPs and genes. Required licenses may not be available on commercially acceptable terms. If we were to fail to obtain licenses to certain patented SNPs and genes, we might never achieve significant
revenue from our diagnostic product development.

If the medical relevance of SNPs is not demonstrated or is not recognized by others, we may have
less demand for our products and services and may have less opportunity to enter into diagnostic product development and commercialization collaborations with others.

Some of the products we hope to develop involve new and unproven approaches or involve applications in markets that we are only beginning to explore. They are based on the assumption that information about genes and
SNPs may help scientists better understand conditions or complex disease processes. Scientists generally have a limited understanding of the role of genes and SNPs in diseases, and few products based on gene discoveries have been developed. We
cannot be certain that genetic information will play a key role in the development of diagnostics or other products in the future, or that any genetic-based findings would be accepted by diagnostic, pharmaceutical, or biotechnology companies or by
any other potential market or industry segment. If we or our customers or collaborators are unable to generate valuable information that can be used to develop diagnostics or other products, the demand for our products, applications, and services
will be reduced and our business will be harmed.

We may not be able to form and maintain the collaborative relationships or the rights to
third-party intellectual property and technologies that our business strategy requires and such relationships may lead to disputes over technology rights or product revenue, royalties, or other payments.

We form research collaborations and licensing arrangements with collaborators to operate our business successfully. To succeed, we will have to maintain our existing
relationships and establish additional collaborations and licensing arrangements. Our current strategy includes pursuing partnering opportunities with larger companies interested in or involved in the development of pharmaceutical and diagnostic
products to potentially advance our disease gene discoveries and related targets toward drug or diagnostic development. Our strategy also includes obtaining licenses to third-party intellectual property rights and technologies, such as our exclusive
license to noninvasive prenatal analysis rights that we acquired from ISIS (United States Patent No. 6,258,540 and foreign equivalents), to potentially expand our product portfolio and generate additional sources of revenue. If we do not
achieve certain milestones in a timely manner, we risk losing our exclusive license rights from ISIS. We cannot be sure that we will be able to establish any additional research collaborations, licensing arrangements, or other partnerships necessary
to develop and commercialize products or that we can do so on terms favorable to us. If we are unable to establish these collaborations or licensing arrangements, we may not be able to successfully develop any diagnostic or other products or
applications and generate any milestone, royalty, or other revenue from sales of these products or applications. If our collaborations or licensing arrangements are not successful or we are not able to manage multiple collaborations successfully,
our programs will suffer and we may never generate any revenue from sales of products based on licensed rights or technologies or under these collaborative or licensing arrangements. If we increase the number of collaborations or licensing
agreements, it will become more difficult to manage the various relationships successfully and the potential for conflicts among the collaborators and licensees or licensors will increase. Conflicts with our collaborators, licensees or licensors, or
other factors may lead to disputes over technology or intellectual property rights or product revenue, royalties, or other payments, which may adversely effect our business.

In addition, our government grants provide the government certain license rights to inventions resulting from funded work. Our business could be harmed if the government exercises those rights.



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Because we exclusively licensed our noninvasive prenatal diagnostic and gender determination testing rights from
ISIS any dispute with ISIS may adversely affect our ability to develop and commercialize diagnostic tests based on these licensed rights.

In
October 2005, we entered into an exclusive license to noninvasive prenatal diagnostic rights (United States Patent No. 6,258,540 and foreign equivalents) with ISIS which we amended in October 2006 and in November 2007 to also include exclusive
rights to intellectual property for noninvasive prenatal gender determination testing for social and lifestyle purposes. We intend to use the rights that we acquired under the license to develop noninvasive prenatal nucleic acid based tests,
including gender determination tests. If there is any dispute between us and ISIS regarding our rights under the license agreement, or we do not achieve certain commercial launch milestones, in a timely manner, our ability to exclusively
commercialize these diagnostic tests may be adversely affected and could delay or completely terminate our product development and commercialization efforts for these diagnostic tests.

If we do not succeed in obtaining development and marketing rights for products developed in collaboration with others, our revenue and profitability prospects could be substantially harmed.

Our business strategy includes, in part, the development of noninvasive prenatal diagnostic and other products in collaboration with others, or utilizing the
technology of others, and we intend to obtain commercialization or royalty rights to those products or technologies. If we are unable to obtain such rights, or are unable to do so on favorable financial terms, our revenue and profitability prospects
could be substantially harmed. To date, we have initiated limited activities towards commercializing products developed in collaboration with, or utilizing the technology of, others. Even if we obtain commercialization rights, commercialization of
products may require resources that we do not currently possess and may not be able to develop or obtain, or commercialization may be financially unattractive based upon the revenue-sharing terms offered by potential licensors or provided for in the
relevant agreement.

Ethical, privacy, or other concerns about the use of genetic information could reduce demand for our products and services.

Genetic testing, including gender determination testing, has raised ethical issues regarding privacy and the appropriate uses of the resulting
information. For these reasons, governmental authorities may limit or otherwise regulate the use of genetic testing or prohibit testing for genetic predisposition to certain conditions, particularly for those that have no known cure. Such concerns
may lead individuals to refuse to use genetics tests even if permitted. Any of these scenarios could reduce the potential markets for our products and services, which would seriously harm our business, financial condition, and results of operations.



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If we breach any of the terms of our license or supply agreements, or these agreements are otherwise terminated or
modified, the termination or modification of such agreements could result in our loss of access to critical components and could delay or suspend our commercialization efforts.

We have sourced or licensed components of our technology from other parties. For example, Bruker Daltonics supplies our mass spectrometers, PSI, Inc. supplies our chips and Majer Precision Engineering supplies the
pins for our present nanodispenser (pin-tool) product, and New England Biolabs, Epicentre and USB supply us with reagents used with our consumables. Our failure to maintain continued supply of such components, particularly in the case of sole
suppliers, or the right to use these components would seriously harm our business, financial condition, and results of operations. We have minimum purchase obligations under our supply agreement with Bruker. As a result, in the event that demand for
our products declines or does not meet our forecasts, we could have excess inventory or increased expenses or our margins could decrease which could have an adverse impact on our financial condition and business. In the event of any adverse
developments with these vendors, our product supply may be interrupted, which would have an adverse impact on our business. Changes to or termination of our agreements or inability to renew our agreements with these parties or enter into new
agreements with other suppliers could result in the loss of access to these aspects of our technology or other intellectual property rights or technologies that we may acquire from time to time and could impair, delay, or suspend our
commercialization efforts. While we negotiate for agreement periods or notice of termination periods that provide us reasonable periods of time to secure alternative supplies, and require that such agreements may not be terminated without advance
notice arbitrarily or without good reason, such as uncured breach or insolvency, such provisions may not provide us with adequate time to secure alternative supplies, provide us with access to alternative technologies on commercially acceptable
terms, or otherwise provide us with adequate protection.

We may not successfully integrate acquired businesses.

We may acquire additional businesses or technologies, or enter into other strategic transactions. Managing acquisitions entails numerous operational and financial risks,
including:



| |  |  | the inability to retain key employees of any acquired businesses or hire enough qualified personnel to staff any new or expanded operations;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the impairment of relationships with key customers of acquired businesses due to changes in management and ownership of the acquired businesses;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the inability to sublease on financially acceptable terms excess leased space or terminate lease obligations of acquired businesses that are not necessary or useful
for the operation of our business;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the exposure to federal, state, local and foreign tax liabilities in connection with any acquisition or the integration of any acquired businesses;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the exposure to unknown liabilities;
| | - |  | ------------------------------------



| |  |  | higher than expected acquisition and integration expenses that would cause our quarterly and annual operating results to fluctuate;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | increased amortization expenses if an acquisition results in significant intangible assets;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | combining the operations and personnel of acquired businesses with our own, which would be difficult and costly;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | disputes over rights to acquired technologies or with licensors or licensees of those technologies; and
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | integrating or completing the development and application of any acquired technologies, which would disrupt our business and divert managements time and
attention.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

We may not be able to successfully compete in the biotechnology and diagnostic industries.

The biotechnology and diagnostic industries are highly competitive. We expect to compete with a broad range of companies in the United States and other countries that are
engaged in the development and production of products, applications, services, and strategies to analyze genetic information and strategies to develop and commercialize diagnostic, noninvasive prenatal diagnostic, and other products for customers in
the clinical research and clinical marker validation and molecular medicine fields as well as diagnostic service laboratories, animal testing and food safety labs, and customers in other markets. They include:



| |  |  | biotechnology, pharmaceutical, diagnostic, chemical, and other companies;
| | - |  | -------------------------------------------------------------------------



| |  |  | academic and scientific institutions;
| | - |  | -------------------------------------



| |  |  | governmental agencies; and
| | - |  | --------------------------



| |  |  | public and private research organizations.
| | - |  | ------------------------------------------

Many of
our competitors have much greater financial, technical, research, marketing, sales, distribution, service, and other resources than we do. Our competitors may offer broader product lines and services and have greater name recognition than we do.
Several



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companies are currently making or developing products that compete with our products. Our competitors may develop or market technologies or products that are
more effective or commercially attractive than our current or future products, or that may render our technologies or products obsolete.

We may
potentially compete with our customers, which may adversely affect our business.

We have sold MassARRAY systems worldwide to pharmaceutical and
biotechnology companies, academic research centers, and government laboratories. Some of our customers use our DNA analysis products to perform contract research services, or to perform genetics studies on their own disease populations for potential
diagnostic and drug target identification in the same or similar manner as we have done. Although there are many potential contract research services opportunities and disease areas and diagnostic applications, our customers may seek service work or
develop diagnostic assays or may target diseases areas that may overlap with those that we have chosen to pursue. In such cases we may potentially compete against our customers. Competition from our customers may adversely affect our services
business or our ability to successfully commercialize diagnostic products.

If we cannot attract and retain highly-skilled personnel, our growth
might not proceed as rapidly as we intend.

The success of our business will depend on our ability to identify, attract, hire, train, retain,
maintain, and motivate highly skilled personnel, particularly sales, scientific, medical, and technical personnel, for our future success. Competition for highly skilled personnel is intense, and we might not succeed in attracting and retaining
these employees. If we cannot attract and retain the personnel we require, we would not be able to expand our business as rapidly as we intend. In particular, if we lose any key member of our management team, we may not be able to find suitable
replacements and our business may be harmed as a result. If our management team is not able to effectively manage us through these restructuring changes and transitions, our business, financial condition, and results of operations may be adversely
affected. We do not carry key person insurance covering any of our officers or other employees.

If we do not effectively manage our
business as it evolves, it could affect our ability to pursue opportunities and expand our business.

Evolution in our business has placed and may
continue to place a significant strain on our personnel, facilities, management systems, and resources. We will need to continue to improve our operational and financial systems and managerial controls and procedures and train and manage our
workforce. We will have to maintain close coordination among our various departments. If we fail to effectively manage the evolution of our business and the significant restructuring changes that we have experienced, our ability to pursue business
opportunities, expand our business, and sell our products and applications in new markets may be adversely affected.

*We are subject to risks
associated with our foreign operations.

We expect that a significant portion of our sales will continue to be made outside the United States.
Approximately 42% and 46% of our sales were made outside of the United States during the three and nine months ended September 30, 2008, respectively, compared to 41% and 44% for the three and nine months ended September 30, 2007,
respectively. A successful international effort will require us to develop relationships with international customers and collaborators, including distributors. We may not be able to identify, attract, retain, or maintain suitable international
customers or collaborators. Expansion into international markets will require us to establish and grow foreign operations, hire additional personnel to run these operations, and maintain good relations with our foreign customers and collaborators or
distributors. International operations also involve a number of risks not typically present in domestic operations, including:



| |  |  | currency fluctuation risks;
| | - |  | ---------------------------



| |  |  | changes in regulatory requirements;
| | - |  | -----------------------------------



| |  |  | costs and risks of deploying systems in foreign countries;
| | - |  | ----------------------------------------------------------



| |  |  | licenses, tariffs, and other trade barriers;
| | - |  | --------------------------------------------



| |  |  | political and economic instability and possible country-based boycotts;
| | - |  | -----------------------------------------------------------------------



| |  |  | difficulties in staffing and managing foreign operations;
| | - |  | ---------------------------------------------------------



| |  |  | potentially adverse tax consequences;
| | - |  | -------------------------------------



| |  |  | the burden of complying with a wide variety of complex foreign laws and treaties; and
| | - |  | -------------------------------------------------------------------------------------



| |  |  | different rules, regulations, and policies governing intellectual property protection and enforcement.
| | - |  | ------------------------------------------------------------------------------------------------------

Our international operations are also subject to the risks associated with the imposition of legislation and regulations relating to the import or export of high
technology products. We cannot predict whether tariffs or restrictions upon the importation or exportation of our products will be implemented by the United States or other countries.



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If our production and laboratory facilities are damaged, our business would be seriously harmed.

Our only production facility is located in San Diego, California, where we also have laboratories. Damage to our facilities due to war, fire,
natural disaster, power loss, communications failure, terrorism, unauthorized entry, or other events could prevent us from conducting our business for an indefinite period, could result in a loss of important data or cause us to cease development
and production of our products. We cannot be certain that our limited insurance to protect against business interruption would be adequate or would continue to be available to us on commercially reasonable terms, or at all.

Responding to claims relating to improper handling, storage or disposal of hazardous chemicals, and radioactive and biological materials which we use could be time
consuming and costly.

We use controlled hazardous and radioactive materials in the conduct of our business, as well as biological materials that
have the potential to transmit disease. The risk of accidental contamination or injury from these materials cannot be completely eliminated. If an accident with these substances occurs, we could be liable for any damages that result, which could
seriously harm our business. Additionally, an accident could damage our research and manufacturing facilities and operations, resulting in delays and increased costs. Such damage and any expense resulting from delays, disruptions, or any claims may
not be covered by our insurance policies.

We may not have adequate insurance if we become subject to product liability or other claims.

Our business exposes us to potential product liability and other types of claims and our exposure will increase as we and our partners and collaborators
prepare to commercialize research-use-only or other types of noninvasive prenatal tests. We have product and general liability insurance that covers us against specific product liability and other claims up to an annual aggregate limit of $5
million. Any claim in excess of our insurance coverage would have to be paid out of our cash reserves, which would have a detrimental effect on our financial condition. It is difficult to determine whether we have obtained sufficient insurance to
cover potential claims. Also, we cannot assure you that we can or will maintain our insurance policies on commercially acceptable terms, or at all.

*Negative conditions in the global credit markets may impair the liquidity and value of a portion of our investment portfolio.

Our
marketable securities consist of ARS, corporate debt securities and government agency securities. As of September 30, 2008, our marketable securities consisted of $9.4 million of ARS issued primarily by municipalities and insurance
companies that have experienced failed auctions due to lack of liquidity at the time their interest rates were to reset. The recent negative conditions in the global credit markets and the financial services industry have prevented some investors
from liquidating their holdings, including their holdings of ARS. As a result, certain of these types of securities are not fully liquid and we could be required to hold them until they are redeemed by the issuer or to maturity. We may experience a
similar situation with our remaining ARS. In the event we need to access the illiquid securities, we will not be able to do so without a loss of principal, until a future auction on these investments is successful, the securities are redeemed by the
issuer or until maturity. As of September 30, 2008, the carrying value of all ARS was reduced by $2.8 million, from $9.4 million to approximately $6.6 million, reflecting the change in fair market value. Although the ARS continue to pay
interest according to their stated terms, based on valuation models and an analysis of other-than-temporary impairment factors, recognized losses of approximately $0.1 million and $1.2 million have been recorded for the three and nine months ended
September 30, 2008, reflecting the portion of ARS holdings that we have concluded have an other-than-temporary decline in value. If the credit ratings of the security issuers deteriorate or if uncertainties in these markets continue and any
decline in market value is determined to be other-than-temporary, we would be required to adjust the carrying value of the investment through an impairment charge, which could negatively affect our financial condition, cash flow and reported
earnings. There is no guarantee that we will be able to liquidate our remaining ARS or might have to incur further recognized losses. In addition, since the beginning of 2008, two of our ARS investments have been downgraded to credit ratings of B3
and Baa2, respectively, and it is possible that our remaining ARS investments may be subject to additional credit rating downgrades, which could affect the value of the securities and any ability we may have to liquidate these securities in the
future.

*The uncertainty of the current economic and political conditions could harm our revenues and operating results.

Current domestic and global economic conditions are uncertain. The recent turmoil in the economic environment in many parts of the world may continue to put pressure on
global economic conditions. Our revenues and operating results may be affected by uncertain or changing economic and market conditions, including the recent crisis in the credit markets and financial services industry. If global economic and market
conditions, or economic conditions in the United States or other key markets, remain uncertain or persist, spread, or deteriorate further, we may experience material impacts on our business, operating results, and financial condition.

*Our cash asset-backed loan line are maintained with financial institutions which given the current financial crisis may not be fully insured or available.

We maintain significant amounts of cash and cash equivalents at financial institutions that are in excess of federally insured limits. Given the
current instability of the financial services industry, there is no guarantee that we will not experience losses on our cash deposits or that our asset-backed loan line will be available for borrowing, or that we will be able to obtain future lines
of credit.

*Our stock price has been and may continue to be volatile, and your investment could suffer a decline in value.

The trading price of our common stock has been volatile and could be subject to wide fluctuations in price in response to various factors, many of which are beyond our
control, including but not limited to:



| |  |  | actual or anticipated variations in quarterly and annual operating results;
| | - |  | ---------------------------------------------------------------------------



| |  |  | announcements of technological innovations by us or our competitors;
| | - |  | --------------------------------------------------------------------



| |  |  | our success in entering into, and the success in performing under, licensing and product development and commercialization agreements with others;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | securities analysts earnings projections or securities analysts recommendations; and
| | - |  | --------------------------------------------------------------------------------------



| |  |  | general market conditions out of our control, including the recent crisis in global financial markets.
| | - |  | ------------------------------------------------------------------------------------------------------



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The stock market in general, and the NASDAQ Global Market and the market for life sciences companies in particular, have
experienced extreme price and volume fluctuations that may have been unrelated or disproportionate to the operating performance of the listed companies. There have been dramatic fluctuations in the market prices of securities of biotechnology
companies. These price fluctuations may be rapid and severe and may leave investors little time to react. Broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance. Sharp drops
in the market price of our common stock expose us to securities class-action litigation. Such litigation could result in substantial expenses and a diversion of managements attention and resources, which would seriously harm our business,
financial condition, and results of operations.



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|Item 6. | Exhibits
|------- | --------



|(a) | Exhibits
|--- | --------



|              |  |                                                                                                                           
|------------- |  | --------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Document                                                                                                   
|              | 
|3.1 (1)       |  | Restated Certificate of Incorporation of the Registrant.                                                                  
|              | 
|3.2 (2)       |  | Bylaws of Registrant, as amended.                                                                                         
|              | 
|4.1 (1)       |  | Specimen common stock certificate.                                                                                        
|              | 
|10.1 (3)      |  | 2006 Equity Incentive Plan, as amended.                                                                                   
|              | 
|31.1          |  | Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).                          
|              | 
|31.2          |  | Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).                          
|              | 
|32.1          |  | 18 U.S.C. Section 1350 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|              | 
|32.2          |  | 18 U.S.C. Section 1350 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



|(1) | Incorporated by reference to the Registrants Current Report on Form 8-K filed June 6, 2006.
|--- | --------------------------------------------------------------------------------------------

|(2) | Incorporated by reference to the Registrants Current Report on Form 8-K filed December 7, 2007.
|--- | ------------------------------------------------------------------------------------------------

|(3) | Incorporated by reference to the Registrants Current Report on Form 8-K filed June 2, 2008.
|--- | --------------------------------------------------------------------------------------------



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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                        |  |  |  |                |  |                        
|----------------------- |  |  |  | -------------- |  | -----------------------
|                        |  |  |  | Sequenom, Inc.
|                        |  |  | 
|Dated: October 31, 2008 |  |  |  | By:            |  | /s/ Paul Hawran        
|                        |  |  |  |                |  | Paul Hawran            
|                        |  |  |  |                |  | Chief Financial Officer



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